How to save for retirement and college at the same time

Planning for retirement and saving for educational expenses at the same time can feel hard to balance. Some parents may even feel they have to choose one or the other. But balancing these goals isn’t an all-or-nothing proposition.

With the right plan in place and personalized financial advice, achieving both goals is within reach.

Here are steps to get started:

1. Prioritize saving for your retirement first

Even if you’ve decided to help pay for your child’s college expenses, your priority should still be to save for retirement first. The reason is simple: While there are multiple options for paying for college, from private and federal loans to grants and scholarships, you can’t borrow to fund your retirement. Also, every dollar used for college can mean several less for retirement due to years of compounding and lost investment earnings.

Here are tips to get started:

  • Start saving as early as possible during your working years. This will maximize the time horizon for your investments to grow and give you flexibility when funding other financial priorities later in life. 
  • Take advantage of automatic payroll deductions. If you have a retirement account through your employer, automatic deductions can help you save consistently over time. Consider:
    • Contributing at least the amount your employer will match.
    • Setting your contributions to automatically increase every year.
  • Consider opening additional account types that allow you to save for retirement but are flexible for withdrawals for education without penalty. Setting up regular contributions can help you save effortlessly and incrementally.

2. Open a college savings account

Once you’re on track to your retirement goals, you can confidently turn your focus to saving for your student’s higher education. One of the best ways to start is by opening a college savings account, such as a 529 plan or other tax-advantaged accounts that provide access to a variety of investment choices. 

529 plans allow you to put after-tax money into an investment account on behalf of a designated beneficiary, usually a child or grandchild (though it could be a niece, nephew or even a non-family member). Contributions grow tax free until they’re ready to be withdrawn for qualified educational expenses, which include tuition, fees, books and even loan payments.

Here are tips to get started:

  • Open an account early. If your retirement contributions are adequate, set up a 529 when your child is young (ideally upon birth) to benefit from a longer time horizon.
  • Automate your contributions. Like retirement planning, consider setting up weekly or monthly contributions to a 529 to save incrementally and effortlessly.
  • Let your family know about your child’s 529. Because anyone can contribute to a 529, family members and friends can also help fund the account. In lieu of physical gifts for birthdays and holidays, consider encouraging your family members to contribute to your child’s 529 instead.

3. Talk to your student about costs, expectations, and options

As your college funds grow and you draw closer to your student’s college years, it’s wise to formally discuss goals and options with your student. With college costs rising, it’s important for parents and students to be on the same page.

Here are tips to guide the conversation:

  • Nail down the numbers. Have a clear sense of how much your student may need and how much you plan to save.
  • Set expectations. Be open with your student about your family’s budget and if your student will be expected to contribute in some way. Consider overall financing: How will student loans, grants, and scholarships come into the equation?
  • Explore your options. Discuss the majors and careers that interest your student — including expected salary upon graduation — and which schools may be the best fit. Is it worth exploring alternative options like completing required courses at a community or online college before transferring somewhere else for advanced coursework?

Let’s make a plan

Saving for retirement and for a child’s college education doesn’t have to be an either-or decision. We can provide you with the insights and advice to make informed decisions that strike the right balance for you.