Many parents would do just about anything to give their kids the best opportunities in life. In some cases, they’ll even go so far as working extra hours to make sure their children have access to activities, tutors, etc. that can put them ahead.
Given this, one area that worries many parents is the high (and increasing) cost of college tuition. The price has gotten so high that some parents are tempted to put their kids’ college savings first and cut back on their retirement planning.
Planning for Retirement
While your kids can apply for scholarships to pay their college tuition, you don’t have the same types of resources if you need money during retirement. There is no financial aid for those retiring – Social Security should be treated as a safety net, and not your primary income source in retirement.
If you feel bad because you may not be able to pay for your child(ren)’s college tuition, imagine how bad you’d feel if you had to depend on them to support you in retirement. Believe me… There are many young families dealing with this sort of financial stress right now. I’m sure they’d much prefer for their parents to be financially independent.
Develop your retirement income tripod
If you’re planning for retirement, you should try to have tripod of income streams to support your retirement:
- Employer plan: Depending on where you work, this might be a 401(k), 403(b), 457(b), Thrift Savings Plan, or some combination of the above.
- Personal savings: Whether you have a defined benefit plan at your job or not, you should consider getting a Traditional or Roth IRA, as well.
- Social Security: While the government is trying to solve the long-term finances of Social Security, you might want to consider this to be a backup plan for retirement.
Currently, you can contribute $16, 500 annually to your 401(k) if you’re under 50, and $22, 000 if you’re age 50 and above. The annual elected deferral limit for the Thrift Savings Plan is also currently $16, 500. The same goes for your 403(b) or 457(b) accounts, so you really have no excuses to skimp on saving.
If you haven’t done so already, start contributing a percentage of your paycheck – whatever you can afford. If your employer matches a percentage of your contributions, you can build up your nest egg even faster. The annual contribution limit for IRAs is $5, 000 – $6, 000 if you’re over age 50.
Resources for college students
Have you looked into all of the financial aid available to college students today? If your child has a strong academic and/or athletic record, they may have a number of options – ranging from scholarship foundations to financial aid from their school of choice. You may have to do some digging, but it’s usually worth it.
Consider alternative options for college
What if you and/or your child can’t afford a four year degree at their school of choice? Loans are one option, but there are other good options out there for increasing affordability.
- Attend community college for the first 2 years. Community colleges are usually significantly less expensive than attending a full-fledged university. Just be sure that the credits will transfer to their school of choice. If so, your kids may be able to get their bachelor’s degree for a fraction of the price.
- CLEP some of their coursework. The College-Level Examination Program (CLEP) tests a student’s knowledge in over 33 subjects and courses. Each institution has its own guidelines on how much credit they will give to their students, so your child might want to wait until after they’ve enrolled and take the CLEP exams that the school accepts.
- Get a job. Many students offset at least a portion of their college expenses by working. Depending on the job that they’re able to find, they’ll be able to build up their resume while building their academic record at the same time.
- Apply for scholarships and grants. If you haven’t encouraged your child to do this already, it’s time to start emphasizing the importance of applying for scholarships of any size. Both the FAFSA website and FastWeb can be a tremendous help in your search.
If your child is hard working and creative, there are definitely options out there to make it more affordable.
Your thoughts on saving for college vs. retirement
If you have kids, have you put your retirement savings ahead of their college savings? In other words, do you make sure that you’ve maxed out your various retirement options before plugging money into their 529 account?