College Savings 529 Plan

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College Savings vs Retirement Savings

As both the costs of college and the cost of retirement rise, at some point you will probably step back and ask yourself,

“How can I possibly save for retirement while still putting away money for my kids’ education?”

You hit a crossroad where you want to provide for your children, but also want to make sure you can retire comfortably.

Now comes the hard truth; planning for your retirement is a more pressing matter than funding your children’s education for a multitude of reasons.

  1. You can always fund education from other sources besides savings, such as scholarships, grants, and even loans. On the other hand, your retirement cannot be funded by scholarships or loans.
  2. Currently student loan rates are generally lower than what you can make by putting money in retirement investment.
  3. The federal financial aid formula ignores assets in tax-sheltered retirement plans but assesses up to 5.6% of other parental assets so it might harm your student’s chances for financial aid if you have too many assets outside of retirement plans. 

So we recommend that before you put any money into college savings, you should ensure all of your retirement savings goals are being met.  Additionally, by forgoing tax-favored retirement accounts, such as a 401(k), you not only miss out on any employer match but also lose the tax benefit and opportunity for long-term growth that these accounts offer.

Still, it is very possible to save for both retirement and college. The best way is to start planning for both education and retirement early. This way you can put a little bit away at a time and allow your savings to gradually build through the years. The ‘Rule of 72’ tells us that time is your most valuable asset and compound interest is your friend.

The ‘Rule of 72’ applies to both retirement and education savings. So if you do want to do both

  1. start early and
  2. be consistent

to take full advantage of your most important factor: TIME

Even if you missed out on saving early but want to strive to meet dual goals, or just want to see how you may be able to save and grow your money more effectively, we are here to help. We value education, but also realize the importance of security in your retirement. We will build a personalize plan with you to help you realize your retirement goals and further discuss the feasibility and options for simultaneously saving for your children’s education.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and investors may incur a profit or a loss.