PERSONAL FINANCES: How to save for education while keeping an eye on retirement | Business

It’s no secret that many American parents want to support their children by paying for their college education.

According to recent research from Student Loan Hero (2021 survey), 92% of parents today have already paid or plan to help with these costs. Additionally, 68% of parents say they would consider withdrawing money from their retirement savings, which could delay retirement, to help their children pay for college.

While the option of delaying retirement to pay tuition is understandable and even admirable, the reality is that doing so may not be the wisest financial decision. If you’re considering how to balance saving for college and retirement, read on for perspective.

Prioritize college or retirement bills?

Although it may be hard to hear, saving for retirement should take precedence over college tuition. To understand why, consider the following:

You may not be able to choose your retirement date. An injury, caring for an elderly parent, or a layoff are some of the factors that could ultimately make the decision for you.

You don’t want to run out of money in retirement. If your savings falls short, you don’t have the ability to apply for scholarships, grants, or financial aid to help bridge the gap. (Your child has access to these options to help pay for college.) Instead, your choices are likely to be working longer, finding other sources of income, or spending less on travel and other retirement dreams.

1. Paying for college doesn’t have to be all or nothing. Many parents choose to pay a percentage of the total bill, cover certain expenses (eg, tuition, technology fees, or room and board), pay for a set number of years, or contribute as much as they can save on the first day of school. school instead of financing the full cost. Revisiting your college savings goal in one of these ways could allow you to set aside more money for retirement.

2. If your child has her sights set on grad school, decide if she’ll contribute to those bills, too. This decision is particularly important if your child needs a graduate degree before entering their field of choice. If you intend to provide financial support, estimate how much the total cost will be so you have a clear savings goal in mind.

3. Discuss your intentions with your child. No matter how much you contribute, talk to your child (if and when they’re old enough) about their financial commitment so they know what to expect. Discuss what his contribution will look like at your preferred colleges. For example, if you agree to pay a lump sum, this money may fully cover community college, a substantial amount at a state school, and leave a larger portion of the bill outstanding at a private college. Breaking down the costs for your child can help you make an informed decision about how much student debt (or scholarships, grants, etc.) is needed to cover the bill.

Holley Smaldone-Cragg, CMFC, is a Financial Advisor for Ameriprise Financial in Geneva. She specializes in fee-based financial planning and asset management strategies and has been in practice for over 35 years. her website is ameripriseadvisors.com/holley.com.