By The AllGen Team
You might find saving difficult. If that’s the case, thinking about saving for your child’s education and your retirement at the same time might seem overwhelming. However, with planning, starting early, and communicating openly, you can do both without sacrificing one for the other.
If you’re feeling the pressure of putting money away for the future while paying for your present needs, you’re not alone. A financial independence survey from Bankrate found that 37 percent of parents sacrifice saving for retirement to help pay their adult child’s expenses.
Working with a financial advisor at AllGen Financial Advisors Inc. can help you find the balance between saving for your child’s education and your retirement, starting with how to approach the issue.
Key Steps to Help Pay for College and Retirement
Prioritize Your Retirement
As a parent, you might find it hard to put your retirement savings ahead of seeing your child receive a college diploma, but there is sound reasoning for this to be your first step. By prioritizing your retirement, you make sure you won’t become a financial burden later, which in turn supports your child’s long-term financial stability.
Your child can explore multiple funding avenues for college—scholarships, grants, work-study programs, family support, and even student loans (which we do not recommend). However, you don’t have those choices for your retirement. As most of your retirement funding will typically depend on you, it is important to find a balance between funding your retirement and saving for your child’s education.
Start Saving Early
Whether for college or retirement, time can be your greatest ally. The sooner you start, the better the odds of fulfilling your goals as more time allows you to contribute consistently, even small amounts to both goals. Compound growth can have a powerful impact over 10, 20, or 30 years. Automating contributions through a 401(k), IRA, Pre-paid tuition plans or 529 Plan helps you stay on track without having to think about it.
Open Tax-Advantaged Accounts for Retirement and Education
You want to open your retirement accounts before getting to work on savings for your child’s college. The good news is there are savings accounts for both, and they offer you tax advantages that allow your money to work harder for you. Another key factor is that you are in control of your contributions.
Here are retirement and education accounts to consider:
Retirement
You can open one or all three of the following:
- 401(k): Pre-tax contributions grow tax-deferred
- Traditional IRA: A lower annual pre-tax contribution that grows tax-deferred
- Roth IRA: After-tax contributions that can grow and be withdrawn tax-free
If your employer matches a portion of your 401(k) contributions, you’re also getting free money.
Education
Once your retirement account is set, you have two tax-advantaged ways to save for your child’s education.
- A 529 Plan: Tax-free growth and withdrawals for qualified education expenses
- Pre-Paid Tuition Plan: Plans that allow you to lock in future tuition costs at current rates.
- A Coverdell Education Savings Account: More flexibility and tax-free withdrawals
Talk to Your Child
When your child is in high school, discuss the cost of a college or university education, their expectations, and their options. This can help you get on the same page. This is critical as our country faces a major student loan crisis. Therefore, it is important that a family have a plan when it comes to funding college.
Enter the conversation prepared with how much college might cost and how you can save. Discuss whether your child should contribute, and go over options such as scholarships, student loans, working, or attending a more affordable school.
While potentially a tough conversation, an open and honest conversation can help mitigate many future financial headaches for your child.
At AllGen we are committed to mitigating such situations as we offer a complementary financial literacy bootcamp to teenagers in efforts to better equip them for such major financial decisions.
Partner With a Financial Advisor
Your child’s education and your retirement are two important financial goals. While planning for retirement should take priority, you can save for both future events.
The goal is not to choose between your future and your child. The goal is to create a plan that honors both. Partnering with a team of financial advisors will help you you maximize your resources and move forward with confidence.
At AllGen Financial we help you do just that. Through personalized financial planning, we guide you in understanding where you are, clarifying your goals, and creating a strategy to walk through your path to financial freedom.
We invite you to schedule a complimentary meeting by calling (407) 210-3888 or emailing advisors@allgenfinancial.com.
About AllGen
Based in Orlando, Florida, AllGen Financial Advisors, Inc. is an independent, fee-based Registered Investment Advisor (RIA) firm dedicated to helping individuals and businesses maximize their financial resources. The AllGen team comprises trusted advisors, each with specialized skills, providing comprehensive guidance and tools to clients at any stage of life or socio-economic position to experience and maintain financial freedom. AllGen offers highly tailored financial planning and investment management, helping clients understand their current financial situation and define their future goals. The team develops and executes customized plans to pursue these goals, managing and tracking investments and financial progress along the way. Known for being relatable and approachable, AllGen’s advisors leverage their vast experiences, education, and interests to make complex financial concepts understandable and personal. At AllGen, clients are treated as individuals, not just numbers.
Important Disclosures: The information provided here is of a general nature and is not intended to answer any individual’s financial questions. Do not rely on information presented herein to address your individual financial concerns. Your receipt of information from this material does not create a client relationship and the financial privileges inherent therein. If you have a financial question, you should consult an experienced financial advisor. Moreover, the hiring of a financial advisor is an important decision that should not be based solely upon blogs, articles, or advertisements. Before you hire a financial advisor, you should request information about the financial advisor’s qualifications and experiences. Past performance is no guarantee of future results. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed. Examples provided are for illustrative (or “informational”) purposes only and not intended to be reflective of results you can expect to achieve. AllGen Financial Advisors, Inc. (AllGen) is an investment advisor registered with the SEC. AllGen does not provide personal financial advice via this material. The purpose of this material is limited to the dissemination of general information regarding the services offered by AllGen. The Disclosure Brochure, Form ADV Part II, which details business practices, services offered, and related fees of AllGen, is available upon request.
