Five Ways to Save for College & Retirement

As our children get older, we start looking more closely at saving for college and retirement.  Being a work-at-home parent makes it even more necessary to start setting aside money for our future, as I don’t have an employer doing it for me.  Like many Americans, living paycheck to paycheck can make it difficult to set money aside for college and retirement.  Did you know that the cost of a college education continues to rise faster than inflation, about 5 percent per year?  Did you also know that the average sticker-price for four years at a private college is now more than $150,000?  Even going to your state’s university runs about an average of $17,131 a year, according to the College Board.

I don’t know about you, but that sounds REALLY scary and overwhelming to me – especially considering that fact that between Frank and I, we have 6 kids!  Well retirement is gonna be even more expensive that!  Thankfully, I found a great article, entitled, “Savings: Five Ways to Save For College and Retirement,” and there were some great ideas to help us get started.

1.    PUT RETIREMENT FIRST.

I recently learned that student loan debt has risen above $1 trillion and the average student’s debt at graduation now exceeds $25,000, according to the Project on Student Debt.  To keep their children from being financially overburdened by college costs, many parents often times unwisely sink thousands of dollars into their child’s education – money that otherwise would have gone toward their own retirement.  Paying for college has to take a back seat to retirement, says Kalman Chany, a New York financial aid consultant and author of “Paying for College Without Going Broke.”  He suggests to first making sure that your retirement savings are on track before pitching in lots of cash for college.

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2.    START EARLY ON COLLEGE SAVINGS.

It is important to start saving money early for college, especially as the costs of tuition continue to rise.  “People who can save even $25 or $50 a month can amass a decent-sized college account,” says Lynn O’Shaughnessy, a college consultant and author of “The College Solution.”  A great way to save for college is by setting up a 529 college savings plan, which allows you to take advantage of the tax-free withdrawals for education costs.

3.    SET ASIDE 11 TO 15 PERCENT OF PAY FOR RETIREMENT.

There isn’t really a recommended set amount of money you should have for retirement, but it is generally thought that you’ll need to make anywhere from 70 percent to 85 percent of your pre-retirement income to maintain a similar standard of living in retirement.  To reach this level of financial security, many financial planners say to focus on saving 11 percent to 15 percent of pay over a 40-year career.  This sounds really overwhelming when you have house payments and maybe even college debts of your own.  But remember that this amount can come gradually.

A good way to start is by contributing 3 percent to 401(k) accounts if your employer offers them.  Or up to 6 percent if that’s what you need to contribute to qualify for the company’s free “match” money.  Then, if you get a raise, you can put all but 1 percent toward your retirement account.

4.    INVOLVE YOUR CHILD IN THE COLLEGE PLANNING PROCESS

Start talking to your children at an early age about the importance of going to college.  You might even consider setting aside part of your child’s allowance for college savings, which conveys to your child that the financial responsibility will be shared.  When your child gets to high school, you can then start talking about the numbers.  Let your child know how much money you will be willing to contribute towards his or her college education.

5.    WORK AT REDUCING THE COST OF COLLEGE.

I don’t know about you, but I love avoiding paying full price on pretty much anything!  There are several strategies that can help you avoid paying full price for college tuition.  One is to encourage your child to graduate a semester or two early.  Taking as many Advanced Placement courses as possible in high school and perhaps a community college class or two in the summer, could give a student a full year’s worth of college credit.  Spending the first year or two at a local community college before transferring to a four-year college can also reduce the cost of college expenses.

Another way is to strategically apply to colleges.  Many parents assume that their state university is the least expensive option, but often times, this is not the case.  Many private colleges offer extremely generous merit aid to students with strong grades and standardized test scores, even if your child wasn’t at the top of their class.  Some states even offer reciprocity for students from neighboring states to attend without paying out-of-state tuition costs.

“Some families are willing to just break the bank” for their kids’ college education, O’Shaughnessy says.  “They shouldn’t.”  Especially if they want to have a comfortable retirement too.

This post was inspired by Genworth Financial. All opinions expressed in this post are 100% mine. For more information about long-term care, visit the Genworth Financial website.