Helping your kids pay for college and saving for your retirement are two of the biggest financial investments most people will ever make.
But many people don’t do a good job of planning for them, and they don’t make good, smart decisions in these areas.
That’s why it’s always important to ask three key questions when thinking about planning for college and your retirement:
- Do you know if you’re on track for retirement?
- How old are you and how much time do you have left to save and invest?
- How much do you think you’re going to spend on college, and how will that impact your retirement?
As a financial advisor and college planning specialist, I frequently meet parents who don’t know the answers to these questions or aren’t doing enough for retirement or college (or both).
For a big chunk of the population, they already know the answers, and they’re not good. Many aren’t planning and saving enough, or they think they’re unable to do it. So they believe they’re screwed.
Many are resigned to doing nothing or ignoring reality, figuring they’ll just deal with the consequences.
But if you want to have a shot at a comfortable retirement and you don’t want college to blow it up, you have better options. You can figure out where you are, where you need to be, and then take advantage of smart strategies. These include saving, adjusting expenses, tax strategies, mortgage refinances, and other changes that can help you do more financially and do it more efficiently.
It’s not an easy thing to figure out and do, but it’s the bottom line if you care about helping your kids pay for college and having a comfortable retirement.
Do you want to make smart decisions with an understanding of their impact, or do you just want to do nothing or make bad decisions?
If you’d rather be smart and make better financial decisions, then you’ll have to do some planning. And it’s easier than you think if you’re willing to put in the effort.
How a Little Planning and Strategy Can Go a Long Way
For a lot of people, planning for college and retirement doesn’t have to impact your lifestyle very much, as long as you’re really efficient.
For example, if you simply save and invest 10% of your income for your whole life, you’re probably going to be fine in retirement. If you’re used to earning $50,000 per year and you only save $5,000 per year toward retirement, that money plus Social Security will still be pretty decent relative to a $50,000 per year lifestyle.
Things get even better if you have higher income and you can save and invest more, or do it more efficiently.
Then there’s college, where you can potentially save 10% to 20% on your costs by doing some relatively simple things:
- Figure out how much college will really cost based on your family income.
- Discover how to qualify for and maximize need-based or merit-based financial aid.
- Learn about student loans and how to avoid them or borrow at the lowest cost.
- Find the right school for your student’s goals and your family budget.
- Learn how to use 529 plans and tax savings to help pay for college.
There are many smart college planning strategies that can help you save and pay for college while making your children’s college dreams come true.
Maybe you’ll have to take on some debt to make it to work. Maybe you’ll have to pay back some loans at $10K per year to pay them back quickly. But it’s usually easier to pay off loans when your kids are grown and flown, and there are some other great strategies you can use.
There are many great financial strategies you can use, and here are a couple of examples based on recommendations I’ve made for my clients:
Example #1: Restructuring Debt
I often develop financial plans for parents who are currently spending about $3,000 per month on all their debts. To help them pay for retirement and college, I tell them I’m going to restructure their debt. They’re going to continue to pay $3,000 per month, but they’ll do it for the next 15 years and not just until their new car is paid off, their mortgage is paid down, or they get rid of some other shorter-term debt.
If they continue to contribute $3,000 per month for those 15 years, they can cover college and retirement. But they’ll also have to hold off on getting a new car every few years or make other changes to minimize their debt.
Example #2: A Slight Delay in Retirement
A father was trying to figure out college for his daughter. She was his oldest child and had a dream of performing on Broadway, and she had been accepted into the prestigious theater program at the Tisch School of the Arts at New York University.
She received a generous offer letter from NYU and would only have to pay half the normal tuition and costs. But NYU is one of the most expensive universities in the world, which meant the cost was still going to be about $35,000 per year.
My client had a decision to make because $35,000 x 4 years is $140,000, and he had four kids. If he committed that much for four years of college, would he also have to commit the same amount for each of his other three kids? That would only seem fair, but it would be a huge total.
On the flip side, he’d done a reasonably good job of saving for retirement and college so far. He had around $100K saved, and he was actually on track to retire at age 60, which was much earlier than he expected.
When we ran more of the numbers, a relatively simple solution emerged. If he did everything really efficiently and redirected some of his financial resources toward college, he could delay his retirement by just two years yet still save and invest enough money to give all of his kids the same amount of money for college if they needed it. And he could still have a comfortable retirement.
Obviously, he would also have to forgo a lake home, a boat, or really expensive vehicles. It’s always a matter of priorities and choices. If he chose not to do college, he could still retire early. Or he could choose to buy a lake home and contribute less to his kids’ college or delay retirement. But with some smart choices, he could pay for college and retire early, which were his top priorities.
In the end, the changes we made would bump up his retirement to age 62, but that was still years earlier than he expected, which was to retire at 65.
For families making relatively low income, the challenges of planning for college and retirement are tougher. If you’re making $50,000 and want to invest 10% of your income toward retirement, that $5K might mean you need to ride public transport rather than have a car. Or maybe you need to buy a used Honda every 10 years as opposed to a new BMW every 6 years.
Age is a big factor in planning for retirement and college too. If you’re relatively young, such as 40 years old, and you have an 18 year-old headed to college, you still have 25 years before you reach age 65, when many people retire. That gives you some time to recover from college and still plan and save.
But if you’re 50 and closer to retirement, you don’t have as much time. You may already be at your peak earning years too, whereas a typical 40 year-old might have raises or promotions in their future (although there’s certainly no guarantee).
How to Start Planning for College and Retirement the Right Way
When it comes to planning for college and retirement—no matter what your age, income or circumstances might be—it’s usually not a question of what you can and can’t do. It’s a matter of priorities. You can always do better with the right choices and strategies, and it comes down to the steps you need to take right now to plan for retirement and college the right way.
Here are a few things you can do to get started:
- Identify your retirement goals and retirement savings targets.
- Start with your age and figure out whether you’re financially on track for retirement.
- Estimate how much college will cost and calculate how much you’ll need to save.
- Figure out what goals you have besides retirement and college.
- Figure out the big chunks of where your money’s going now.
- Work with a Certified Financial Planner® to identify opportunities to make smart moves and save money more efficiently.
If you need help with your initial college planning steps, my College Planning Jumpstart video course is a great place to get started. In the course, I’ll walk you through the entire college financial planning process, give you calculators and tools to help you figure out how much college will cost and how much you’ll need to save for it, and I’ll teach you the best ways to lower your costs and make it more affordable.
You can also hire me directly to help you build a successful college financial plan for your family. Visit the Work with Brad page at my college financial advising website to learn more about my college planning services and schedule an online discovery meeting.
As a Certified Financial Planner®, I can also help you with your retirement planning. I’ve helped hundreds of families successfully with all aspects of planning for the future, including retirement. To learn more, visit me at Baldridge Wealth Management to learn more about my complete portfolio of financial advising services.
Need Help with College Financial Planning?
Hi, I’m Brad Baldridge, a college funding specialist and the owner of Taming the High Cost of
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