Ask an Advisor: What steps can a couple in their early forties with tweens take to balance saving for retirement and funding their children’s education?

Ask an Advisor: What steps can a couple in their early forties with tweens take to balance saving for retirement and funding their children’s education?

Couples in their early forties often find themselves juggling two significant financial goals: saving for retirement and funding their children’s education. Striking the right balance between these goals can be challenging. Here, I’ll explore strategies and key considerations to help you navigate this financial tightrope.

Assessing Your College Funding Commitment

One of the first steps in balancing retirement and education savings is to assess if you are willing to fund less than 100% of your children’s college expenses. This decision will shape your financial strategy and help set realistic goals.

If you are comfortable with a partial contribution, determine the fixed amount you can contribute towards your children’s education. This approach allows you to fund college and retirement savings concurrently. If covering 100% of college expenses is non-negotiable, you may need to consider your options for your retirement savings goal, such as delaying your retirement, getting a second job, cutting back on your current expenses, or modifying your retirement plans, to name a few.

Exploring Educational Paths and Costs: What Degree and Schools Are in the Plan?

Understanding the educational paths your children might take can significantly impact your saving strategy.

Different career paths have varying degrees and costs. A doctoral program is substantially more expensive than an associate’s degree, but both may meet the academic requirements for certain fields. Additionally, the cost of education can vary widely between in-state public universities, out-of-state schools, and private colleges. Researching and understanding these costs early can help in planning your savings. I strongly advise against going to a school based on name alone, and there is research that can lay out a strong argument that more expensive isn’t always better.

Are Financial Aid and Scholarships an Option?

Investigating potential financial aid and scholarship opportunities can ease the burden of college expenses. Explore whether your children might qualify for need-based aid, which can reduce out-of-pocket expenses. Make sure to consider national and local offers from both public and private sources. Encourage your children to apply for scholarships, which can significantly offset the cost of college.

Considering Alternatives to College

In today’s world, college isn’t the only route to a successful career. Exploring alternative education paths can open up new possibilities. Vocational training and trade schools often offer quicker, less expensive routes to well-paying careers. Some children might be inclined towards entrepreneurship, which can also be a viable alternative to the traditional college education with the right mentorship and continuous dedication to learning.

Debt Responsibility: Who Will Bear the Debt Burden?

Deciding who will be responsible for any debt incurred for education is crucial. Discuss whether the debt will be shared between parents and children, or if it will fall solely on one party. Research different loan options and their long-term impact on both your retirement and your children’s financial future.

Planning Your Savings Strategy

Even if college savings is a top priority, I often advise to find a way to at least contribute to your employer sponsored retirement savings account up to the employer match, this is free money being offered to you and it would be foolish not to take advantage of it. Once that is established, the next question I usually get asked about is the differences between a Roth and Traditional 401(k)/IRA. I wrote another article that goes deep into this topic. In short, a traditional retirement savings account is tax-deferred, meaning that you don’t pay taxes on earned income now, but pay upon withdrawal. With a Roth retirement account, you pay taxes on the income in the year it is earned, but get to withdraw it (along with the growth) entirely tax-free.

After establishing a solid foundation for retirement savings, allocate funds towards education savings. Consider opening a college savings account, which offers tax advantages for education expenses. A 529 account is often the best choice, given its high contribution limits and broad list of eligible expenses, but there are other options that might better suit your specific needs. A financial advisor can help you navigate these choices.

Review Regularly and Stay Informed:

Regularly review your financial situation and adjust your savings plans as needed. As your income changes, you may be able to increase contributions to both goals or may have another life event occur that will give you a new financial goal you would like to achieve. It’s also important to stay informed about changes in education costs, financial aid policies, and retirement planning strategies. Congress frequently introduces new regulations on these matters as well, which further shifts the goalposts. By asking the right questions, exploring all options, and maintaining flexibility in your financial planning, you can work towards securing a stable future for both yourself and your family.

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This article was originally published on Wealthtender and is intended for informational purposes only and should not be considered financial advice. You should consult a financial professional before making any major financial decisions. Wealthtender earns money from financial professionals, which creates a conflict of interest when these professionals are featured in articles over others. Read the Wealthtender editorial policy and terms of service to learn more. Wealthtender is not a client of these financial services providers.

About the Author

Andrew Van Alstyne, MBA

Andrew is a financial advisor with Fiduciary Financial Advisors. His mission, on the surface, may not seem different than many wealth managers as it revolves around placing the interests of his clients first, embodying a commitment to impartiality and integrity. But his planning model goes beyond traditional financial advisor services by overseeing every facet of his clients’ financial universe. His aim is to extend beyond only financial management, instead encompassing investments, estate planning, personal concerns, and more, with a focus on optimizing and integrating each component.