Most parents want to pay for or at least help pay for their children's college education. Even though it would be great if your kids could start their lives after college without having to pay off student loans, the cost to parents may be too high.
The College Board's Annual Survey of Colleges, 2005-2006, says that the average cost of a 4-year public college is $12,127 per year, while the average cost of a 4-year private college is $29,026 per year. College costs have been rising faster than inflation, by more than 5% per year.
On the other hand, saving for retirement has become even more important as companies have started freezing or getting rid of pension plans and the future of Social Security remains uncertain.
Most parents will find it hard to pay for both college and retirement. Here are some ideas that can help you reach both of your goals:
- Start putting money away as soon as you can. No matter what you want to save for, time is your best friend. Find out how much you can save every month and set up a plan as soon as possible.
- Plan ahead. You should figure out how much money you'll need for retirement and how much your kids will need for college.
- Set priorities. If you can't save for both retirement and college, retirement should come first. Your kids can always borrow money or get scholarships for college, but you can't borrow money for your own retirement.
Save money for both. You should be able to save for both goals at the same time, if possible. If you can, put money towards both goals. You might want to talk to a financial planner about how much you should put toward each goal.
- Save for retirement and college by putting money into a retirement account. You can use money from your retirement account to help pay for college (IRA withdrawals can be taken penalty free for college expenses; Roth IRA contributions can be taken penalty and tax-free). But you shouldn't do this if it will hurt your savings for retirement.
- Do your research: there are different kinds of college savings accounts. Before you invest, find out which type of account will help you the most.
To get the most out of your savings, you should prioritise your goals, have a plan, and start saving early.
