Deciding on the balance between saving for college or retirement can be a tough choice, which ultimately depends on your individual circumstances and priorities. At iWealth, we largely take the approach of telling our clients to “put their own oxygen mask on first” to borrow the airline analogy, as it’s vital our clients are able to retire comfortably. Here are some important factors to consider when deciding what is the right approach for you and your family:
Time Horizon: Retirement typically has a longer time horizon than saving for college. If you start saving for retirement early, you can benefit from compound interest over several decades. On the other hand, college savings have a shorter time frame, especially if your child is already approaching college age.
Priority: While both goals are important, you may need to prioritize one over the other based on your financial situation. It’s generally recommended to prioritize saving for retirement because there are no loans or financial aid options for retirement like there are for college. Additionally, at retirement often a person’s body may be forced to quit working, while their kids are most often fully employable.
Financial Aid: Keep in mind that there are various options available for funding college, including scholarships, grants, and student loans. However, there are limited options for retirement funding. You may want to focus on maximizing these college funding opportunities before dipping into retirement savings. While no one prefers to go into debt, it’s worse to go into debt at retirement age.
Retirement Accounts: Retirement accounts such as 401(k)s and IRAs often offer tax advantages that can help your savings grow faster. Consider taking advantage of these accounts and contributing as much as you can, especially if your employer offers matching contributions.
Education Savings Accounts (ESAs) and 529 Plans: These are specifically designed to help you save for education expenses and offer tax advantages. Contributing to these accounts can help you save for college while potentially reducing your tax bill.
Balancing Both Goals: If possible, aim to balance saving for both college and retirement. It may require careful budgeting and prioritization, but with proper planning, parents can often work towards achieving both goals simultaneously.
Ultimately, it’s essential to assess your financial situation, consider your long-term goals, and make a plan that aligns with your priorities and values. Our iWealth team is here to assist you with your plan to ensure that your finances meet your unique desires.
