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Balancing Retirement and Education Savings

Saving for retirement and your child’s education are both crucial financial goals. You might feel conflicted about which to prioritize, but the good news is that you can work towards both simultaneously with proper planning and intentional saving.

Which Comes First: Retirement or Education Savings?

Financial experts often suggest prioritizing retirement savings over education savings. However, leaving your children to handle college expenses entirely on their own can be burdensome. For most families, it’s essential to balance both goals.

Why It’s Important to Save for Retirement

While your child can take out student loans for college, you can’t borrow for retirement. Neglecting your retirement savings might force you to work longer than desired and could cause financial stress for your family. Experts recommend saving 15% of your income for retirement in your 20s and 30s, increasing to 20% in your 40s and beyond.

Why It’s Important to Save for College

The average annual cost of college in the U.S. is $36,436. Scholarships, grants, and work-study jobs can help, but many students still face significant out-of-pocket costs. Student loan debt can take years to pay off, potentially delaying other financial goals.

How to Save for Both Retirement and College

With careful planning, you can save for both retirement and your child’s education. Here are some strategies to help you achieve both goals:

1. Set Goals and a Timeline

Consider your retirement timeline, your vision for retirement, and your children’s college plans. Answering these questions can help shape your long-term goals. If it feels overwhelming, consider working with a financial advisor to set attainable goals.

2. Determine How Much You Can Set Aside

Break your big goals into smaller savings targets. This might include setting a monthly retirement savings goal, updating your 401(k) contributions, and revisiting your budget to decide on a monthly education savings goal. The 50/30/20 rule can help allocate your income effectively.

3. Max Out Your Employer’s 401(k) Match

If your employer offers a 401(k) match, take full advantage of it. This is essentially free money for your retirement. Even if you’re saving for college, contributing enough to secure a 401(k) match can significantly boost your retirement savings.

4. Open a 529 Savings Plan

A 529 savings plan offers a tax-friendly way to save for your child’s education. Contributions can grow through investments, and earnings used for qualified education expenses are tax-free. Your contributions may also be exempt from state income tax.

5. Automate Your Contributions

Automating your savings can help you stick to your plan. Set up automatic transfers to your retirement and education savings accounts to ensure consistent contributions. Adjust these transfers as your financial situation changes.

How to Help Your Child Pay for College

Even with diligent saving, you might not cover the full cost of college. Here are some ways to help your child manage college expenses:

• Consider less expensive colleges or starting at a community college.
• Allow your child to live at home while attending school.
• Help your child find and apply for grants and scholarships.
• Encourage your child to work part-time or participate in work-study programs.
• Update the FAFSA if your financial situation changes to qualify for need-based aid.
• Consider federal student loans, which often have better terms than private loans.

The Bottom Line

Balancing retirement and education savings is possible with clear goals, a solid plan, and automated contributions. Working with a financial advisor can help you strategize based on your unique financial situation.

At O1ne Mortgage, we are here to assist you with all your mortgage needs. Call us at 213-732-3074 to learn more about how we can help you achieve your financial goals.

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