Retirement vs. college? Clarify your family’s goals and unpack this perpetual savings conundrum.
Diapers, formula, school clothes, piano lessons, visits to the doctor … sound familiar? It’s no secret that being a parent is expensive. So, when it comes to saving for college and planning for your own retirement, it can be a real balancing act. If you’re looking at your finances and trying to figure out how you’ll be able to save for both, don’t panic. While it might take a little juggling at first, it can be done. Here are some helpful guidelines to plan for your family’s successful future.
» Start with retirement savings.
Financial experts recommend that your priority should be to focus on saving for retirement first. Look closely at your household budget, identify your net income, and get a clear picture of where your money goes monthly. Once you have your planning budget, determine if your employer has a retirement contribution match and use that as your minimum contribution. For example, if your employer will match contributions up to 6 percent of your salary, contribute the full 6 percent. The employer match is essentially free money, so it’s a great thing to take advantage of. Experts recommend putting away at least 10 to 15 percent of your yearly gross income for retirement.
» Determine your college savings goals.
Do you want to pay in full for a private university? Maybe you’ll just want to partially fund an in-state school. As a family, decide how much you are willing to save for college. (Several candidates in the 2020 presidential race have shared their desire to make college free. But even if one of those candidates wins the White House, there is no guarantee that all universities will be totally free of charge.) There are several options for setting up a college savings plan, and one of the most efficient and tax-friendly ways of doing that is with a 529 College Savings Plan. Natalie Berning, Raymond James Financial Advisor at OnPoint Community Credit Union, says, “Contribute monthly. Speak with a financial professional if you need assistance figuring out the exact amount you need to save for college to reach your goal — it will depend on many factors including how long the child is in college, what return you can earn on your savings, and estimated college cost inflation.”
Berning also adds that if your budget only allows you to save a small bit, you shouldn’t be deterred. “Families should resist feeling like only contributing a small amount isn’t worth it — contribute what you can, every little bit helps,” she says. “When you get a raise at work, even if just a cost-of-living increase, increase your contribution amount as well.”
She also suggests making sure that the college savings account you’re opening will be owned by either the student (your kid) or the student’s parent (you). If accounts are owned by someone else, like a grandparent or aunt, it could impact financial aid eligibility.
» Get creative.
To help boost savings accounts, encourage your family to contribute to the student’s college account in lieu of, or in addition to, gifts. When your child is entering high school and college is right around the corner, ask grandparents or other important family members if they wish to contribute to upcoming college costs. Another way to get creative? BottleDrop now lets recyclers transfer funds from their BottleDrop accounts directly to their Oregon College Savings Plan accounts.
» Just do it.
No matter how large or small you decide to start, the important thing is to develop a savings habit where money is being put away on a regular and consistent basis. Even if you save a little each year, you’ll be much better off than if you didn’t save at all.
For more info on saving for retirement and college, Berning recommends these resources: