Maybe you still haven’t gotten used to the cost of diapers, but it’s already time to start saving for college.
Saving for your children’s college, while at the same time putting away money for your own retirement, are two huge financial responsibilities that loom over every parent. When it comes to balancing your savings for these two major life events, the key is to start sooner rather than later, according to financial planners.
“The earlier you start to save for college and retirement, the more you can balance both goals and meet both goals,” says Karin Maloney Stifler, an Ohio-based certified financial planner with True Wealth Advisors, LLC. “If you wait, you are going to be forced to direct your savings for retirement and borrow for college.”
Financial planners say it is also very important to remember that saving for retirement is your first priority.
“On a plane, they say to put your oxygen mask on first before helping your children,” Stifler says. “It’s the same thing with your finances─you have to take care of your own financial security first before you pay for their college.”
Andrea Spatz, a certified financial planner in Los Angeles at Lewis M. Wallenksy Associates Inc., says she always reminds her clients that saving for retirement must come first.
“There are no other ways to pay for retirement other than by yourself—there are no scholarships for retirement,” Spatz said. “But there are lots of other ways to pay for college.”
Financial planners say too many parents procrastinate about saving for college.
“You have eighteen years to prepare for this—it’s not a surprise,” Spatz says. “If you put off saving for college even for a minute, it’s going to end up costing you more. You can be so much more aggressive when they are younger.”
Stifler advises that a 529 account is the best way to save money for college. She says to look for ones that have the best investment choices and the lowest costs.
“Even small amounts help,” she said. “Even if it’s just fifteen dollars a month, put something toward your child’s education.”
Tyler and Meghan Nester of Brigham City, Utah are one step ahead of the game. When their baby was just a few months old, they opened a 529 account to start saving for his college education.
They’re investing $250 a month in the account. It sounds like a lot—especially to those of us who are still in procrastinator category—but their financial planner told them that if they continue investing that amount for the next eighteen years, it will only cover about two years of college given the rising costs of education.
They are hoping to boost the account each year by putting in their tax returns and money given to their child as gifts.
The 529 account was attractive to them because it’s flexible, Meghan says.
“You can transfer it from one person’s name to another, so if James got a full scholarship somewhere, we could transfer it to our next child,” Meghan says.
They say they also liked the fact that it offered tax benefits similar to a Roth IRA, but that the fees were lower.
“Putting it in a 529 account where it is invested in stocks was our only hope of outpacing the projected increases in education costs,” she says. “If you plunk it into an account with a three-percent yield, you will never catch up with the costs of education.”
The young couple is also saving for their retirement and making the adjustment to living on one income since Meghan stopped working full-time after their son was born fourteen months ago. It’s a lot to juggle, but they have peace of mind knowing that they are planning for their future and their son’s future—whether that means a state school or a private school.
Spatz urges parents to think realistically—and optimistically—about what kind of higher education they can afford for their children. She says there are many public universities that offer a great education without breaking the bank.
