How To Balance Retirement Savings with Your Child’s Tuition Costs

How To Balance Retirement Savings with Your Child’s Tuition Costs

April 24, 2017

How to Balance Retirement Savings with Your Child’s Tuition Costs

When you become a parent, the rationale behind your financial decisions will likely change, as you will now need to plan for the financial future of your child in addition to your own. This becomes even more apparent when it is time to save for their education and your retirement simultaneously. It might seem like you have to choose one or the other, however, it is entirely possible save for both by implementing these effective money management and cost-cutting strategies:

Strategy 1: Work on Cutting College Costs

Yes, it is possible! Studies show that the cost of attending college increases each year. However, the cost can be reduced with educational scholarships, athletic scholarships and community service scholarships. If your child has a school that he or she wants to attend, check with the school to find out about the scholarships that are available. Resources like are also handy for researching scholarships the college does not advertise. Your child’s high school may even have a database with scholarship and grant information. You can work with your child to help ensure that he or she is eligible for one or more of those scholarships. Alternatively, your child can attend a college with lower tuition costs for the first two years and complete his or her college education at his or her preferred college later. He or she may also be eligible for grants, which the college would determine based on the information provided in its Free Application for Federal Student Aid (FAFSA). Visit their website here:

Strategy 2: Choose Student Loans Wisely

According to the College Board Advocacy and Policy Center, tuition and fees at private nonprofit four-year colleges averaged $28,500 for the 2011-2012 academic year. This was a 4.5% increase from the previous year, and these costs have only increased in the years since. Take this into consideration unless you can comfortably afford to finance your child’s education and have enough left to finance your retirement. It may make better financial sense to have the student use loans to finance the cost of education not covered by grants and/or scholarships. If you choose to do so, you can help your child repay the loans if you can afford to.

Strategy 3: Save for Both at the Same Time

Saving for your child’s education while saving for your retirement can be an ideal solution if you can afford to do both. Under this option, the majority of your savings can be allocated towards your retirement nest egg. Consider that if you only put $200 a month towards your child’s education, and assuming a rate of return of 2.5%, you would have saved about $54,400 after 18 years. This amount can be added to a 529 Plan, where earnings grow tax-deferred and are tax-free if distributions are used for qualified education expenses. If your child does not use the amount that you save in an education savings account or 529 Plan, the balance can be rolled over to another eligible child’s account. Discuss the different education savings plans with your financial advisor for additional recommendations suitable for your specific financial situation. At Sanchez Wealth Management, LLC we utilize a proprietary Retirement Savings Income Calculator to determine your cash flow. If saving for a child’s college tuition is a component of your cash flow, it is important to account for it when understanding your total financial picture. Try it here:

Strategy 4: Save in a Retirement Account

You can add money to a traditional IRA and/or a Roth IRA, where earnings grow tax-deferred. If you are eligible, you can even claim a deduction for the contributions made to your traditional IRA and receive a nonrefundable savers tax credit. These are retirement savings accounts, which means that amounts are intended to finance your retirement. However, if you find that you have no option but to make withdrawals from these accounts to cover educational expenses for your child, the amount that you withdraw would be exempt from the 10% early distribution penalty even if you withdraw the amount before you reach age 59.5.

The Bottom Line

The main thing you should remember is financially speaking, you come first. Your children have more options to finance their education, including loans, grants and scholarships. On the other hand, your only option for financing your retirement is your retirement savings and Social Security income if it is still available at that time. Therefore, if it ever gets to the point where you have to make the choice between your retirement and your child’s college education, you should choose your retirement. A financial planner can help you to decide the best financial path you should take towards both options. Find out how we can serve your financial planning needs here:

Jon Sanchez is a registered representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor. Member FINRA/SIPC.  OSJ Branch: 12671 High Bluff Drive Suite 200 San Diego, CA 92130.  Sanchez Wealth Management, LLC and IFG are not affiliated entities.  CA Insurance Lic. #0772626.

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