How to Juggle Funding Retirement and College

In my experience, most people focus on their children’s college goals at the expense of their retirement. Depending on you, you’re paying for private school, cars, homes and food that supports them today. Heck, you’re enjoying having them around. That doesn’t mean you don’t want to retire comfortably. Freshman year of college typically is staring you down sooner than you expected. It captures your focus. So how do you juggle the two?

The first step is to determine what your financial capability is for each goal. Depending on when you start, you will have flexibility. It is important to consider the college and retirement goals together as you may have to reevaluate based on constraints you discover. The following questions can help you get started. (For more from this author, see: How Compounding Benefits Your Retirement Savings.)

Paying for College

  • How much time before your kid(s) start college?
  • Do you want to send them to a public or private college? What’s the expected cost?
  • Do you want to fund the whole thing or a portion?
  • Does your child have any special academic, athletic or artistic skills that could lead to a scholarship?
  • Do you expect your child to qualify for financial aid?
  • Will grandparents be helping? Is there help in writing or a hope?

Funding Retirement Goals

  • How many years until you want to retire?
  • What standard of living do you hope to have in retirement? For example, do you want to travel extensively or will you be happy to stay in one place and live more simply?
  • How much do you expect to receive in Social Security benefits? You can go online to find out.
  • Does your employer offer a pension plan?
  • Do you have a traditional IRA or Roth IRA?
  • Do you participate in an employer-sponsored retirement plan? Do they match? Note: there’s no match for college savings.
  • What do you estimate your balance to be given your current results?
  • How much income do you expect that balance to provide?
  • Do you or your spouse expect to work part time in retirement?

Decisions to Make If You Can’t Fund Both

To do these calculations, you can try an online calculator or hire a financial planning professional. Armed with this information, you can see how much you need to put away for college and retirement. You may find that you can’t save enough to fund both. If so, ask yourself these six questions:

  • Are you willing to delay your retirement a few years if that will close the gap?
  • Are you willing to reduce your standard of living now or in retirement? You might be able to adjust your spending habits now to have money later. Or you may want to consider cutting back in retirement.
  • Are you willing to work into retirement?
  • Are you willing to invest more aggressively, given that would even be wise?
  • Are you okay asking your child to contribute more money to college?
  • Are you okay sending your child to a less expensive school?

You should prioritize your retirement given limited funds and a limited tolerance for investment risk. Don’t wait until your child is out of college to start saving. You’ll miss out on years of tax-deferred growth and compounding. That means that you will have to save extra large amounts of money after your kid graduates to try to make up for lost time.

Ways to Make College Costs Affordable

Remember, your child can always attend college by taking out loans (or maybe even with scholarships), but there’s no such thing as a retirement loan. You can get creative. You could save what you can and supplement what you saved with student loans. Potentially, you could help them pay the loan. I recently learned of a family that allowed their adult son to live with them rent free. What he would have paid in rent, he applied to his loan payments. (For more from this author, see: Investing Within Your Risk Tolerance Comfort Zone.)