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How to Plan for College and Protect Your Retirement

Feb 02, 2021 2 min read

Key Takeaways

  • The sooner you and your family have "the talk," the better.
  • Save what you can. Then save more. And don't stop.
  • You can borrow for college, not so retirement. Pencils down.

 

Sending your kids to college is one of life’s most rewarding experiences. But doing it while planning for retirement can be challenging. Here are seven steps to help you plan for college and protect your retirement.

 

 Transcript Opens in new window

 

1. Talk together

Start sitting down as a family to discuss your philosophy and values about money, the future, and what you can afford when it comes to college. Sharing these details can help everyone focus on schools that meet your kids’ needs—within a budget that keeps your retirement on track.

 

2. See the big picture

Paying for college will impact your entire financial life. Review and prioritize the goals currently in your financial strategy (and if you don’t have a strategy yet, a financial professional can help you create one).

 

3. Do your homework

Research schools to understand the economic value each offers—in addition to tuition, each has its own financial aid calculation that will impact your overall costs. 
Tip: “Reach” schools may not offer as much scholarship aid as “safety” schools.

 

4. Make a move?

State schools offer some of the best values in education, especially for in-state residents. To take advantage of this lower tuition, some families decide to relocate.

 

5. Borrow wisely

Before touching your retirement accounts, you may want to consider a federal government loan or a home equity loan instead.

 

6. Save early and often

Even if college is next month, keep saving—and resolve to increase those savings whenever possible. Include your kids in this decision to help them become lifelong savers. The chart below shows how you can achieve different savings goals, month by month, depending on how many years your kids have until college.

 

How much to save each month if your goal is:

How much to save each month if your goal is:
  $50,000 $100,000 $150,000
3 years until college $1,265 $2,530 $3,794
6 years until college $576 $1,152 $1,727
9 years until college $349 $697 $1,046
12 years until college $237 $473 $710
15 years until college $171 $342 $513

The investment example above is hypothetical and is provided for informational purposes only. It is not intended to represent the performance of any specific investment. The amounts shown do not take into consideration taxes, or investment fees or charges. Actual results and investment risks will vary. 6% return, beginning-of-month deposit, compounded monthly. Actual results and investment risks will vary.

 

7. Spread the word

Family and friends may want to help with college costs. Individuals can give up to $15,000 per year, per child, without tax consequences, which can be very helpful in a 529 Plan account. They can also make a one-time accelerated gift equaling up to 5 years of giving (or $75,000 total) so money can get working all that much sooner.* And they can even make unlimited tuition payments directly to a school on your child’s behalf.

 

What you can do next

The retirement/college savings gap can be a chasm, but you can bridge it by prioritizing, planning and putting smart strategies to work.

 

Footnotes

* IRS Form 709. If you were to die during that 5-year period, a prorate portion of this gift is brought back into your taxable estate for estate tax purposes. Consult your tax professional for more information about your personal circumstances.

 

For Compliance Use Only:1030480-00001-00

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