Which Comes First: Retirement or College?

Dear Reader,

It’s an increasingly common dilemma for parents, particularly those who had their kids later in life – planning for retirement while planning for college.

When you need to pay for school for one or more kids, but fund your own retirement at the same time, careful planning and an understanding of the different tools and options available to you is a must.

Once you understand some of the ways you can fund both – and reduce your costs – you’ll get peace of mind knowing that both your own financial needs and your child’s (or children’s) education needs are covered.

Which Comes First — Retirement or College?

Ideally, you already have a little of both, but if you do not, you’ll need to figure out the best way to allocate your assets.

It is tempting to put everything aside for the kids; after all, you want them to have the best possible start in life, and that includes a great education.

Tempting as it is, though, you need to put your own needs first – -or at least equal to your kids. The good news, though, is that you can plan for both, even if you need to allot more income to retirement at first, and there are other ways to reduce your college costs.

Why Parents First?

The same reason every flight attendant on every flight in the world tells you that you should always put on your own oxygen mask first, before helping others do the same. When you have a strong foundation and are not worried about retirement and the future, you are simply better equipped to help others – like your children – succeed as well.

Carefully plotting out your retirement goals and how you’ll get there allows you to determine what you can allocate to college savings funds.

Continue Contributing to your 401 (K)

If you have an employer match, that is a better return on your money than any college savings plan.

Keep investing in your 401K as you save for college and you’ll get the most from your income and any matching offered.

Financial aid and loans are available for students, but not for your retirement, so this savings should always come first.

Retirement Savings are Exempt from FAFSA Consideration

Your qualified retirement investments are also omitted from consideration for FAFSA (Free Application for Federal Student Aid) application, so when you continue to contribute to your retirement plan, you won’t impact your student’s ability to access financial aid to pay for school.

5 Ways to Cut College Costs

Reducing the amount you spend for college is of the best ways to tackle both retirement and college savings at the same time, since you’ll end up with more funds to allocate to retirement without sacrificing a quality education.

From using a 529 savings plan to choosing the right school, you can dramatically reduce your college costs and reduce the amount of worry you have about retirement and college costs.

1. Choose the Right School

Soaring education costs mean that families are turning to in-state schools to reduce costs; if you live near a good school, you can further reduce costs by having your student live at home.

Exploring your local options can help reduce the amount of money you need to come up with.

In-state schools are surging in popularity; according to Sallie Mae, 73% of students opt for in-state schools, and 50% choose to live at home instead of on campus, further reducing costs.

2. Open a 529 College Savings Plan

While every state is different, each offers some form of college savings plan, either in the form of guaranteed tuition, prepaid rates or a true 529 program.

This account can grow at any pace you’d like and the accumulated funds can be used for accredited colleges, technical schools, and other programs; any accumulation is tax-free.

529 plans are used for more than just tuition; books, supplies, room, and board (on campus or equivalent off-campus housing) and more. If your student has special needs, then a 529 plan may even be used for transportation or accommodations needed; transportation needs are only considered allowable expenses for students with special needs, not the general student population.

Some states will also reward your family for using a 529 plan by offering credits or deductions for your contributions, allowing you to reduce your tax burden as you save. If you have more than one child, you only need one 529 plan, since they are easily transferred to another child without taxes or penalties.

3. Encourage Achievements

A well-rounded student with high grades, athletic or artistic ability or a combination of the above has access to more scholarship options and opportunities. Whether your child excels at a sport, exhibits high leadership and community-based skills or has consistently high grades, the rewards can help pay for college.

Begin researching scholarship options and grants based on merit early, they add up quickly and can help offset your overall college costs. Not every child will excel in every area, but there are school, local, community and state scholarships available in most areas and chances are, you’ll find a few worth applying for.

4. Use Financial Aid

Your child can also apply for financial aid to offset the cost of college. Filling out a FAFSA form and submitting it on time is all you need to do to see what your family will qualify for.

Your income and assets will be considered, but your retirement investments will not so you may be able to offset your costs with a grant or financial aid package.

5. Get a Student Loan

Student loans may get bad press at the moment, mainly for the cost of degrees earned and the schools chosen, Your student can use loans to further reduce the cost of school; if you have chosen an in-state school and worked to reduce costs, you may find you only need a small loan to cover your remaining costs.

Paying for College, Saving for Retirement

Understanding how your own state uses 529 plans for college savings and how you can reduce your tax burden while saving can help you strike the right balance between paying for college and planning for your own retirement.

Remembering that for most, college is a 4-year commitment, but retirement can be 30 years or more can help you prioritize and plan.

As with all retirement and savings, working with a financial advisor can help you make the most of your income and assets and protect your funds from taxation.


Brian Rose

Brian Rose
Editor, Brian Rose Uncensored

You May Also Be Interested In:

Cycles, Decentralization, and Return on Violence

Happy Hump Day! I hope you’re having a great week. Pam and I are getting our stuff ready for moving, and I’m also teaching a two-day consumer and private banking course starting today for some graduates. It’s been busy, but I had time to have a chinwag with one of the greats in my industry....

Brian Rose

Brian Rose is an MIT graduate, with a degree in engineering. Upon finishing school, he immediately began working on Wall Street. An advanced technical trader, Brian was trading a book of $100 million at the age of 22. He spent years on Wall Street, working in New York, Chicago and London. He made millions, but...

View More By Brian Rose