College versus retirement: How to set your savings priorities.
Only you can fund your retirement.Unless you fall into a substantial and perfectly timed inheritance or win the lottery, your retirement income will be based on what you save and invest. . On the other hand, your child can typically turn to a number of financial options to assist with college costs, including federal grants, scholarships, loans and work-study programs. And remember, if you run out of retirement funds, you may wind up leaning on your kids for support – and that could be more costly than a college loan. As a general rule, you should make retirement your number-one savings priority.
Your retirement fund affects your family’s FAFSA.Putting more money into your nest egg may actually increase your student’s college aid eligibility. That’s because many schools don’t include your retirement savings when calculating what you’re likely to contribute to college expenses.
Arm yourself with a strategy.Any time you have multiple financial goals, it’s time to make a plan. Now is no different. There are several strategies for balancing these two goals, and you have to determine which one is best for you. Here are a few options to consider:
- Contribute enough to your 401(k) account to get the full employer match or maximize contributions to any employer-sponsored retirement account and an IRA. Put the remainder of your savings budget toward college savings.
- Put 80 percent of your available funds toward retirement and 20 percent to college savings.
- Start with an even distribution between retirement and college savings. Then, when your child enters college, shift everything to your retirement accounts.