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Retirement Saving Versus College Saving

| March 21, 2017
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Withdrawing savings from an IRA is one option to pay for college tuition. But is it a good idea?

Are you having sleepless nights worrying about how to go about saving for your retirement and at the same time striving to keep some money apart to fund your child’s college education? How do you balance these two very important things? How do you prioritize, or determine which direction to go, which to contribute to or how to do it all? You are not alone in this major challenge. 

Let's look at these questions and how you answer them to help determine some answers:

  1. How many years do you have left before you retire?
  2. How much do you anticipate getting in Social Security?
  3. How much do you wish to have in your retirement account when you do retire?
  4. When (how many years) does your child start college?
  5. Is he/she going to attend a public or private institution (and how much do you think it will cost)?
  6. Do you think he/she will be eligible to receive financial assistance?

If you’ve calculated the numbers on both your expected retirement and college cost and it's just not balanced, what next? Then it’s time to take a proactive stance to prevent future problems in regards to your expectations and, ultimately, define how best to go about it. Seriously, college of course is certainly a crucial objective, however, focusing on your retirement is presumably the better option if you have limited funds (and, if you decide to wait to start saving until your child is in college, you’ll miss out on years of tax-deferred growth and compounding of your money). Note that, your child can take out a loan (or maybe even receive a scholarship or full ride) to attend college, but there is no such thing as a retirement loan!

Sacrifices to achieve goals, for both 

In the long run, there might be the need to make some sacrifices to meet both objectives. Here are just a few ideas:

  • Prolong retirement – the longer you work, the more you can make and you can keep retirement savings for a while.
  • Give a thought to working part-time during retirement
  • Cut down your living standards now, or maybe you can reduce it during retirement
  • Commit your capital by investing (however, do this wisely as it also comes with a greater risk)
  • Prepare and engage in conversation with your child to contribute money either by working part-time or through loans to offset college expenses.
  • You can enroll your child in a less expensive option (community college or state school vs. private school)

While true, retirement accounts can be used to save for college, there may be unfavorable repercussions to doing so. It is therefore pertinent to consult a financial expert to ascertain the best course of action, and to ensure that you are not derailing from your objectives.

And that’s where I come in. Contact me today so I can help evaluate your personal situation and help navigate you to a proactive strategy designed for you so you can meet your future financial needs and obligations. I look forward to assisting you.

Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. GPS Wealth Management and Securities America are separate companies. Securities America and its representatives do not provide tax or legal advice; therefore it is important to coordinate with your tax or legal advisor regarding your specific situation.  The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results.

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