Saving for retirement and your child’s education are both crucial financial goals. At O1ne Mortgage, we understand the challenge of prioritizing these objectives. The good news is that you don’t have to choose one over the other. With a well-thought-out plan, you can make progress toward both goals simultaneously. Here’s how you can achieve this balance.

Which Comes First: Retirement or Education Savings?

Financial experts often recommend prioritizing retirement savings over education savings. However, leaving your children to finance their education entirely on their own can be burdensome. For most families, it’s essential to find a balance between these two goals.

Why It’s Important to Save for Retirement

While your child can take out student loans for college, you can’t borrow your way through retirement. Neglecting your retirement savings might force you to work longer than desired and could lead to financial stress in your later years. Experts suggest saving 15% of your income for retirement in your 20s and 30s, increasing to 20% in your 40s and beyond. According to Fidelity Investments, you can expect to spend 55% to 80% of your current income annually during retirement.

Why It’s Important to Save for College

The average annual cost of college tuition and expenses in the United States is $36,436, according to the Education Data Initiative. Scholarships, grants, and federal work-study jobs can help reduce these costs, but many students still graduate with significant debt. This debt can delay or derail their other financial goals.

How to Save for Both Retirement and College

It is possible to save for both retirement and your child’s education with careful planning and preparation. Here are some strategies to help you achieve this balance:

1. Set Goals and a Timeline

Consider your retirement timeline, your vision for retirement, and your children’s college plans. Ask yourself:

• How far are you from retirement?
• When do you expect your children to start college?
• What kind of retirement do you envision, and how much will it cost?
• Will your children live at home or attend college out of town or state?

These answers will help shape your long-term goals. If it feels overwhelming, consider working with a financial advisor to set attainable goals that align with your income and timeline.

2. Determine How Much You Can Set Aside

Break your big goals into smaller savings targets. This might include:

• Choosing a monthly retirement savings goal and updating your 401(k) or IRA contributions
• Setting reminders to increase your retirement contributions annually
• Revisiting your budget to decide on a monthly education savings goal

The 50/30/20 rule suggests allocating 50% of your take-home pay for regular bills, 30% for flexible spending, and 20% for financial goals like saving and debt payoff. Start where you are, even if it’s a small amount each month.

3. Max Out Your Employer’s 401(k) Match

If your employer offers a 401(k) match, take full advantage of it. This is essentially free money for your retirement. The average match is 4.5% of an employee’s pay, according to a 2023 Vanguard report. Contributing enough to secure a 401(k) match can significantly boost your retirement savings.

4. Open a 529 Savings Plan

A 529 savings plan offers a tax-friendly way to save for your child’s education. These state-sponsored investment accounts allow your contributions to grow through mutual funds, ETFs, and other assets. Investment earnings are tax-free if used for qualified education expenses, including tuition, room and board, and course materials. Contributions may also be exempt from state income tax.

5. Automate Your Contributions

Automating your contributions can help you stick to your savings plan. Set up automatic transfers to your 401(k), IRA, 529 plan, or brokerage account. This removes the hurdle of manually transferring money each month and ensures you won’t be tempted to spend it elsewhere.

How to Help Your Child Pay for College

Even with diligent saving, your education fund might not cover the full cost of college. Here are some options to help your child close the funding gap:

• Consider a less expensive college or starting at a community college
• Allow your child to live at home while attending school
• Help your child find and apply for grants and scholarships
• Encourage your child to work part-time or participate in work-study programs
• Update your child’s FAFSA if your financial situation changes to qualify for need-based aid
• Consider federal student loans, which often have better interest rates and borrower protections than private loans

The Bottom Line

Balancing retirement savings and building your child’s college fund may seem like competing goals, but it’s possible to work toward both simultaneously. Setting clear goals, making a plan, and automating your savings can help you achieve this balance over time. Working with a financial advisor can provide personalized strategies based on your financial situation.

At O1ne Mortgage, we are committed to helping you achieve your financial goals. For expert mortgage services, call us at 213-732-3074. Let us help you secure a brighter financial future for you and your family.