Ask the Advisor: Which Takes Priority, Retirement or College?

By Jason Persinger

Since 2012, Jason has enjoyed sharing the SchoolsFirst FCU difference, offering objective and caring advice, tailored financial plans and a highly competitive fee structure for investment products. Jason holds the designations of CFP®, ChFC® and CLU®, and is registered to sell securities and holds a California Life/Health Insurance License.

Portrait Of Family Sitting On Steps Outside Home

Like most people, you probably have many financial goals you’d like to accomplish. If you have children, helping them pay for college may top the list.

But the truth is it shouldn’t. When it comes to financial priorities – saving for retirement or college, retirement wins easily. Why? Simply put, there are plenty of options to pay for college but there are no scholarships, grants or loans for retirement. And a typical college education lasts four years, while retirement can last 20 years or more. So if you haven’t been contributing regularly to your retirement, it’s important to start and keep going.

Retirement First

There are many tax-advantaged ways to save for your future, including an employer-sponsored 401(k), 457(b) or 403(b). With these plans, your employer may match your contributions – typically from 2% to 8%, which can really boost your savings. If you can, start by contributing 10% of your paycheck to your plan, or at the very least, take the maximum of your employer’s match, or else you’re just walking away from free money. Once you get into the savings habit, you won’t even miss it. Your contributions will be automatically withdrawn from each paycheck using pre-tax dollars and can defer your tax bill1 until you start making withdrawals at your retirement. Learn more about these retirement plans and contribution limits.

If you don’t have an employer-sponsored plan, or you’re self-employed, consider opening an IRA – either a Traditional or Roth. A Traditional IRA uses pre-tax dollars, while a Roth uses after-tax dollars. Both act like savings accounts with tax breaks. Learn more about IRAs.

College Savings Strategies

Like any long-term goal, saving for college costs is easier to manage when starting early and saving regularly. Even contributing small amounts can make a difference over time. When your children are able to grasp basic money concepts, it’s important that they learn how they can help save for their own education.

As I said earlier, there are plenty of ways to save for college, and moves to make it more affordable. For instance, according to recent statistics2, the average cost of public college is 73% less than private universities, so consider this when school shopping.  And going to a community college for the first two years can make good financial sense too, because it reduces tuition costs significantly. When it’s time, you can make sure to apply for the Free Application for Federal Student Aid, or FAFSA, to be eligible for financial aid, including grants, work-study programs, student loans and scholarships. Learn more about FAFSA.

There are several solutions to get on the college savings bandwagon:

  • College Saver Share Certificate is a great way to start saving for your child’s college expenses.
  • Coverdell Education Savings Account allows contributions up to $2,000 per year, which grow tax deferred and will be tax-free if used for qualified education expenses.
  • The 529 Plan, a tax-advantaged savings plan designed to help you set aside money for education, including college or graduate school—for you, your family, or anyone, at any age.

Encouraging family members to donate to a college plan instead of buying toys is another smart move. For instance, some 529 products provide easy gifting portals online. Also, those gifting can write checks using the 529 account number.

Don’t Borrow From Your Future

Although there’s a lot of news about students suffering from the burden of student loan debt, parents are feeling the pinch too. According to Sallie Mae data, parents’ borrowing paid for an average of 10% of college costs and one third of them said they would help their kids manage student loan payments until they were financially stable. While it’s understandable to want to help your kids as much as possible, make sure you’re paying yourself first with a solid retirement plan, an emergency fund and not carrying a high debt load. After all, you don’t want to be a burden to your adult children when you retire.

Have Questions? Let Us Help

You may be wondering how best to save for your future and meet other financial goals such as paying for college. Our financial advisors provide complimentary consultations to SchoolsFirst FCU Members, and can help you find creative financial strategies tailored to your specific needs. Visit schoolsfirstfcu.org/advisors to learn more.

 

 

 

  1. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. 2. Source: U.S. News Data.

Securities sold, and advisory services are offered through CUNA Brokerage Services Inc.(CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with SchoolsFirst FCU to make securities available to Members. Not NCUA/NCUSIF/FDIC insured, may lose value, no financial institution guarantee. Not a deposit of any financial institution.

CUNA Brokerage Services Inc. is a registered broker/dealer in all 50 states of the United States of America.

 

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Extra Credit provides general information to help improve our Member’s financial lives. Every situation is different, so please contact us for guidance on your specific needs. The advice provided in Extra Credit is not intended to serve as a substitute for speaking to a loan representative, financial advisor, or BALANCE counselor who can help tailor a solution for you.

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