The first step is to determine what your needs are for each goal.
• How many years until you retire?
• What monthly income needs will you have for one or both spouses?
• Do you or your spouse expect to work part-time in retirement?
• How much will our Social Security and if available, any pensions provide?
• How much in retirement savings will we need to have saved?
• How many years until our child(ren) start college?
• Will they attend a private or public university?
• Do any of the children have special academic, athletic or artistic skills to obtain a scholarship?
• Do we want them to have some “skin in the game” by saving themselves or obtaining student loans?
Next, figure out what you can put aside each month by preparing a detailed family budget with your income and expenses and start dividing up an amount to save for each. Though college is an important goal, the burden is on the investor more than ever to save on their own since pensions are becoming mostly a thing of the past. So, if you wait until your kids are through with college, you’ll miss out on all the tax-deferred growth you could have achieved by contributing the maximum, (plus any additional you can afford) into qualified retirement accounts like 401(k)s and IRAs. Remember, your kids can always attend college by taking out loans or hopefully getting a scholarship, but last time I checked, there is no such thing as a retirement loan!
If you can’t meet both goals, consider some other options. Defer retirement or work part-time during retirement. Reduce the standard of living during retirement or tighten your belt prior to by cutting some of the “extras’ we think we need now. Send your kids to a less expensive school or start them two years at a community college after which they can transfer to a larger university.
The most important thing is to start EARLY and not wait until you’re paying for these expenses out of pocket rather than letting time work in your favor with compounding returns on your investments!
Opinions expressed are those of the Thomas Fleishel and are not necessarily those of Raymond James.