Retirement is inevitable and sooner or later, consumers will come to a point where they need to stop working and rely on whatever amount they were able to save up to get them through their financial need. This can come because of old age and a person’s inability to continue working or even because of health reasons where age becomes a huge factor.
Retirement is a decision made easier when you have the financial capability to rely on your savings. If you have enough funds even before you reach average retirement age, you can choose to enjoy the remainder of your days without having to work. Gallup.com shares that about 40% of Americans are looking to retire after age 65 but having the money before then can make retirement an easier decision.
On the other hand, if you were not smart with your old age fund, you might be forced to keep on working well after retirement age. Though there are some people who make it a conscious decision to work, some are forced to because they simply do not have enough in their retirement fund. Trying to strike a balance between saving up for retirement and saving for a child’s college education is a tough place to be in.
Just to put that into context, here are some of the benefits of acquiring a college education
Better chance of getting higher pay
There are some notable people who have gone off to build great companies without having to go to college. However, that is more of an exception rather than the rule. It is better to have a college education because it increases your chances of securing a better job. With a better job comes a better pay compared to people holding high school diplomas. This is actually one way of positively impacting your financial position in life.
Better career opportunities
Having a college degree also opens up a lot more opportunities when compared to high school graduates. This puts young adults on a better career path. It also helps them widen their options. This allows them to pursue things that they want in life. This can lead to a more balanced way of living having to work at something they are passionate about.
There are some college graduates who want to further increase their chances of success in their chose field. The opportunity provided by a college education is the chance to take on postgraduate studies. This higher form of education further hones the skills and knowledge of a person preparing them for even bigger responsibilities.
Now that you see the value of higher education, do you save for retirement or for your children’s college education? Here are some thoughts to consider about your retirement plans.
Taking out a loan
One of the main considerations when you are trying to decide whether to be aggressive with your retirement planning or in saving for your children’s educational fund is the access to loan options. It is no secret how would-be college students and even those contemplating post-graduate studies have access to student loans to pay for their cost of attendance.
This can be from the federal government or even from private lenders. Although WSJ.com shares that about 40% of borrowers are getting behind on their payments, the idea still remains that there is an option for college and post-graduate studies when it comes to finances. This is more than what you can say with your retirement fund.
It is because you cannot really take out a loan for your old age needs. You cannot walk to a bank and ask for a loan to address your retirement needs. The bank would be hesitant to sign off on a loan because you no longer have a steady stream of income.
529 plan vs 401 (k)
These two are some of the most important financial planning tools you will ever need. However, if you find yourself pressed for funds and having to choose between the two, what is more important? You know that the 529 plan is meant to save for school costs and your 401(k) is for retirement. With that in mind, which of the two is a likely event to come to fruition?
As previously mentioned, there are ways to take out a loan for school needs. But a 529 plan can greatly reduce the amount your children need if they ever attend higher education. There are community colleges as well as scholarships and grants they can use if and when they go to school. You cannot say the same thing when it comes to your retirement.
Getting old is inevitable so it follows that retirement is not a question of “what if?” but “when?” You will have to retire sooner or later and will have to rely on whatever amount you saved up for your needs. This chalks up a point to the retirement fund and that you should put more attention to it over college funds.
At this point, you have seen the pros and cons between the two. If you are bent on making sure that you are able to save for both of them, here are a few things to consider.
Look at your budget
You need to make sure that your budget is able to support saving up for both of these funds together with all other financial obligations. As you put together your finances, determine how it affects other expenses and plans you have. It could be taking away from other funds such as your reserves. Or a better look might reveal that you can actually juggle the two in your budget.
Monitor the fund level
As you make contributions to the two accounts, it is a good idea to monitor your fund level. This is to help you ensure that you are on schedule with the two. It also prevents you overextending your resources or undercutting your other funds. The key here is balance and ensuring you are able to allocate your funds accordingly.
Max out your 401(k) retirement fund
This might be a little confusing especially after the need to balance out your funds. However, maxing out your 401(k) allows you to grow your money better. It also puts you in a good position to take advantage of a company matching program. This is like free money being given by your employer. You just need to look at the vesting schedule if you have plans of moving to another company.
Include your child in saving for college
It is a good idea to include your child’s efforts when you are trying to save up for a college education. Talk to them about how much they need to target for their fund. Tell them that as you add on to their fund, they can also do the same. Whenever they get money gifts from family and friends, they can deposit it to that account. If they choose to work over the summer, they can put the money into that fund as well.
Saving for retirement and college funds will always be a littered with pros and cons. The idea is to look for a way to put into both funds without overextending yourself.