Personal Finance: Don't let saving for college ruin retirement
Do you feel as if you have to choose between a college education for your kids and your own comfortable retirement? Are looming tuition bills opening cracks in your nest egg?
If the answer to either of those is yes, you're not alone.
"For many people, retirement saving often comes third—and last—after buying a home and saving for college," says Duane Meek, senior vice president for retirement plans at Nationwide Financial Services. He says he sees far too many people who focus on education savings at the expense of their own retirement. A common practice is to suspend contributions to retirement accounts while kids are in college, which is a big mistake, he says. "During those years you don't contribute, the dollars are lost forever."
But it doesn't have to be that way, says Meek. You can sock away money for your golden years while ensuring that junior can afford a degree. A good rule of thumb, says Meek, is to continue to contribute to your 401(k) plan to get the maximum employer match. "If you don't, you're leaving money on the table." Any additional funds you have can then be put into the appropriate college savings plan.
"When the time comes to pay tuition, there are alternative places you can go for funds," says Meek. "Not so for retirement."
Student financial aid in 2002–2003 rose to a record level of more than $105 billion, according to the College Board, and most students receive some form of aid—usually low-interest loans or grants. Also, don't assume that a relatively high income level automatically disqualifies you from receiving aid. Financial aid administrators often take into account other family members in college, home mortgage costs, and various other factors.
Some other simple tips from Meek:
- Have your child take a part-time job before and during college to contribute. It can make a big difference.
- Ask relatives to contribute to a college savings plan instead of giving birthday and holiday gifts.
- Look into so-called dual-enrollment programs, available in many states, which allow kids to earn college credits in high school.
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