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Financial Planning For College Or Retirement
Are you wondering if you should plan and save for your
child's college education or for your own retirement? You can do both!
Here are some great suggestions for financial planning for college and
retirement.
Juggling Retirement and College Savings
Most parents want to pay for their children’s college education, or
at the very least help pay for college. While it would be great for your
children to be able to start like after college without student loans to
pay off, the cost to parents may be too high.
The average annual cost of a 4-year public college is $12,127 (source:
The College Board’s Annual Survey of Colleges, 2005-2006), with 4-year
private schools averaging $29,026 a year. College costs have been
outpacing inflation by rising over 5% per year.
On the other hand, saving for retirement has become even more important
as companies have started freezing or eliminating pension plans, and the
future of Social Security continues to be uncertain.
Paying for both college and retirement will be challenging for most
parents. Here are some suggestions to help you to achieve both goals:
• Have a plan. You should determine how much you will need for
retirement and how much you anticipate your children will need for
college.
• Start saving as soon as possible. Time is your greatest ally, whatever
your savings goal. Figure out how much you are able to save each month,
and setup an automatic plan as soon as possible.
• Prioritize – if you can’t afford to save for both goals, retirement
should take priority over saving for college. Your children can always
borrow for college or earn scholarships; you can not borrow money for
retirement.
• Save for both. Ideally, you’d like to be able to save for both goals
at the same time. If you’re able to, allocate money to both goals. You
may wish to visit with a financial planner to determine how much should
be allocated to each goal.
• Research – there are several different types of college savings
accounts available. Find out which type of account will benefit you the
most before you invest.
• Use retirement accounts to save for retirement and college. Retirement
accounts can be tapped into to help pay college bills (IRA withdrawals
can be taken penalty free for college expenses; Roth IRA contributions
can be taken penalty and tax-free). However, you should only do this if
it will not sacrifice your retirement savings.
The bottom line to getting the most out of your savings - prioritize
your savings goals, have a plan in place, and start early.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
ABOUT THE AUTHOR: Kristine A. McKinley, CFP, CPA, and founder of Beacon
Financial Advisors, teaches individuals and families how to invest and
plan for retirement, college, and other financial goals. Kristine offers
financial and tax planning on an hourly, fee-only basis. To sign up for
free financial planning tips, worksheets, checklists and more, visit
www.beacon-advisor.com
Recommended Frugal Reading
Living On A Dime is known as one of the very best resources of its kind to help you get out of debt without depriving yourself.
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