5 Tips: Save for College and Retirement Simultaneously

by | May 11, 2018 | Personal Finance 101

Paper or plastic. Cash or credit. PC or Mac.

With May graduations upon us, “college or retirement” is becoming a must-have kitchen table conversation for Millennials (and their parents).

According to the Federal Reserve, borrowers under 30 years old held $376.3 billion in student loan debt in 2017. That’s an average debt of $22,135 per borrower, an average monthly payment of $351, and an average stress level unseen by any previous generation.

It can seem like a Catch-22 for a young person with a new career and an entry-level wage. Investing in retirement prolongs debt. Paying off debt means less compound interest in your retirement account.

It may seem like an impossible situation, but it’s not. Saving for retirement while paying down debt without completely blowing your budget is possible.

  1. Prioritize retirement: We’ll make this easy for you. School comes first when you’re in school. Once you’re out, retirement is priority #1, and the reason is simple: you can take out loans to pay for school, but you can’t get loans for retirement. Neither does retirement offer work study programs or scholarships. What you have at the end is what you get. All retirement experts agree that the longer your window of savings, the better of you’ll be.
  2. Set goals: Type “retirement calculator” into Google. Making a concrete plan is that simple. You can quickly determine exactly how much you should save per month, multiply that by 12, then multiply that by the number of years until you retire. If you know what you want your retirement to look like (golfing, traveling, flying your own biplane across the country, whatever), you’re already halfway there! And this applies as much for parents saving for your child’s school. If Harvard is on the horizon, start early, set a goal, and don’t waver. The rule of thumb is: multiply your child’s current age by $2,000. The product is how much you should have in savings as of that point in time to pay for half of his or her tuition at a four-year public college (on average).
  3. Treat retirement like a debt: Whether you have student loans, credit cards, car payments, or a mortgage, you’ll eventually pay off that debt. A great savings trick is to keep making those payments even when the debt is paid. Rather than paying the bank, pay yourself or your retirement account.
  4. Regularly increase your contributions: As your income rises, so should your contributions to both debts and retirement accounts. Again, a quick Google search can help you decide what percentage of your new wage should go to retirement, debt, and the fun fund. (It’s worth highlighting the obvious here: the less you contribute to the fun fund now, the more you’ll have available when you’re out of the workforce.)
  5. Open a Wealth Builder Account: Having a financial foundation allows you a safety net for the unexpected challenges life throws your way. It’s important to have liquid cash available for those emergencies. Wealth Builder Accounts offer financial safety with the benefit of being quickly and easily accessible.

The age-old argument of “pushpin versus poetry” says that the harder the task the greater the reward. Paying off debt and planning for retirement is no different. It won’t be easy, but that is what makes it worth it in the end.

Contact us today to learn how we can help you plan for your future.