With a new year, it’s time to review important goals in life, including financial goals.
Older savers likely have a number of financial goals to reach, but two of the big ones—your retirement and your children’s college education—may seem difficult to do simultaneously.
This is where talking to a financial advisor and writing a plan can make a difference. A recent goal-planning study conducted by TD Ameritrade showed that savers with a plan have double the savings—nearly $461,000—versus those without a plan, nearly $240,000—and have higher financial goals, too. And 8% of those confident in their plan expect to reach their retirement and long-term savings goals, too.
Savings Goals: Retirement and College
The American Institute of Certified Public Accountants (AICPA) said that ideally, savers will pursue both goals at the same time, and a financial advisor may be able to help savers allocate funds between the two, along with choosing investments for both.
“Just because you're pursuing both goals at the same time doesn't necessarily mean that the same investments will be appropriate. Each goal should be treated independently,” the organization said.
When deciding how much to save for college, the institute said parents need to consider how many of their children may attend, when they will enroll, scholarship and financial aid possibilities, and whether the kids will go to private or public colleges.
“Even if you can allocate only a small amount to your child's college fund, say $50 or $100 a month, you might be surprised at how much you can accumulate over many years. For example, if you saved $100 every month and earned 8%, you'd have $18,415 in your child's college fund after 10 years,” they said.
Savings plans such as 529 plans are a great way to save for college, as they may offer tax-deferred earnings growth and tax-free distributions; some states offer tax breaks as well. Parents control the accounts, they’re low-maintenance, and they allow you to change investment options, according to Savingforcollege.com.
Put Retirement First
Try not to use retirement savings for college. As the AICPA puts it: “Your child can always attend college by taking out loans—or maybe even with scholarships—but there's no such thing as a retirement loan!”
A good first start is to use an online retirement calculator, but for a more complete picture, a financial advisor can help you figure out whether you’re on track for retirement and if you need to take additional steps to save more.
Will you be turning 50 during the calendar year? If so, you may be able to make catch-up contributions to a workplace savings plan or IRA using pre-tax or after-tax dollars, according to 401khelpcenter.com. Workers under 50 can put up to $18,000 a year in 401(k)s, but people over 50 can tuck away an extra $6,000 on top of that.
Saving for two big goals may be difficult, but with a little help, it’s not impossible.
Hands-On Goal Planning
Planning for tomorrow involves setting financial goals today. Are your plans and strategies on track?