Invest Retirement

How To Navigate Retirement While Paying for College

Rebecca Jones  |  May 2, 2022

You want to save for retirement, but you also want to help put your kids through college. Here's how to navigate these competing priorities.

We buy their favorite snacks, make their doctor’s appointments, schedule their summer camps, and ultimately, we want to give them the best. So naturally, when it’s time to pay for college, we want to be able to help our kids chart the most affordable course possible.  According to the Education Data Initiative, the average cost of college in the US stands at $35,331 per student, per year including tuition, books, supplies, and daily living expenses. It’s a lot. Add to the mix that many of us are also looking to fund our retirement at the same time we’re helping our child with college expenses. How, exactly, do we manage with such expensive competing priorities? 

As Moms, we know all too well the emotions, feelings, and fears associated with retirement savings and the desire to help our children with college. “As a single mom, I contribute all I can each month to my 401(k) for retirement, in addition to funding my IRA when I am able to do so,” says Meredith Nelson, Senior Vice President of Marketing for Southern States Bank. “But next year when my daughter goes to college,  I do have to consider that I may have to at least cut back my contributions to help pay for those college expenses,” Nelson says. “My fear though is that I won’t have enough to live on when I retire, and by the time I do retire, where will we be with social security?” she says. So, what’s a mom to do?

Understand Your Emotions — And Never Sacrifice Your Own Future 

“Not only is this situation common, it is extremely common,” says Erin Wood, Senior Vice President of Financial Planning & Advanced Solutions at Carson Group. Taking from your 401(k) or cutting back your contributions to help pay for college may seem like a good plan initially.  “But any financial advisor, however, will advocate for you to avoid dipping into that 401(k),” Wood says. 

The problem with pulling from your retirement accounts to pay for college is that once you take that money, it won’t benefit from time in the market during which it can grow, so you potentially miss years of compounding interest. Also, if your employer offers a match, and you’ve reduced your contributions or taken a loan against your account, then you’re  missing out on the free money that your employer contributes on your behalf. 

Another thing to think about is tax considerations, Wood explains. By not contributing to your 401(k), you could be pushing yourself into a higher tax bracket which could also affect your child’s status on the FAFSA. “Probably the biggest reason to avoid dipping into your retirement though is if you are behind, then now you are further behind if you pull money out or contribute less,” Wood says. You are missing out on all of that growth, and at the same time if you are pulling money out, it could negatively impact your finances for years to come. You may have heard before that “there are no loans in retirement, but there are loans for college,” and we couldn’t agree with that advice more. 

Consider A 529 College Savings Account

A 529 college savings plan can be an excellent vehicle for parents looking to stash college cash in a tax-advantaged way. Read more about these plans here. “With college costs these days, there’s certainly not enough to pay for all four years, but it is a starting place for us and we’ll definitely use it,” Nelson says, who started a 529 for her child.

And keep in mind that funding your 529 isn’t all on your shoulders —  if you let family and friends know that you have that 529 for your child in place, that they can contribute to the fund for birthdays, holidays and other occasions rather than offering another unnecessary toy. With some 529 plans, it’s as easy as just emailing your friends and family a link so that they can contribute. 

Candid Conversations With Your Child About College Expenses

When your child is old enough, it’s a good idea to have an open conversation with them about college expenses. “I’ve always talked to my daughter about her attending college, and we’ve already begun talking about how we will manage the financial aspects of it all,” Nelson says. “I’m also confident that I have the support from her father to help pay for college expenses. Combined with her excellent grades and test scores, we are certainly applying and hoping for scholarship money to help out as well,” she says. 

Talking about what you have saved, what you haven’t saved, and strategizing how they will contribute really helps them to have a vested interest, Wood says. You might help them consider more economically friendly schools, a part-time job, schools in-state, a work study program at the college, or employment with a business that offers tuition reimbursement. More and more companies like Target, Amazon, and Wal-Mart are offering tuition assistance. More than likely, after an honest discussion, our children would never want us to compromise our retirement to help pay for their college. And if they’ve  an investment in their education, they may feel they have “skin in the game” and take the experience more seriously, says Wood. 


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