Don’t Let Your Savings Goals Get Sidetracked

Save for retirement or for your children’s college tuition? Which financial goal should you focus on more? Well, it just so happens you should focus on both. It’s a story of conflicting emotions that happens all the time. Many parents want to help their kids get a good college education, yet they know they need to save for their own retirement. And although it’s not easy, it’s important to be able to achieve both goals at the same time and not postpone saving for the goal that’s farther off: retirement. If your children enter college before you retire, they’ll need the savings money first. Therefore, it might seem sensible to save for college first and then, once they’ve completed their studies, save for retirement. But that’s a risky strategy. We all know that going to college today can be very expensive—and who knows how much tuition costs will have risen when your kids are ready to go. Even so, you’ll probably need much more money to retire. And your retirement could last for over 20 years, inflation could increase the cost of living during that period, and health costs could be significant. So if you save first for college, it’s likely that by the time you finish paying off college expenses, you won’t have time to save enough for a financially healthy retirement. The fact is, you should put money away to meet both goals in parallel. Your best ally: a retirement plan Your employer’s retirement plan can help you save for both goals. Your contributions to the plan are deducted from your check before you receive it, so saving for retirement becomes more convenient. In addition, you don’t have to pay state taxes on contributions to the plan made before you deduct taxes, or on any profits you earn from investing those funds, until you withdraw money from the plan. So you can focus on generating savings separately for your children’s future college expenses. Get your savings goals on track If you save:            In 30 years, you could accumulate: $68.92 a Week      $300,000 $137.84 a Week    $600,000 $206.76 a Week    $900,000 This is a hypothetical example for illustrative purposes only, and does not represent any specific investment product. It assumes an average total annual rate of return of 6%, monthly deposits to the plan, and monthly capitalization. Return on your investment will be different. The money that you accumulate in your tax-deferred retirement plan may be subject to taxes upon withdrawal. Don’t take your eye off the ball Even while you’re saving for your children’s college expenses, it’s important for you to save as much as possible toward retirement. Your children will have a number of options available for financing their studies—scholarships, loans, and part-time jobs—while during your retirement you may have limited resources and need to be self-supporting. Social Security benefits almost certainly won’t be enough to allow you to live comfortably. If your employer doesn’t offer its retirees pensions, your retirement account may be an invaluable source of income for your golden years. Contributing more to your retirement plan could help you meet your goals and the challenges that crop up in that stage of the road. Source: DST The information and general descriptions contained in this article are designed to help you understand about the factors that you should generally consider when evaluating the appropriateness of any strategy or investment in your retirement plan. Any descriptions herein are solely for informational and educational purposes and for your independent consideration; is not intended to be viewed or construed as advice or as a suggestion for you to take (or refrain from taking) a particular course of action. In providing this information, we assume that you are capable of evaluating the information and general descriptions contained herein and exercising your independent judgment.