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What's More Important - Saving for Children's College or Your Retirement?

A college education. Retirement. What do these major life events have in common? One shared characteristic is that each comes with a price tag. So how do you make the choice?

A college education. Retirement. What do these major life events have in common?

One shared characteristic is that each comes with a price tag. Here's another: If you have school-age kids, you might be facing the challenge of having to decide which goal to save for. They're both important. So how do you make the choice?

Here are some suggestions that can help you reach a sensible solution.

* Eliminate excuses for not making a decision. Procrastination can be costly. For example, to accumulate $100,000 in five years, you'd have to deposit a little over $1,500 every month in an account that earns 4%. But with a ten-year time horizon, assuming the same return, you can build up $100,000 by socking away less than half that amount, or approximately $700 per month.

What you need to know: Estimate the total amount required for both goals, how much time you have, and how much cash you'll need to set aside on a regular basis.

* Expand your resource horizon. Once you've computed the expense side of the equation, figure out how much you can afford to save. You may find that, with one pool of income and two goals, there's not enough money to fully fund both goals.

But who says you have to pay for everything yourself? Turn an obstacle into an opportunity by searching out alternatives. For instance, while your income in retirement may be dependent in large part on your savings, there are plenty of options for paying college tuition.

Where to look: Investigate the possibility of advanced placement credits while your child is still in high school. Other potential sources of help include scholarship prospects, federal work/study programs, and summer internships.

* Adopt a flexible approach. Broadly speaking, you have three alternatives for divvying up your available savings between the two goals. You can save for retirement only, save for college only, or opt to do both.

Yet within each alternative are creative strategies. As an illustration, you could start out by saving strictly for retirement, shift toward saving for college when your child reaches a certain age, then switch back after graduation.

Caution: Be careful of falling into the deadline trap. It's likely your kids will attend college before you retire. Since the tuition deadline is closer, you might be tempted to reduce or eliminate retirement plan contributions in the early years of your savings plan in order to focus on education savings.

But consider this: A typical retirement will generally last longer and cost more than your child's education. By putting college tuition first, you could end up with less than you need in your retirement nest egg. Instead, take your overall time horizon into account.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Fiscal Conservative November 08, 2012 at 11:41 AM
Neither will exist in 10 years. Face it, they will be a thing of the past very shortly. Don't worry, though, People will not be working either, by then. There will be no jobs, people will lose their "drive" to be productive. Govt will continue to print money, "distribute" it to everyone. All will receive the same amount. Things will be "wonderful". No work, no schooling...nothing but play in the future. We, as a species, have found the way. Ooops, I guess there will be some unfortunate who have to work. Money has to be printed and distributed to us. Some have to grow food, some have to sell it, some have to build cars...gas, someone has to refine it. Our perfect world is going to hell. How unfair that some will have to work while others won't. I guess govt can't be fair to everyone, as it says it can.

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