How to Balance Saving for Education and Retirement

KALAMAZOO, Mich. -- Balancing dual interests is a part of life. When it comes to investing, you might be trying to achieve many goals, from paying for education to preparing for retirement. Here are some common ideas that can prevent people from reaching these goals.

It doesn't seem like my parents had to save for both at the same time. Why is that?
Many parents nowadays are having children later in life. This means their peak accumulation years to save for retirement often overlap with the time to save and pay for their children’s educations. With traditional pension plans disappearing and college costs rising faster than inflation, these parents are facing increased responsibilities to save.

Can’t my children or I just borrow whatever additional money they need for education?
It’s true that students can borrow to pay for college, but parents can’t borrow to fund their retirement. It’s also important to remember that it’s less expensive to try to save for education now than it is to borrow later. For example, it takes $200 per month to save $35,000 over 10 years with an average 7% return. However, it costs $400 per month – twice as much – to borrow $35,000 and pay it back over 10 years, assuming a 7% interest rate. Student loan rates can fluctuate every year, so borrowing could get more expensive if interest rates rise.

Should I delay saving for retirement until I save more for my children’s education?
Trying to meet both goals may require trade-offs, such as scrubbing your budget to find a way to save more, retiring later or providing less for education. One strategy to avoid, however, is delaying saving for retirement in favor of education, which could put your retirement goal at risk. Time is a very valuable asset, so don’t delay saving for one goal over the other – view them together.

Contact an Edward Jones financial advisor to better understand how your goals interact, so you can work to make sure you don’t negatively impact one when saving for another.


Contact
Edward Jones - Matt McDonald: Financial Advisor
269-345-0783

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