Retirement sometimes has a tendency to sneak up on us, but it isn't the only thing. Paying for your children to attend college can happen sooner than you are ready for it too. Trying to save money for both at the same time can be a major challenge for families.
Let's start with retirement. It's never too early to start saving for retirement. The earlier you start saving for when you aren't working anymore, the more money you can save. Usually with retirement savings, you are investing money. If you start investing earlier, you have a longer amount of time for that money to grow and help you save even more. In the ideal world, you should start saving for retirement in your 20s. Just $50 a month could generate as much as $75,000 in 30 years. That's with a high investment return of 8% compounded monthly, but you get the idea. Even if you are past your 20s, it isn't too late to start planning for retirement.
So, how much should you save for retirement? That depends on what you want to do during retirement, when you want to retire, and what expenses you expect to have when you are no longer working full time. The general rule of thumb: save as much as possible. One way to save more is to increase your contributions by a small amount each year. This can make a big impact in the long run but it will have less of an impact on your day to day living.
In order to help yourself and your family save more, look at what expenses can be trimmed or even cut altogether. That can be something as simple as limiting the number of lunches or dinners you eat out a week or not stopping to grab a coffee on your way to work every day. That can cut your expenses back a little and that money can then be invested in a retirement account.
Social Security usually replaces about 40% of the average worker's income after retirement. If you want to continue living the same way you have been, the other 60% is up to you. You can sign up for a My Social Security account in order to keep an eye on that part of your income.
So what about paying for college for your kids? Kristi Hill, a financial consultant with West Michigan Financial Services, a division of West Michigan Community Bank says it is better to save for retirement than for college if you absolutely cannot save for both. She says you can make some compromises to help you out when it comes to saving, but it is better to err on the side of retirement.
Some things to think about if you are hoping to save for both:
- Deferring retirement can help you save more money and postpone digging into retirement savings.
- Cutting back on expenses in your day to day living can help you save more money for retirement or college.
- Increasing your family income, by finding a better paying job, finding an extra job, or asking someone else to begin working can help provide more financial leverage.
- Expect your child to contribute to their own education. They can use summer jobs to save up some money to pay for the costs of higher education.
- Look at less expensive options for higher education including community colleges, trade schools, schools where your child has a higher scholarship, or schools that cost a bit less.
- Student loans are to help finance college. There isn't something like that for retirement.
What are some of the best ways to save money for retirement?
- Use an employer sponsored savings account
- Use an IRA
- Talk to a financial expert in order to form a plan for saving.
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