How to Save for College and Retirement

fortpitt in Investments, Retirement Planning 25 September, 2023

The future is right around the corner, and with it will come various new expenses to manage. As you advance in your career and build your net worth, you’ll see retirement on the horizon. Sooner yet, you’ll send your children off to college. Retirement and college tuition payments are important to include in your budget. A financial strategy that sets aside money is needed for them both.

The financial advisors at Fort Pitt Capital Group are here to help you budget for the future. This article offers tips you can use to form a saving strategy as you prepare for retirement and your children’s college tuition along with our webinar, ‘Will College Costs Wreck Your Retirement?’

Prioritize Retirement Savings

Retirement should be the first priority on your long-term savings list because it is one almost certain part of your future regardless of your family status. If you have children, there is a chance that college won’t be the best option for them. That means starting your retirement savings before a college fund creates enough of a financial base in your retirement account that you can roll back its budget later and still feel comfortable. 

Start a College Savings Account When Your Child Is Young

Begin saving for college when you have a child, ideally after allowing your retirement fund to take shape. Saving for education early is important so that you can build enough money to position your child for success after graduation. 

Starting early means you’ll have plenty of time to build their fund, and there’s a chance you may not even need it. Your child may earn an academic or athletic scholarship. They may also choose a different career path that doesn’t require a traditional college education. Click here to learn how to handle unused 529 Funds. 

Planning Goals, Expectations, and Options

Planning is important when saving for anything major like college or retirement. A steadfast financial plan starts with understanding your financial needs now and in the future. Calculate how much you’ll need for retirement and college tuition payments, then assess your income to see how much you can afford to set aside. Break your long-term savings goals into yearly, monthly, and even weekly increments, then set aside as much as you can with each paycheck to reach your goals while meeting your immediate financial obligations. Click here to download Fort Pitt’s free personal budget spreadsheet.

Retirement Planning and Options 

Forming a retirement savings plan starts with an assessment of your monthly expenses. Your retirement savings end goal depends on your lifestyle. You’ll need to save enough to meet your current expenses if you want to keep living how you live today. Your retirement fund should reach your current salary multiple times over so that you can continue living comfortably for multiple years. Setting aside about 15% of your income for retirement each year is common.

There are two conventional ways to save for retirement — individual retirement accounts (IRAs) and 401(k)s:

  • IRA: An IRA is a personal retirement account offering tax advantages. There are numerous types of IRAs. Traditional IRAs offer the potential for tax-deductible contributions. Roth IRAs yield tax-free distributions. 
  • 401(k): A 401(k)is a company-sponsored retirement account. Your employer will offer contributions matching up to a certain percentage. The more you contribute, the more your employer will match. 

College Savings Planning and Options 

A college savings fund should max out as close to each child’s tuition as possible. A four-year degree will cost $100,000-$200,000 in total, depending on the type of school your child attends. Scholarships will reduce the cost of college, but it’s best to assume the least amount of financial aid. You’ll have roughly 18 years to save, so build your budget in a way that allows you to get as close to the full tuition as possible. Saving $500 a month for 18 years will allow the fund to surpass the $100,000 mark. 

There are two common types of accounts for college education — 529 plans and Coverdell Education Savings Accounts:

  • 529 plans: A 529 plan allows you to contribute as much as you want up to your balance goal, which is ideal for fast growth. There are no taxes for 529 growth or withdrawal, provided the monies are used for educational purposes, per the rules for your 529 program. There are things you can do to avoid paying penalties on a 529 refund- click here for more details. 
  • Coverdell Education Savings Accounts: A Coverdell Education Savings Account is a government account you can use to cover educational expenses without taxes in the first 30 years of your child’s life. There is a maximum contribution of $2,000 annually for these accounts. 

For more details and additional options, check out our article, How to  Save For Your Baby’s Future. 

How Fort Pitt Capital Can Help

Fort Pitt Capital Group helps individuals and families plan for major expenses at every stage of life. Our financial advisors will sit down with you to analyze your financial situation, understand your long-term goals, and develop a savings strategy that gets you there. Some individual financial services you may consider include:

Work With Fort Pitt Capital Group

Building a prioritized financial strategy will help you afford college tuition payments and post-retirement expenses comfortably. Fort Pitt Capital Group’s financial services will put you on the right path so that you maintain steady growth. We encourage you to contact us online for more information on our wealth management services. 

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