Whether you should save for college or retirement is a tough choice--find out how to prioritize your finances. Get the Money Girl book at http://MoneyGirlBook.com
Money Girl
352 MG A Parent’s Dilemma: Save for College or Retirement?
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In addition to this show, I also write a free newsletter with tips and answers to listener questions that don't make it to the weekly podcast. You can sign up at quickanddirtytips.com. While you're there, also connect with me on social media, subscribe to the podcast on iTunes, or read a transcript of this show, which is episode number 352, called A Parent's Dilemma, Save for College or Retirement. Griselle asks, "I'm 42 years old and just started saving for retirement a few years ago. I'm contributing enough to max out the employer match for my 401(k), and I'm also putting money aside to build an emergency fund. Since I got a late start, should I contribute more for retirement or begin saving for college for my 14-year-old son?" Whether you should save for college or retirement is a tough choice that many parents have to make. In this episode, I'll give you guidance and key facts to keep in mind, so you know the right way to prioritize your finances. Being a parent means you've got lots of financial stress. You want the best for your children, but you also need to make smart decisions for your own future. The cost of college rises faster than hot air, but we're living longer and will likely have less social security to count on, so we need a huge retirement nest egg. Ugh, the pressure! According to Sally Mays, how America saves for college 2014's study, 89% of parents say that college is an investment in their child's future. However, only half of all families with children under the age of 18 are saving for college. The report shows that families who are saving deserve a pat on the back. They put away 30% more this year compared to last year. High-income families save an average of over $27,000 for college and low-income families save under $4,000. And middle-income families are saving an average of just over $12,000. When non-savers were asked why they aren't more financially prepared for the cost of a child's education, the answers were not surprising. 58% said they don't have enough money. 22% said their kids will qualify for financial aid or scholarships, and 21% said they just haven't gotten around to it yet. I love learning, and anything that makes learning easier. If you're a parent and your child needs some homework help, then Ixcel is a right for your family. Ixcel is an online learning program for kids covering math, language arts, science, and social studies. Ixcel has interactive practice problems for topics from pre-k to 12th grade, and everything is organized by grade and subject. As kids practice, they get positive feedback, awards, and explanations for wrong answers. Ixcel figures out what your kids need more help with and recommends more topics to practice. Their videos, lessons, sample problems, and learning games too. One subscription to Ixcel gets you all subjects and all grade levels. Membership started just $9.95 a month. It's no wonder Ixcel is used in 95 of the top 100 school districts. I think the positive feedback that Ixcel gives is really crucial when it comes to learning. So make an impact on your child's learning, get Ixcel now, and money girl listeners can get an exclusive 20% off Ixcel membership when they sign up today at ixcel.com/moneygirl. Visit ixcel.com/moneygirl to get the most effective learning program out there at the best price. Banking with Capital One helps you keep more money in your wallet with no fees or minimums on checking accounts and no overdraft fees. Just ask the Capital One Bank guy. It's pretty much all he talks about. In a good way. You'd also tell you that this podcast is his favorite podcast too. Oh really? Thanks Capital One Bank guy. What's in your wallet? Terms apply. See CapitalOne.com/bank. Capital One N.A. Member FDIC. If you've ever felt like the auto repair business is broken, you're not alone. Everybody's over it. From talking down to selling up to car-splaining mechanics, you're just done putting up with BS, bad service. At Midas, we're on a mission to redefine car care. Where get this, we talk to you like a real person, helping you plan for today and down the road. Imagine that. We're driving forward with this in mind. We're out to Midas, but we're putting an end to BS. What about a student's responsibility to pay up? The Sally May study found that high-income families are actually the most likely to say they aren't saving because their child should foot the bill for college. While it might seem cold-hearted for a parent to refuse to pay for a child's education, don't forget that kids have options. For instance, they can go to a relatively inexpensive state school or community college, get a grant, get a job, take out federal student loans, or qualify for a scholarship based on scholastic, athletic, or philanthropic achievements. On the other hand, for parents, there are no loans or grants to support you after you stop working, except perhaps a meager social security income or a windfall inheritance. Even with the best of intentions, paying for college can backfire. Unless you're planning on having your educated kids support you, saving for college should be a lower priority than saving for retirement. Here's a quick and dirty tip. If you're less than 20 years away from retirement and you haven't reached 80% of your savings goal yet, don't sacrifice a penny for college. Instead, focus exclusively on building a healthy retirement account by maxing out tax-favored accounts, such as a 401(k) or IRA. And by the way, having money in retirement accounts doesn't hurt your child's chances of getting student financial aid. Now, if you're less than 20 years away from retirement and have saved at least 50% of your goal, then perhaps saving a third the cost of a mid-price college would be a reasonable compromise. Your child could pay one-third the cost by working while they're in school, and the remaining third could come from federal student loans that your child takes out. And if you win the lottery or end up with a surplus of retirement savings, you could always pay off a child's student loan debt down the road. But here's a word of caution. Don't get antsy and break your retirement piggy bank to pay for college. Not only does that rob from your future, but early withdrawals are typically subject to income tax plus a 10% penalty if you're younger than age 59 and a half. Instead, create a financial plan that includes both college and retirement savings as soon as you start a family. No one said it will be easy. To accomplish both, you might have to cut expenses, get a second source of income, send your child to a less expensive school, or work longer than you'd like. The sooner you start saving, the less stress you'll feel both psychologically and on your budget. And if you're like Rossell and get a late start, don't feel guilty. Remember that putting retirement first is actually in your entire family's best interest. I'm glad you're listening to Ching. That's all for now. Courtesy of Money Girl. Your guide to our richer life. Nice ride. It's Toyota's All Electric SUV, the BZ4X. You're saying this thing runs on just electricity? I mean, it's called All Electric. I thought it's called the BZ4X. It is. And it's All Electric. The All Electric Toyota BZ4X. Is it time to reimagine your future? The right business skills may make a difference in your career. 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