How to save for retirement and a child’s college at the same time

Why is saving for both retirement and college important?

While you may have more immediate financial needs, it’s important to start saving for retirement and college as early as possible. Why? Because achieving these goals is vitally important to your future—and to your child’s. Plus, you’ll need a lot of money to accomplish these goals, and the sooner you start, the more you can leverage the power of compound growth. For instance, starting a college fund at your child’s birth could give you 18 years of growth, while beginning retirement savings early in your career could provide 40–50 years of compound growth.

How does compound growth work?

Compound growth happens when your money earns interest, and then that interest earns interest, too. For example, if you invest $100 at a 10% annual return, you’ll have $110 after one year. But in year two, you earn interest on $110, not just the original $100, so your money grows faster over time.

How much does college cost?

College costs can vary widely, but for the 2024-25 academic year, the average annual cost, including tuition, fees, housing, and meals, was $24,920 at public four-year institutions and $58,600 at private nonprofit universities.¹

How much do I need to save for retirement?

Estimating your retirement needs can vary, depending on your goals. Some experts suggest saving $2–3 million, while others recommend aiming for 10 times your preretirement income. These are general guidelines, so for a more accurate estimate, consider using our retirement savings calculator or consulting with one of our financial professionals to create a customized retirement strategy.

How to get started: Determine your financial needs for each goal

While saving for college and retirement at the same time may seem daunting, it is possible if you identify your financial needs and objectives up front. Here are just a few factors to consider:

Retirement

Your timeframe: Probably the most crucial factor in preparing for retirement is determining when you would like it to begin. That decision lets you know how much time you have to save and gives you some idea of how long you will need your retirement assets to last.

Your lifestyle: Think about the lifestyle you would like to lead when you retire. Do you want to travel, or will you be happy staying in one place? Do you enjoy going out or prefer a quiet evening at home? Do you plan to downsize your home—or want to buy a second place so that you can change locations with the seasons? Once you know what you want, it will be easier to plan for it.

Your expenses: While retirement expenses may be hard to predict right now, you can start to assess your overall health and financial responsibilities to get some idea of your needs. For example: Do you or your spouse have any lingering medical conditions or is there a family member who will need ongoing financial support?

Your resources: Look up the balance of your current pension or employer-sponsored retirement plan and estimate where it will be when you retire. You should also look at how Social Security benefits are calculated to get a sense of how much you will receive from Social Security when you retire.

College

Your time frame: Here again, it’s important to calculate how many years you have until your children start college. That will help determine how aggressively you need to save.

Your expectations: Do you want your children to go to a private or public university? Do you prefer that they remain in-state, or would you consider out-of-state options as well? Do you think they will qualify for financial aid or scholarships?

Your capacity: How much help are you planning to provide? Do you plan to cover 100% of their expenses, or would you prefer that your kids contribute as well? Are you comfortable with them taking out student loans or will they need to work part-time to cover some of their expenses?

Of course, these are just some of the factors you may need to consider before coming up with a plan. If you could use a little guidance, one of our financial professionals will be happy to help predict your retirement and college funding needs.

Figure out how much can you afford to put aside

Once you figure out what your financial needs are for both goals, the second step is to determine how much money you can afford to set aside monthly.

Analyze your budget: Make a list of income and expenses to see how much money you have left over each month. Eliminate any unnecessary items but try to leave a cushion in case an unexpected expense pops up. Whatever is left over, you can afford to put away.

Prioritize smartly: If you have limited funds and have to choose between saving for retirement or college, it’s usually best to make retirement your top priority. That’s because your children may have access to student loans and scholarships, but there are no such programs set up for retirement. What’s more, contributions to a 401(k) and other employer-sponsored plans may be eligible for matching dollars, so putting that off would be like turning down free money.

Automate saving: No matter which goal you choose, make sure your contributions are automated so that they come out on a regular basis. In some cases, you can have manageable amounts deducted from each paycheck or electronically transferred from your bank account. That way, you take a steady, disciplined approach to saving and are methodically making progress toward your goals.

How to save for retirement

There are lots of ways to save for retirement, but the fundamentals are basically the same: use tax-advantaged tools like 401(k)s and IRAs to steadily invest, defer taxes, and build a portfolio that you can use to fund your retirement. If you’d like to discuss specific options, or could use some additional guidance, you are always welcome to contact one of our financial professionals.

Ways to make college more affordable

If your financial circumstances make it difficult to invest in a 529 plan^*, prepaid tuition, or other college savings plan, you may need to find ways to make college more affordable for your children. Here are just a few ideas:

• Your child can attend a local community college for two years and then transfer to a four-year university or college.
• Encourage your child to take dual enrollment or advanced placement (AP) classes in high school to complete some of their college requirements in advance.
• Suggest that your child participate in a work-study program or look into organizations such as AmeriCorps or Teach for America that help pay for college.

Summary

If you, like many of us, are juggling multiple financial responsibilities, it can be difficult to save for retirement and a child’s education at the same time. With some careful prioritizing and planning, however, it can be done—especially if you work with a New York Life financial professional who can put a host of tax-advantaged tools at your fingertips and help guide you along the way.

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*529 plans are offered through NYLIFE Securities LLC (member FINRA/SIPC), a Licensed Insurance Agency and a New York Life Company.

¹The College Board, “Trends in College Pricing 2024 Presentation,” Slide 7. https://research.collegeboard.org/media/pdf/Trends-College-Pricing-2024-presentation.pdf