Summer is winding down, and it’s often a time of change. Each year, many of us watch as our children go off to school and college. This change is big, not only for the kids, but also for the parents. In addition to the emotional aspects and changes to the daily family routine, it can also mean a big change for your family finances as well.
For the past several years, Sallie Mae has put out a study, “How America Pays for College,” to examine the decisions and funding sources that go into paying for a child’s college education in the United States. The 2013 report found that average costs of college in 2012-2013 was $21,178. Parents paid 27% of that cost, close to $6,000.
The difference between what you have saved for your kid’s college, and what it actually costs, can be large. This gap can lead parents to make some poor financial decisions. For example, this year’s Sallie Mae report found that one out of 10 parents said they are planning to tap into their retirement funds to help pay for the cost of college. While this may solve the immediate problem, it could lead to many more problems down the road if you have to turn to your kids to help support you in retirement.
If your child has just graduated from high school or college, you may be sighing with relief because she has found a job, and you can start putting the money you were giving to her directly into your savings and retirement accounts. But, if your child is like 36% of 18 to 31 year olds in the US, she is still living at home, and likely unemployed.
With these realities, it can be tough to continue to save for retirement. But it is important to keep saving. Start by keeping the basics in mind, set moderate goals, and work to achieve them. Here are three steps and ideas:
1. Saving a little is a big step! Start saving today, with whatever amount you can. Putting small amounts away for many years will add up. Work on putting 10-15% of your income into your retirement account every month. That is a large goal, and one you can build up to. You can also help yourself by helping your children. Get them started on saving now, so they will ask less from you later. WISER has 5 saving tips for young people that can get you started.
2. Find creative ways to reduce everyday expenses. Get a small notebook and track everything you spend money on for 3 months. Then identify patterns that you can change. For example, if you see that you buy two cups of coffee every day, only buy one, and put the money you were using for the second up into your retirement savings. Other ways to reduce your expenses might include driving less and walking more, or taking more public transportation. Remember to utilize public resources, such as your local library, where you can check out movies, tools, and books for free, and your local recreation center, where you can often swim or exercise much more cheaply than at private, membership facilities. Take a look at some of our previous blogs on budgeting to help you find ways to cut expenses.
3. Plan to work longer. Retirement age isn’t what it used to be; people now live longer and are healthier longer. Put off retirement a little longer so that you can continue to save money for an extra few years. If you can, wait to start collecting Social Security after age 65, not before, in order to maximize your Social Security benefits. Learn more about how your benefits can increase.
Wanting to help your kids financially is noble, but it comes with trade-offs. You don’t want to support them financially to the detriment of your own retirement savings. The 2013 Sallie Mae report found that the largest source of college funding actually came from grants and scholarships. So make sure to look into all the different funding sources that are available for college, and make your retirement account off limits. If you want more information about how much money different colleges will cost, check out the Consumer Financial Protection Bureau’s Paying for College website, which has lots of information and handy guides to help you better understand your options.