Younger parents are often faced with the
difficult choice of taking care of long-term
retirement needs or steering efforts toward
ensuring future college expenses are
handled. Both may be a long way off, but
each will likely require significant savings
and growth via intelligent investing.
Plan Accordingly
It’s important to have a sense for how
much money will be needed in order to
realistically evaluate options and plan
successfully. If you want $1 million to
withdraw from in retirement, that amount
may determine your current savings priority.
After all, if you’re 10-20 years away from
retirement with little accumulated savings so
far, then it is likely time to buckle down and
sock away a significant portion of income in
the coming years. Be sure to take advantage
of retirement plans such as a 401(k) or
403(b) for pre-tax savings plus potential
employer matching contributions. And
with a long-term horizon, plus more years
in retirement, maximize the allocation to
global stocks for increased growth potential.
Maximize Your Savings
Consider strategies that would lessen
demand for retirement savings and possibly
allow for building a college investment
account.
Can you delay retirement to possibly age
70 and also hold off starting Social Security
distributions? If so, that would be great,
because less money will need to be saved
since you’d have fewer retirement years to
fund and your income from Social Security
would be significantly higher.
Additional methods include continuing to
work part-time during retirement, simplifying
your lifestyle to reduce spending needs, and
staying invested in stocks.
Minimize Expenses
Although challenging, it is certainly
preferable to set aside money expected for
college rather than rack up huge loans to
be paid back after (hopefully) your children
graduate. If they start a family and buy a
house, adding a monthly loan repayment
expense on top can be crushing. So all the
better if that can be avoided. Getting good
grades in high school, taking advantage of
grants and work study, or completing as
many classes as possible at a community
college are excellent ways to minimize an
eventual college price tag.
Save for Your Kids
To start saving for a child, consider utilizing
an inexpensive 529 college savings plan.
Grandparents, other relatives, and friends
can also help out. Earnings grow tax deferred,
qualified withdrawals are tax-free, and states like New York allow a deduction
for contributions when filing income taxes.
Select a well-diversified investment portfolio,
and while children are young, maintain a
higher percentage of equity exposure.
Keep in mind the 4-year cost of attending a
public university likely totals over $100,000.
If you can’t save that much, then you may
want to utilize the stock market for its
potential for growth above that of a typical
savings account or certificate of deposit.
Talk with a Financial Planner
It’s natural for all this to confuse many
folks, especially when trying to accurately
weigh competing financial requirements
while realistically incorporating future
costs, inflation, and investment returns. It
may be something better discussed with
a competent financial planner rather than
risk unfortunate errors struggling on your
own. Besides, a good planner has paid
for an education and is now preparing for
retirement, so he or she will fully relate to
whatever situation you are grappling with
and can help you meet the goals you are
looking to reach.
Tax information presented is not to be considered as tax advice and cannot be used for the purpose of avoiding tax penalties. Canandaigua National Bank & Trust does not provide tax, legal, or accounting advice. Please consult your personal tax advisor, attorney, or accountant for advice on these matters.
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