I just wrapped up my annual call with my financial advisor. He?s been tremendously valuable in helping me plan for my future retirement, my mom?s current retirement and my daughter?s financial future ? including college!
I honestly don?t know what I would do without him.
But today, for the first time, his advice really challenged me. I?ve been lucky enough to refinance my home, so I have some ?extra? money I thought I should immediately send to my daughter?s college savings account.
But he stopped me in my tracks.
He emphasized that my retirement should come first. He pointed out that all my current assets are in future-taxable accounts. I will be taxed on the money when I draw it out at retirement. If I have ?extra? money I should consider other ways to save it for my future and not lock it into something that was exclusively for my daughter?s education.
This was new information. I?m so worried about paying for my daughter?s education, I figured I should pour every dollar into her account as fast as I can. But experts offer a different opinion.
Consider Your Retirement First
In an article from US News and World Report, author David Ning notes, ?While living frugally to pay for college tuition is a worthy goal, it?s not a good idea to fully fund your child?s college costs?if you need to neglect your retirement savings plan to do so. Here is why you shouldn?t sacrifice your retirement finances to pay for your child?s college tuition?? See the list.
On Forbes.com, Janet Novack reports that saving for retirement might actually help your child when colleges calculate financial aid and scholarships. Where you have your money is important and can affect what kind of financial help your child might actually get. Their expert advises:
Parents should save heavily for retirement before the kids are college age, cut back on retirement contributions while they?re paying tuition bills, and then, when the kids are through school, redirect all the income they were sinking annually into tuition back into retirement savings. Read more.
Consider a Investing More in my 401(K)
The 2012 maximum?contribution?you can make to your 401(k) is $17,000. If you are age 50 and older in 2012, you?re eligible to contribute an additional $5,500 per year as ?catch-up contributions.? The sooner you can add those ?catch-up? dollars, the sooner they can earn interest and help build your retirement nest egg (learn more). I just hit 50 so this is something I need to look into.
Your situation could be different, but based on this information and advice from my advisor, I?m considering changing how I am investing. I think it makes sense to look at the big picture. And by planning ahead wisely, it looks like I will be able to help my daughter accomplish her education goals while continuing to set money aside for my future.
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Source: http://blog.financialengines.com/2012/08/07/college-vs-retirement-savings/
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