Parenting was once described to me as "the most wonderful, financially devastating thing that you'll ever do to yourself." Raising kids is an expensive endeavor, and then there's college to think about, usually just as you're nearing a crucial stage in your own retirement planning. Should you save with your kids in mind or focus on your own needs? With some careful planning, you won't have to choose.

Understand the average costs

The days of affordable education are gone. Since 1978, the cost of attending college has increased by an astounding 1,225%. According to the College Board, tuition and fees for the 2016-2017 school year for a public, four-year university averaged $9,650 for in-state students and $24,930 for out-of-state, and private university students paid $33,480. These numbers aren't slowing down: By 2037, analysts estimate that a four-year degree will cost nearly $500,000, assuming a conservative 5% annual increase in education expenses. 

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The outlook on retirement living isn't much brighter. A couple who retired in 2016 will need almost $750,000 to cover expenses and healthcare costs, and even then, this number breaks down to just $2,000 in income per month. Assuming you'd like to maintain a higher standard of living, you'll need to save much more. A 35-year-old earning $75,000 per year now would need at least $3.3 million by retirement to produce the same income on an inflation-adjusted basis. 

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Create saving timelines

The hefty costs of education and retirement may have you feeling defeated, but when it comes to long-term savings, time is on your side. Compounding returns on your investments can significantly increase your savings, but it's important to get started sooner rather than later. 

For college savings, the average 18-year timeline begins the moment your little one arrives, but that doesn't mean you should redirect your income immediately. Before stashing money away for Junior's education, it's important to pay down debts that affect your immediate finances and credit health. These might include credit card balances, medical bills, and your own student loans. It's also wise to have extra cash in your savings account for emergencies.  

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As tough as it is for parents to hear, college is an optional expense, and retirement savings are more important. The rising cost of living and the uncertain future of Social Security are just a couple reasons why retirement income is imperative, and you can't afford to waste time. For instance, $10,000 invested today with a 7% return will yield $76,123 in 30 years, while the same amount would only grow to $38,697 if you wait 10 years before getting started.

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The basics of college savings

For most families, investing in one goal usually means making sacrifices elsewhere. That said, prioritizing retirement doesn't mean de-prioritizing college savings by taking it off the table. With your timelines in place, now is the moment to strike a balance between your investments. 

Financial aid, scholarships, and grants are great ways to deal with college costs. In addition, consider these basics: 

  • 529 Savings Plans: 529 college savings plans were designed specifically to give families a break. Your contributions grow on a tax-deferred basis, and the money you withdraw is 100% tax-free as long as you use it for qualifying education expenses. You may also be eligible for a state tax break depending on the rules in your state. The only catch is that withdrawals made for non-education expenses are subject to income taxes and a 10% penalty. 
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  • Roth IRAs: A Roth IRA is another way to save, but it's typically a better choice for your own retirement rather than college. You can withdraw your Roth contributions with no tax or penalty, but using that money for college means you'll miss out on years of tax-free growth leading up to retirement.
  • Community College: A four-year degree isn't for everyone, and your kids can still earn a worthwhile education at the local community college or trade school for a fraction of the price. In-state community college tuition runs $4,200 per year, less than half of the average cost of four-year public school. Students pursuing bachelor's degrees can cash in on this strategy too by earning their core credits at community college before transferring to a four-year school. 
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  • Communal Living: It's not ideal, but living at home can drastically reduce the price of your kid's education, including room and board and overpriced meals, and avoid student loan debt down the road. More than a third of adults ages 18 to 34 currently live at home, and student debt is a primary factor.  
  • Work-Study Programs: Some students have an opportunity to pad their resumes and earn money thanks to federal work-study programs, which offer part-time positions to help pay for education expenses. Federal work-study positions align closely with students' areas of study, which helps them gain experience and become more qualified while earning their degrees. Students are paid at least the federal minimum wage with the opportunity for more depending on the type of job and skills required. 
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Catch up on retirement savings

Although it's wise to save for retirement before college, it's not always that simple for Mom and Dad. If you're still set on contributing as much as possible for your kids' education, there are ways to make up for lost time in retirement savings, including:

  • 401(k) Employer Matching: If your employer matches a portion of your 401(k) contributions, it's crucial to take advantage if you want to give your account a serious boost. For instance, suppose you make $50,000 and contribute 6% of your salary, or $3,000, to your 401(k) each year for 35 years. Assuming a 7% return, your savings will equal about $450,000. But if your employer matches that 6% contribution, then you'll have almost $900,000. If you plan to live on $50,000 per year, that's nine additional years of retirement income. 
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  • Catch-Up Contributions: The IRS provides more opportunity to save once you reach age 50, which is perfect timing if your kids are in college. In addition to the standard $18,000, workers participating in 401(k) and 403(b) plans can stash another $6,000 per year in catch-up contributions, a perk that can help you recover from those years of missed savings. 
  • Staggered Retirement: Many couples nearing retirement stagger their workforce exits to keep their health insurance, delay 401(k) and Social Security withdrawals, and to save more money. That latter reason is likely to apply if Junior's college funds takes precedence over your retirement savings. Do the math to learn how much longer you'll need to work to meet your goals.
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Find funding alternatives

Some families have gone to extra lengths to find creative ways to earn and invest. Your options include: 

  • Investment Property: One of the best ways I've found to save for my son's education is investment property. I own a condo in Chicago that yields roughly $12,000 a year in passive income, which goes directly into Mister's 529 savings plan. And, bonus: After my son's needs are met, the property will continue earning money for Mom and Dad as we enter retirement. It's a win-win. 
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  • A Side Hustle: According to a 2017 Bankrate survey, 44 million Americans work part-time at a "side hustle" to supplement their incomes, and it's paying off. Whether you freelance using your day job skills or earn $3,000 a month selling homemade slime, there are plenty of options. 
  • Change of Scenery: Moving to an affordable location can change your life and help you save more money. Happiness is easier to achieve as well according to recent Gallup report, which found that Atlanta residents reach peak happiness when earning $42,000 a year, while Seattle residents need to earn $105,000 a year to hit the same personal high. 
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Saving for life's big changes isn't easy, but it's possible with the right tools. Find your motivation and consider your options with a fresh perspective. 

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