How to prepare for the perfect personal finance storm
Today, we’re going to talk about the perfect storm. And I don’t mean that George Clooney movie from twenty years ago.
I’m actually referring to the personal-finance trifecta: saving for retirement, while also saving for your kid’s college tuition, while also trying to care for aging parents. Whew! Just writing that out is stressful.
Does juggling all three at the same time sound impossible?
But, while challenging, it can be done. The trick is to re-evaluate the scale at which you approach each commitment.
So, let’s talk about some of the ways to do that!
Step 1: Prioritize your retirement nest egg.
You may have heard this before, but it’s worth repeating: There are NO loans available to finance your golden years.
Do you have a retirement plan through your job with an employer match? Great! Contribute at least as much as needed to get the full match amount. If you don’t have an employer-sponsored plan, open an IRA.
And remember, once that money is in the account that’s earmarked for retirement, you don’t touch it. While it may be tempting to withdraw from your retirement savings to help out your folks or your kids, resist that urge. Besides facing potential tax consequences and penalties, early withdrawals mean that you miss out on tax-deferred, compounded savings.
Step 2: Next come college savings.
The sooner you can start putting away money, the better. According to Northwestern Mutual, a four-year college degree at an in-state public school will cost about $118,000 in five years…$150,000 in 10 years...and a whopping $191,000 in 15 years!
A 529 college savings plan is a good place to start. This type of account allows for tax-deferred growth. Family (like Grandma and Grandpa) and friends may also contribute to your kid’s 529 plan.
The catch? There are tax consequences if you ever take a withdrawal for non-educational purposes.
Remember that you shouldn’t be doing this alone. Your kids can help. Talk to them about getting a job and contributing to their own college costs. Encourage them to explore scholarships and financial aid. Investigate a variety of schools at different price points. Many mid-tier schools offer just as great of an experience as pricier places. On the other hand, a private school with a great financial aid package could make more financial sense than a state school. There are so many ways to get (and pay for) and education. Don’t assume that the burden of solving this puzzle is on you alone!
Step 3: Help out your parents (if and when you can).
Remember that not all help needs to be financial. You may discover that your parents benefit more from good old emotional support than from cold, hard cash. Helping out could be as simple as chipping in to cover lawn care or snow removal costs. Some adult children take over administrative tasks for their parents, like making sure their bills are paid promptly. Offering that kind of help will cost you nothing but a little time.
Still, in the U.S., research has shown that family members provide most of the financial help for aging parents.
However, even when facing tough financial issues (like if your parent has been diagnosed with Alzheimer’s or needs around the clock care), remember that there are many avenues to help them get the care they need.
Start with the website for the National Council on Aging (www.BenefitsCheckup.org). There are programs to help you save on everything from medications to home care. If your aging parent is a veteran, there are programs that provide housing assistance, pensions, home aid and attendance, rehabilitation, and other benefits. A life insurance policy might allow for an accelerated death benefit to help shoulder some of the expenses. In other words, don’t assume that your financial help is the only avenue!
Getting off to a late start on saving for retirement or college? Not sure whether you’ll be able to help your parents stay comfortable as they age? I can work with you to figure out your best strategy — and give you a little peace of mind. Schedule a call today