Retirement Resilience: Preparing for the Future While Providing for Your Children

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College costs have skyrocketed over the last four decades, with private tuition averaging $42,162 in the 2023-2024 school year. In that same span of time, retirement has also become more and more expensive.

So how do you secure your future with retirement investments, while also helping your children secure theirs with a degree?

You can do both — but that starts with prioritizing.

Why You Should Prioritize Retirement

To begin with, your children have many options to pay for their college education. They can take out student loans of course, but they can also earn scholarships and grants. And they can work while in school, and participate in tuition reimbursement job programs.

However, you only have one option to pay for retirement: your own investments.

Consider a blunt choice to frame your financial priorities. Would you risk running out of money in retirement and having to move in with your adult children, in order to help them pay for college?

Your retirement must come first, so that you don’t have to approach your children hat-in-hand a few decades from now. You can always help them financially later on, once you’ve secured your own future.

Setting a clear order of priorities doesn’t prevent you from multitasking however. It simply clarifies where the first dollars must go.

4 Ways to Invest for Both Retirement and Education

The earlier you start investing, the longer your money has to compound. That means compounding can do more of the heavy lifting for you, so you don’t need to invest as much money.

If you invested $200 each month at 10% average returns for 40 years, you’d end with over $1,275,000. If you instead started in midlife and wanted to reach the same target in 20 years, you’d have to invest around $1,650 each month.

Bottom line? Don’t procrastinate.

So how can you make sure your money meets multiple goals?

1. Take Advantage of Matching Contributions

Every dollar that your employer contributes to your retirement account is a dollar you don’t have to invest yourself. A dollar, therefore, that you can put towards your children’s education.

Many employers offer to match 100% of your contributions up to a certain percentage of your paycheck. Some then offer 50% matching beyond that, up to a higher ceiling.

Take them up on their offer. You can think of it as free money, or as an instant 100% return on your investment, or as part of your pay package that requires an extra step on your part. Matching contributions are all of those things, and you pass up your employer’s offer at your peril.

2. Invest for Retirement Tax-Free

The federal government has created a series of tax-advantaged accounts to help Americans save for retirement. These include individual retirement accounts (IRAs) available to everyone, and employer-sponsored accounts such as 401(k)s, 403(b)s, SIMPLE IRAs and TSPs.

You can write off contributions to traditional retirement accounts in the same tax year. Or you can pay taxes on your contributions to Roth accounts now, but they compound tax-free and you pay no taxes on withdrawals in retirement. You get to choose, and as a broad rule of thumb younger Americans are better off contributing to Roth accounts, while Americans nearing retirement should consider traditional accounts.

As a retirement investing hack, consider using a health savings account (HSA) as a secondary retirement account. These come with the best tax advantages of any account, as you can write off the contributions, the money compounds tax-free, and you pay no taxes on withdrawals. You’ll have no shortage of health-related costs in retirement, after all.

Money you save on taxes is money you can put to better use elsewhere — such as your children’s education.

3. Invest for Education Tax-Free

You can also invest for your children’s education tax-free. 

Coverdell education savings accounts (ESAs) let you contribute after-tax dollars, which then grow tax-free and you pay no taxes for withdrawals to pay for qualified education expenses. Think of them like a Roth IRA for education costs. Created at the federal level, they’re relatively simple, but they come with a low contribution limit of just $2,000 per year.

Operated at the state level, 529 plans also let you invest for education costs, and also grow tax-free. But these vary from state to state, so make sure you do your homework before opening one.

4. Involve Your Children

Don’t be afraid to enlist your children to contribute in tangible ways to their own education expenses. It might even incentivize them to show up for those 8 a.m. classes.

For example, you could partner with your teenage children on a few house flips. Beyond helping to earn the money that pays for their education, they can also learn valuable life skills like negotiation, leveraging other people’s money to build wealth, hiring and managing contractors, hands-on home improvement skills, forecasting profits and expenses and marketing.

Or if you own a business, you could put them to work and place some or all of their earnings in a 529 plan. Or any number of other creative ideas to give them a sense of ownership in their own education planning.

Final Thoughts

When in doubt, invest through Roth IRAs. They offer enormous flexibility, letting you pull money out for education costs later if you choose. You can withdraw contributions tax-free at any time, and you can withdraw earnings before age 59 ½ tax-free for qualified education expenses. Even so, think twice before raiding your retirement accounts to fund Junior’s college bill.

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