The Top 2 Questions I Get Asked About Planning For College & Retirement

Question #1

With growing families, the most frequently asked question is, “Should I save more now for college or retirement?” College Planing This answer is complicated and heavily relies on your family’s situation, but here is how I answer in most cases.

The way to determine how much to save for college depends on how much you want to provide for the education of your child (or children).

However, take this into consideration: Before college funding gets set up, your retirement savings needs to be on track.  Typically, a good goal to strive for is saving 10-15% of income and put it into a retirement fund. If you are way off from that percentage, then start with what your company is willing to match in your retirement account, then each year raise that amount by 1%. In either situation, it is best to have a customized plan because each household is different and has varying needs, budget and income.  Another good strategy is to consider starting with the amount needed to get your company match, and then create a ROTH IRA Strategy.

  • This is individual in nature, check with your trusted Financial Consultant to build a personalized plan. You may have income limitations with funding a ROTH IRA, but there are alternate strategies that can assist.

In another scenario, maybe your father, mother or close relative has offered to contribute to your child’s college fund, so here is an option to consider. Set up a 529 savings plan; or depending on your state, you may benefit from using a state sponsored plan (some states give income tax deduction). This is a useful plan of action if gifts are consistent.  Most 529s can accept gifts from multiple providers, but are good for only one beneficiary.

  • There is no one right answer. It is specific to your situation. I would recommend having a full Financial Fitness plan completed by your trusted advisor. This way, you have a roadmap that is flexible depending on where the future leads you and your family.

 

  • Also, prior to investing in a 529 Plan, people should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program. Tax treatment at the state level may vary.

 

Question #2

Here’s another question I get frequently, “How did the Three Financial Keys come into existence and are they in a specific order?”

  • Give, because you are blessed and can be a blessing to others
  • Save for rainy days and unexpected events
  • Spend wisely with a plan

Yes, they are in a specific order. These keys developed from my 10 years of experience working one-on-one with families who repeatedly asked the same questions.  My recurring answer is that you need to have balance!

So, how did they come into existence? Well, I was finding that clients were either investing too much or depending on insurance too much. Personally, I think that the network of professionals (or through their own decisions) they Familywere working with took the adage “Don’t have your eggs all in one basket” a little too far. The real trouble with this is there wasn’t one clear Chief Consultant, or as I call it Chief Financial Fitness Officer. For example, some clients had the same investments duplicated, risk was amped up, or they had a lot of things to manage across different “companies.”

While it may not sound like a problem, a few times I also saw where others were giving and sharing their blessings too much and living in a “broken” savings plan. That isn’t wise either, as it can cause cash flow problems and serious savings problems. Lastly, I noticed that some clients were saving so much that they weren’t fully living (or being generous for that matter).

These instances caused me to pause, and then go back through the basis of my financial planning–which are biblical principles.  Managing money can be simple, just not always easy. Each of the lessons defined in Three Steps Are: Give, Save, and Spend wisely with a plan.

Remember, this is only the start. You should arrange your plan to be balanced across what I call the “Wealth Window”: Cash, Assets, Tax Deferred and Tax Advantaged. But there will be more on that later, for now I would like you to focus on maintaining a balance. You may ask, “Why?”

Maintaining a balance across these areas gets you to do the following:

  • Develop an emergency fund and get out of credit card debt
  • Develop assets and preserve them with adequate and proper protection strategy.
  • Move toward having no debt as you progress through life
  • Save wisely for retirement, education, and other priorities. This may sound simple, but it’s not easy.

Having a Dream Team of Advisors that you work with can help you pursue your financial goals, one day at a time.  If you have at least one of them as your Chief Financial Fitness Officer to help you coordinate and manage your family’s priorities, you can slowly and steadily grow your wealth.

Best,

David Kujawa, ChFC®

 

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The purchase of certain securities may be required to effect some of the strategies. Investing involves risks including possible loss of principal

Securities offered through LPL Financial, Member FINRA/SIPC.  Advisory Services offered through HighPoint Advisors Group, LLC.  HighPoint Advisors Group and OnPath Financial are separate entities from LPL Financial.

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