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5 ways to balance retirement and college savings

Imagine if retirement were financed by scholarships, grants, and loans.

You could qualify for a substantial aid package to pay for your senior years. Your stellar job "grades'' and career achievements would be rewarded with significant merit aid.

Alas, no such aid exists. Paying for retirement is an expensive obligation that you have to handle on your own.

The one similarity with college is you likely will need to set aside money for many years in order to take care of it. And if you need to save for your children's college as well as your own retirement, you've got a daunting challenge.

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So how do you balance those important objectives? Here are some considerations to keep in mind:

Put retirement first - Student loan debt has risen above $1 trillion and the average student's debt at graduation now exceeds $25,000, according to the Project on Student Debt. Hoping to keep their own kids from being overly burdened, parents often unwisely sink thousands of dollars into their children's education that otherwise would have gone toward their own retirement.

Don't give in to the temptation to pitch in heavily for college without making sure your retirement savings are on track. You may well leave yourself short in the future, especially with retirements now often spanning three decades.

Start early on college savings -It's critical to start saving early for college, especially as tuition costs continue to accelerate. "People who can save even $25 or $50 a month can amass a decent-sized college account,'' says Lynn O'Shaughnessy, a college consultant and author of "The College Solution.''

Set up a 529 college savings plan to take advantage of the tax-free withdrawals for education costs.

Set aside 11 to 15 percent of pay for retirement - There isn't a consensus on exactly how much savings you should have for retirement. It's generally thought you'll need to make anywhere from 70 percent to 85 percent of your preretirement income to maintain a similar standard of living in retirement.

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A good way for young parents to start is by contributing 3 percent to 401(k) accounts if their employers offer them.

Then whenever you get a raise, put all but 1 percent toward your retirement account, advises Cheryl Krueger, an actuary with Growing Fortunes Financial Partners in Schaumburg, Ill.

Work at reducing the cost of college - Several strategies can enable you to avoid paying full price.

One is to encourage your child to graduate a semester or two early. Taking as many Advanced Placement courses as possible in high school, and perhaps a community college class or two in the summer could give a student a full year's worth of college credit.

Another is to spend the first year or two at a community college before transferring to a four-year college. The average two-year program costs just $2,713 a year.


Dave Carpenter writes for the Associated Press.