The College-Retirement ‘Juggling Act’



Al Krulick

SINCE MY WIFE AND I STARTED OUR FAMILY 20 YEARS AGO, I can’t say that our planning was particularly consistent, even though we consider ourselves prudent money managers. We saved little toward college for our two daughters during their early years, and put whatever extra we had (which was meager) into our retirement accounts. We did not contribute to our state’s 529 College Savings Plan, even though financial advisors suggested that we start as soon as they were born.

Then, when my daughters were teenagers, we put a small inheritance immediately into two Education Savings Accounts, in this case, Coverdell ESAs. Now both in college, they are receiving a combination of need-based and merit aid, and in one case, federal student loans.

Like millions of parents throughout the country, planning for our kids’ college education—while still putting away money for our own future–has been a tricky juggling act. How do you not drain funds set aside for your retirement and pay for rapidly rising college costs, too? Obviously, there isn’t a one-size-fits-all answer, but financial experts offer a few guidelines:

First, don’t forego saving for retirement in favor of saving for your children’s college education, even though college expenses surely will occur sooner. Why? Because the amount ultimately needed for college is probably much less than what will be required during your longer retirement years. In addition, there are usually more options for financing higher education, including scholarship aid, student loans and home equity loans. If you deplete your retirement savings, the only other option for many families is Social Security.

So, in general, how should you balance college vs. retirement needs? Some experts say you should try to put 15 percent of your family income into a retirement account each year, before you even begin saving for college. Others suggest a specific ratio for apportioning savings: Two-thirds for your retirement vs. one-third for college.

Second, and equally important (as I can attest from personal experience), is learning the intricacies of college financial aid rules. The details are mind-numbingly complex and ultimately depend on the specific methodologies employed by each institution. But taking the time to unravel these formulas is important, because it will affect how much money a college decides your family should pay—what is known as the “Expected Family Contribution,” or EFC. Saving money in certain types of accounts, rather than others, may mean paying thousands of dollars less for college. Here are some points to consider:

• While my family started somewhat late with a 529 account, these kinds of plans are ideal for many families. They enable you to accumulate income tax-free, and when money is taken out to pay for college, the government does not count it as taxable income. Colleges do count 529s plans as part of a family’s assets; such plans can reduce the aid they receive, but by a relatively small amount—up to 5.64 % of the fund’s total value.

• Assets already held in your qualified retirement plans and IRAs don’t count as part of a college’s formula for how much you should be contributing to your kid’s education. However, if you’re making current contributions to retirement accounts, colleges do add these contributions back into your adjusted gross income for the purposes of calculating your financial contribution. (Adjusted gross income is the main figure that determines your family contribution on the Free Application for Federal Student Aid, known as FAFSA; and the College Scholarship Service, or CSS Profile, an application used by many colleges offering tuition aid.)

• Funds you have in checking, savings, CDs, investment real estate, stocks, bonds, money markets, mutual funds, and in some cases, even home equity—these, too, will get valued as part of your family’s income and assets.

So, depending upon how many children you have in college at one time, and what methodologies their schools use, you might have to re-balance different types of assets to minimize college expenses. Talk to your accountant and financial adviser about your strategies, and ask them about any changes in federal or state tax laws that allow you to take deductions or credits for your college expenses.

Remember, it’s a constant juggling act. As they have in my case, periods of unemployment, medical emergencies, and changes in income or family situation can all impact how you fine-tune your plans over the years.

Al Krulick is an award-winning journalist who writes and blogs for, which offers  resources regarding college scholarships and grants, federal loans and assistance with student debt. Al is a Certified Debt & Credit Counseling Specialist and has a multifaceted background. He holds a B.A. in theater from SUNY Binghamton. Contact:

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