College in page

The cost of post-secondary education is steadily increasing in the U.S., and Millennials – the college-aged kids of today -- are finding it challenging to find employment to help them pay for it.

At an average of $20,090 in the 2016/2017 school year, even the cost of attending an in-state, public institution is significantly higher than it was a few years ago. Meanwhile, out-of-state student costs now average $35,070 for the same academic year and students attending private colleges pay an average of $45,370, according to the annual Trends in College Pricing 2016 report published by the College Board.

For more on why the cost of college may be greater than you think, see: College savings madness.

As the cost of a college education in the U.S. continues to rise, parents may want to help their kids get through school without accumulating a mountain of debtBut how much support is too much when a parents’ retirement goals also need to be accounted for?  

It’s a growing concern given statistics showing retirement savings are “dangerously low” in the U.S., according to the National Institute on Retirement Security. It shows a retirement savings deficit in the U.S. of between $6.8 and $14 trillion.

While many financial experts believe saving for retirement should be a priority over paying for a child’s education, about half of Americans disagree, according to a recent RBC Wealth Management poll, conducted by Ipsos.

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The poll shows 49 percent of Americans place a greater importance on helping their children pay for school, over their own retirement. 

Millennials are the most likely to put financing their children’s education first. The results say that 60 percent of Americans in the 18-to-34 age group see saving for their kids’ education as more important, compared with 43 percent of those ages 35 to 54, known as Generation X, and 28 percent of Baby Boomers, those ages 55 and older.

Malia Haskins, vice president, wealth strategist at RBC Wealth Management, says that with the gap between how much Americans have saved and what they will need to retire comfortably widening, saving for retirement should be the priority, but families can do both if they plan ahead.

“Ideally, college and retirement should be part of the same plan,” says Haskins, who is based in St. Paul, Minn. “Clients can expect some tradeoffs as they balance these goals.”

That could include parents working longer to save for retirement, deferring the purchase of a vacation home or encouraging their children to finance their education through scholarships and grants.

“With proper planning, it is possible to meet both major goals,” Haskins says.

Haskins offers three main tips for families seeking to balance their retirement savings with the funding of a child’s education:

Set reasonable goals

Haskins suggests starting with a wealth management plan, which can provide families with a better understanding of income and expenses. To make it most effective, she recommends not only looking at today, but also projecting both income and expenses out for the future, as much as possible. “By looking ahead a little bit, it’s easier to get an overall sense of whether their goals are realistic,” Haskins says.

Revisiting that plan regularly is also critical. “It’s important to check in annually and both revisit and modify as income and expenses change,” she says. Haskins encourages families to try to follow a 50/30/20 rule: Allocate 50 percent of income to fixed costs, such as mortgage payments and utilities; 30 percent for flexible spending, like dining out, school trips or entertainment; and then use the remaining 20 percent for an emergency fund as well as saving for retirement and/or education.

Start saving now

Once you have a plan [in place], it’s best to start saving, even a little bit, Haskins says. “The power of compounding is often overlooked, but is pretty compelling,” she says. For example, if a couple saved $50 a month for 18 years, at a 4 percent rate of return, they would have nearly $16,000 in the bank.

“That $50 per month may not be missed, and if you get into the habit of doing it, it can be a great way to set aside some money for education,” Haskins says.

Set a target

How much of the education expenses will the parents pay for, and how much will the child have to cover themselves? Haskins recommends parents have that particular conversation with their kids early, to set expectations. This will also give the kids a financial target and enough time to start saving money through part-time or summer jobs before they head off to college.

Setting a target can also inspire them to apply for grants or scholarships, even for parents who have the means to pay for it all, Haskins recommends having the kids foot some of the bill. “I think it’s a good thing for kids to have some skin in the game,” Haskins says. “Their education becomes more valuable to them. It also provides some discipline in the transition from being dependent to independent.”

Adds Haskins: “I think it’s a noble desire and goal to want to help give your kids and education and make it as painless as possible, but it makes things too easy — sometimes at the sacrifice of the parents’ own future.”