NMFN: LC, LE, CP, Staying On Track with Your Own Financial Goals

Sending a child to college is often the first life-changing financial challenge a family faces. You invest large amounts of time scouring college catalogs, applications and scholarship forms. You allocate significant amounts of savings toward paying for college. At the same time, most people are in high gear saving for their own retirement. They can't imagine keeping up their savings pace and paying for college at the same time.

College Tuition or Retirement Savings

Before you make any decisions, think critically about what financial resources are available for the college bill and how you can continue saving for retirement. Most experts strongly caution parents against foregoing their own goals to pay for college. The long-term benefits you forfeit are irretrievable, and with the amount of money available to students through grants, aid and scholarships, students have a greater chance of making up the difference for their college experience than you do in making up your lost retirement savings.

Retirement Income as a Shelter

When your child applies for financial aid, their need is calculated on a few factors. A federal formula is used that accounts for the family's adjusted gross income, assets, family size and number of children in college. Based upon that information, a family contribution amount is calculated.

As a general financial aid rule, students are expected to use 35% of their assets to pay for college and parents to use just under 6%. The difference between the college's costs and the family's contribution is defined as the student's need.

Public universities and some private schools do not consider money in a deferred retirement savings account as assets of the family. While it may seem selfish to stash money away in your 401(k) or IRA, it actually does no real harm to your child's college fund because your retirement savings are not factored into the financial need equation by most universities.

Making additional contributions to your retirement savings accounts may actually be advantageous to your child when they apply for financial aid. Transferring assets into an account that is outside the financial need equation may increase your child's financial aid package because the amount your family is expected to contribute goes down.

Think About Your Future

It may seem strange to think about your future when your child's future seems so much more important. If you don't save for retirement, you are likely to hamper your child's future by becoming financially dependent on them.

Where do you stand when you examine your financial goals? Are you where you want to be? Could you be doing more? A Northwestern Mutual Financial Network Representative can help by offering financial solutions for both your retirement and education funding needs.