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Yes, you can save for retirement and college

Prepare for two big expenses — at the same time — with these strategies.

Saving for your children's education. Paying off your own student loans. Stashing away money for retirement. Everyday expenses. The more ambitious your budget, the trickier it can be to find balance.

Fortunately, even with multiple demands on your income, it can still be possible to achieve your savings goals. Here are tips to help make the most of every dollar:

Share your financial goals. Establish an open dialogue with family members about your joint education and retirement objectives. Identify your needs, which may include:

  • The estimated cost of your children's education, including inflation. Plan for college-related costs with the help of our college planning calculators.
  • The estimated potential cost of retirement, including inflation. Our retirement planning calculator can help you evaluate your retirement goals.
  • The cost of your student loans — and your spouse's.

"Once identified, these should be calculated as a monthly need," says Joe Swanson, CRPS®, a Minnesota-based financial professional and financial representative with the Principal Financial Group®. "If you can't save that much each month, consider setting priorities or devise a plan that allows for some flexibility later."

Be realistic. Ultimately, it's important to keep retirement savings at the forefront of your plan for retirement. After all, those savings don't factor into a student's need for financial aid. "You can't get a student loan for retirement," says Swanson. "Your children will have many years to pay back their loans — and student loans may be forgiven through military service or an employer contract — but in retirement, you won't have as many options for more income."

Chip away at debt. Still have lingering financial obligations from your own college years or other debts? You're not alone. Help make your student loans easier to manage with our tips. Additionally, Swanson suggests chipping away at your debt with these strategies:

  • Pay off your highest-interest debt first because it costs the most.
  • Pay off small loans next because it will feel good to cross them off your list.

Open a Roth IRA. Once you've paid off student loans, consider putting your freed-up funds to good use with a Roth Individual Retirement Account (IRA). A Roth IRA can allow you to multitask saving for retirement and education.1 "It is really a retirement account, but as a parent, you could use the funds you've contributed for college," Swanson says. He offers the following example:

If you put $5,000 a year into a Roth IRA for 10 years, your total contribution is $50,000. If the account grows to $80,0002 in the same period of time, $50,000 may be taken out for college without penalty or tax. The remaining $30,000 needs to stay put to avoid tax and penalty (unless you are 59 1/2 or older).3

 

Get help from a financial professional


Need help prioritizing outlays for education and retirement? The Principal Financial Group® can help you find a financial professional.

 

1 The IRS places a maximum income limit cap on who can make Roth IRA contributions each year. For 2013, single filers making over $127,000 and married joint filers making over $188,000 do not qualify to contribute to Roth IRAs.

2 Data does not reflect the performance of any product of The Principal® and is hypothetical and for illustrative purposes only. See your tax advisor as other exceptions may apply.

3 See your tax advisor as other exceptions may apply.

While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal or its representatives are rendering legal, accounting or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.

Insurance products and plan administrative services are provided by Principal Life Insurance Company. Securities are offered through Princor Financial Services Corporation, 1-800-547-7754, Member SIPC and/or independent broker dealers. Securities sold by a Princor® Registered Representative are offered through Princor. Princor and Principal Life are members of the Principal Financial Group® (The Principal®), Des Moines, IA 50392. Certain investment options may not be available in all states or U.S. commonwealths.

© 2013 Principal Financial Services, Inc.

t13032903mn – 04/2013

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