When you’re planning for the future, balancing retirement savings with education savings can feel like a tightrope walk. Both goals are important, but prioritizing effectively can make a significant difference in achieving long-term financial stability. As a union member, you may already have access to some excellent tools to help you prepare for retirement. Let’s explore the best ways to save for retirement while balancing education savings.
Why Prioritize Retirement Over Education?
Retirement should be treated as a non-negotiable expense. Unlike education costs, which can be supplemented through scholarships, grants, student loans, work-study programs, and so on, there are very few alternatives for funding retirement. Social Security alone isn’t enough for most people to maintain their quality of life in retirement. This makes saving for retirement a top priority — your future self is counting on you.
Understanding Your Retirement Savings Options
If you’re a union member, your collective bargaining agreement may include access to a retirement plan. These plans typically fall into two categories:
- Defined Benefit Plans: Traditional pension plans that guarantee you a specific monthly benefit in retirement. The amount is often based on your years of service and salary history.
- Defined Contribution Plans: Include 401(k) plans, profit-sharing plans, and money purchase plans. Your retirement income depends on the amount saved and the investment growth it generates.
Both types of plans offer tax advantages and are among the top ways to save for retirement. If you’re unsure what type of plan you have or how to take advantage of it, contact your union representative or benefits administrator.
Another excellent option is an Individual Retirement Account (IRA). IRAs aren’t tied to your employer and can supplement your existing retirement plan. Consult with a tax professional to determine whether a Traditional or Roth IRA is the right fit for you.
Practical Ways to Save for Retirement
Here are some proven strategies to strengthen your retirement savings:
- Start Early: The sooner you begin saving, the more you’ll benefit from compound interest—essentially earning interest on your interest. Time is your biggest ally.
- Be Consistent: Treat retirement savings as a monthly expense, just like rent or utility bills. Automate your contributions to ensure consistency.
- Maximize Employer Match: If your employer offers a match on your 401(k) contributions, take full advantage of it. It’s essentially free money.
- Avoid Early Withdrawals: Withdrawing from retirement accounts early not only diminishes your future nest egg but also incurs taxes and penalties.
- Seek Professional Advice: A financial advisor or retirement planner can help you define your goals, evaluate current investments, and create a plan tailored to your needs.
Saving for Education
If you have a child, you’ll need to start thinking about education savings once your retirement savings plan is on track. This is also a great opportunity to teach children healthy financial habits. Encourage them to contribute to their education savings through part-time jobs or gift money. Midwest BankCentre’s youth savings accounts, for example, offer up to 5% APY on certain deposits, helping their savings grow faster.
While traditional savings accounts are a straightforward option, they’re not always ideal for long-term goals like education. A 529 plan is a tax-advantaged savings vehicle specifically designed for education expenses. It often offers higher returns than standard savings accounts, and some states provide tax deductions or credits for contributions.
Balancing Both Goals
There’s no universal formula for balancing savings, but these principles can help:
- Set Priorities: Establish your retirement savings plan first before allocating funds to education savings.
- Involve Your Family: Get your family members involved in the savings process. Relatives can contribute to education funds instead of giving toys. Encourage teens to set aside a portion of their wages. This teaches valuable financial skills while lightening your financial load.
- Review and Adjust: Regularly review your savings plans and adjust them as needed. Life changes, and so should your financial strategies.
The Bottom Line: Start Now
Saving for retirement is one of the most important financial goals you can set. Whether you’re just starting or refining your strategy, it’s never too late to begin. Start today with what you have. Remember, your retirement relies solely on you.
Midwest BankCentre is here to support your savings goals. If you have questions or need guidance, contact us at 314-631-5500. Together, we can help you build a financially secure future for yourself and your family.uard our client data with a multi-layered approach to information security including robust policies, procedures, and systems.
Originally published in the Labor Tribune’s February publication by Wes Burns, Executive Vice President of Community and Economic Development.