Retirement planning when you are single without children can be simpler compared to when you are married and have a family. You are not only focused on your needs anymore, but the needs of your spouse and children. Not to mention how much your spending changes once you have children. It can be tough figuring out how retirement planning fits into your new budget as a parent. Let's take a look into saving for retirement as a parent.
Prioritize Investing In Yourself
While you may feel that as a parent you should put all your children's needs first, you still must prioritize your own needs. It is a common action to start putting money in savings for your children and their future education, but setting aside money for retirement is paramount. If you want to pay for your child's education, utilizing loans is an option; there are no loans for retirement. Pension plans are gone, the Social Security benefits fund is shrinking, and only about half of all U.S. employers offer 401(k)s.
You should also consider the potential of becoming a liability for your child. It can be a burden on children to provide financial support for parents in your retirement while also supporting their families. The more you save now for retirement, the better your financial future will be.
Aim to contribute enough to your 401(k) to take advantage of your employer's match. Max out your retirement account contributions, if possible, or save at least 10-15% of your income for retirement. In 2022, the contribution limit for 401(k) is $20,500 with a $6,500 catch-up contribution for those age 50 and up. As for IRAs, the contribution limit is $6,000 with a $1,000 catch-up contribution for people 50 years old and up.
You do not want to forget to save for health care costs in retirement either. Even with Medicaid, you do not receive coverage for everything. Couples in retirement can expect around $250,000 in health care costs throughout their retirement years. You should save for retirement health care costs in a separate account than your retirement savings.
Utilize a 529 Account
Once your retirement savings are on track, you can begin to focus on saving for your children. Many parents want to give their children the gift of a free college education. With education costs rising every year, any money someone can put towards their education is extremely beneficial for their financial well-being. Your contributions to a 529 account can also provide you with a tax deduction. It is also a great account for grandparents and other family members to contribute to over the child's life.
Applying these different strategies to your own budget and finances can be difficult without the guidance and help of a financial advisor. Our advisors at Wolfe & Associates are more than happy to help guide you in your financial planning. Schedule a consultation with us today.