When it comes to saving for college, parents can use all the help they can get.
A 2016 study from T. Rowe Price that surveyed 1,086 parents across the U.S., reported that 62 percent of children expected their parents to cover the cost of "whatever college I want to go to."
In response, 65 percent of parents told T. Rowe Price they'll only be able to pay for "some college costs."
No matter how much parents pay for college, there is a troubling trend bubbling up on the college savings landscape -- using retirement funds to pay for a child's college education.
Most financial advisors are against the practice. They rightfully point out that parents have many options to pay for school, but only constant, long-term savings can cover retirement needs. Plus, a child can possibly qualify for more college financial aid if a parent makes retirement savings a priority, as retirement funds aren't factored into college financial assistance calculations.
All that begs a legitimate question: Besides starting early (way early), what are a family's best options in covering both long-term savings needs?
Know what you're up against. "Without hesitation, this is the most challenging financial planning issue my middle aged professional clients face, including myself," says Stephanie Mackara, president of Charleston Investment Advisors in Charleston, South Carolina.
Although clients' circumstances are different, Mackera says her advice is always the same: your first dollar of savings should be in your retirement account, preferably a 401(k) that has a match, next is debt repayment and finally is college savings.
"College savings is last on the list for many reasons because most people don't consider that a portion of college costs can be paid out of cash flow during college years," she says. "Do you get a bonus each year at work? Earmark those funds for college costs. For a spouse that has been out of the workforce, take on a part-time job to pay the college costs."
If the college funds fall short, "your child can take out a loan and you can help him or her pay down the loan," Mackera adds. "Retirement is typically 15 or so years away for most parents with children entering college, and saving for it must remain a priority. There are no loans for retirement."
Lasting damage. Parents should also be aware of the financial damage done by raiding a retirement account to pay for college costs.
"People need to understand the value of compounding and that there is no substitute for time," say Scott Stratton, a financial advisor at Good Life Wealth Management in Dallas. "Saving $5,000 in your 30s is equivalent to saving $20,000 in your 50s, given a hypothetical 7 percent rate of return."
Some see the issue from a different perspective.
"You'll actually have more money for retirement if you save for college," says Mark Kantrowitz, publisher and vice president of strategy at Cappex.com. "Otherwise, you'll have to borrow for college, and the interest rates on debt are usually higher than the interest rates on savings. You end up with more money if you use savings to avoid higher-rate debt. It is literally cheaper to save than to borrow."
"The only way arguments in favor of saving for retirement instead of saving for college is if one assumes that someone other than the parent will be repaying the loans," he adds.
Kantrowitz advises taking the following steps to cover both college and retirement savings costs:
Max the match. Maximize the employer match on contributions to retirement plans, as that is free money.
Emergency fund. Make sure you have an emergency fund with half a year's salary in it. This will help you manage cash flow better and provides a buffer to help you pay for living expenses during periods of unemployment.
Stay current. Make on-time payments on all debts, because that can affect your credit.
Target highest rate. Rank all savings and debt prepayment opportunities by after-tax interest rates, and apply excess cash to the opportunity with the highest rate. "Usually this will be high-interest credit card debt. But, be sure to cut up the credit cards, so you won't be tempted to run up the balance again," he says.
Open a 529. Save for college in a 529 college savings plan. "Consider plans with the lowest fees (under 1 percent), since minimizing costs is the key to maximizing net returns," Katrowitz says. "Also consider your state's plan, since several states offer a state income tax deduction or credit on contributions to the state's 529 plan. Aim to save at least a third of future college costs, or the equivalent of the cost of a college education the year the child was born. That works out to monthly contributions of $250 for an in-state public college and $500 for a private college from birth through age 17."
In addition, take full advantage of using rebating programs, like Upromise or the Fidelity Rewards Card, to earn extra money for college savings, Kantrowitz says,
Saving for both college and retirement is no easy task. But if something must give, exhaust all the financial aid options you can for college, and keep plowing money away for retirement no matter what.
Brian O'Connell is a contributing financial writer for U.S. News & World Report. A former Wall Street bond trader and the author of two best-selling books; "The 401k Millionaire" and "CNBC's Creating Wealth", he has 20 years experience covering business news and trends, particularly in the financial, technology, political and career management sectors. His byline has appeared in dozens of top-tier national business publications, including CBS News, Bloomberg, Time, MSN Money, The Wall Street Journal, CNBC, TheStreet.com, Yahoo Finance, CBS Marketwatch, and many more. Visit his web site at: https://brianoco.contently.com/. Or, visit this Amazon.com link for a list/review of some of his book titles. Reach out to him on LinkedIn.