Retirement Savings Tips for 35-to-44-Year-Olds

If you're between 35 and 44, you may be part of the sandwich generation: that is, you're both taking care of your children and helping your parents at the same time. While there's no cookie-cutter retirement planning solution, the following tips may be helpful to those who find themselves in this situation while struggling to save for retirement.

Saving for Retirement vs. Paying for College

Most parents want their children to graduate from college debt-free so they can start their career with a clean financial slate. While some may be able to pay for their children's education and still save for retirement, most cannot. The question then becomes, which is the better financial choice?

When pondering such a decision, the options available for financing a college education should be weighed carefully. For instance, consider the following.

Saving for Retirement

With the shift from defined-benefit plans to defined-contribution plans and the fact that Social Security has never provided enough for a comfortable retirement, it's largely up to you to fund your own retirement. As such, you must save as much as possible to increase your chances of a financially secure retirement, and to make working during retirement optional rather than mandatory.

Paying for College

Options for financing college include grants for those who are eligible, scholarships for those who qualify, and loans. While loans do mean college students will likely have outstanding debt after graduation, they will have several options and many years to pay them off.

Children who are opposed to college loans might consider a work-school program, where they work full-time and attend college on a part-time basis. While this could extend the amount of time it takes to earn a degree, the trade-off is being debt-free after graduation.

"Some families want their children to have some skin in the game and will pay for some college themselves," says Derek Hagen, CFP®, CFA, financial planner and founder of Money Health Solutions. "For those families, contributing more to retirement than college would probably work best. For those who don't want their child to have to pay anything, they'll probably pay more toward college until college is done, and then ramp up their retirement savings."

Remember that college graduates move on to an income-generating career, while retirees rely on retirement savings rather than a job for income.

"Most families prioritize college savings over retirement because it's the closest large expenditure," says Rob Schulz, CFP®, president of Schulz Wealth, Mansfield, Texas. "What they don't realize is that the retirement savings needed are usually massive, well over 10 times, if not 20 or 30 times, the savings required for college. Certainly, save for college, but not at the expense of your retirement goals."

Create a Realistic Budget

As you get closer to middle age, panic can set in if you realize your retirement savings aren't on track. The natural reaction is usually to increase the amount being saved in order to get closer to the target saving amount.

"No matter your age, income, tax bracket, debt load, etc., having a budget forces you to pay attention to your cash flow—which helps avoid problems like bouncing checks, running out of money every month to pay bills, not saving enough for retirement, and more," says Martin A. Federici Jr., AAMS®, CEO of MF Advisers Inc., Dallas, Pa. "If you can’t deal realistically with your inflow/outflow situation, you’re not going to do well planning your financial future (and retirement) by just winging it."

And don't rush into it without some analysis first. Saving more than an affordable amount can have a negative impact. When deciding whether to increase what you save in your retirement accounts, first consider the following questions.

Why Is the Savings Goal Not on Target?

If it's because the budgeted amount is not being saved on a regular basis, is that a result of the amounts being redirected toward unnecessary expenses? If so, an easy fix would be to stick to the budget and eliminate these unnecessary expenses. If the amount is being redirected toward things that the family needs, perhaps the retirement savings goal and the budget are not realistic and need to be revised.

Is Increasing Retirement Savings a Realistic Objective?

It may seem like a good idea to add larger amounts to your retirement nest egg. However, if it means that the reduction in disposable income will result in increasing credit card and other debts incurred for everyday expenses, increasing retirement savings could actually have a negative effect on your bottom line.

Were Withdrawals From Retirement Accounts Used for Emergencies?

If you find yourself needing to withdraw amounts from your retirement account to cover emergencies, it could mean that your emergency fund is insufficient.

Realistic budgeting is key to a solid savings program. The budget must not only allow for retirement savings and everyday living expenses but should factor in allocations to an emergency fund.

"One of the golden rules of budgeting in savings is to pay yourself first," says Kirk Chisholm, wealth manager at Innovative Advisory Group in Lexington, Mass. "Set up an automated savings plan where a monthly amount goes into your savings account that you do not touch. If you pay yourself first, then you tend to adjust to a lower amount of discretionary spending. If you save what is left at the end of the month, you will likely not have anything left to save."

Consider Long-Term Care Insurance for Aging Parents

The cost of caring for aging parents usually increases as they get older, and most of the expense is due to healthcare. Further, adult children who are unable to pay the cost for elder care often find it necessary to take care of their parents themselves. This can put quite a strain on your finances and could prevent you from saving for retirement.

One way of ensuring that the cost of healthcare for aging parents is covered is to purchase long-term care (LTC) insurance. LTC insurance can be used to cover various expenses, including in-home healthcare or healthcare at nursing homes. It not only serves to ease the financial burden on the children but can also negate the need for aging parents to tap into their retirement savings to pay for healthcare.

If your parents can't afford the cost, helping them pay for it could be worth it in the long run.

The Bottom Line

Saving for retirement can be a challenge, particularly when juggling the financial responsibility of children and aging parents. One way to overcome that challenge is to treat savings as a recurring expense. In most cases, this is easier to accomplish when there is an increase in disposable income, such as from a salary increase or a change in family status, which results in fewer expenses. For others, it may mean cutting back on non-essential spending.