• Career & Money

Balancing Your Investments for Retirement, Life Insurance, and a College Fund

3 min

Once you get your first "real" job and start making a decent salary, you start having many different competing priorities for your money. Before you enter the workforce (whether being supported by your parents and/or still in school), you don't make very much money, but you also don't have as many expenses. But as your income starts going up, you also start thinking about not only upgrading your current standard of living but also saving for the future. Balancing these competing priorities is an important part of securing your financial future.


Many Competing Money Priorities

Once you start to earn a significant income, you begin to start making upgrades to your life. But in addition to possibly moving into a nicer place or buying furniture that you didn't get for free from the side of the road, it's also a perfect time to start thinking about making smart long-term financial decisions. Three of the most important long-term financial priorities are saving for retirement, buying life and disability insurance, and starting a college fund.

Another thing to keep in mind even before you start making any of these long-term investments is the importance of having an emergency fund for unexpected short-term expenses. While many experts recommend keeping three to six months of savings in an emergency fund, that may seem overwhelming if you're just starting out. One option is to start small — first, build up an emergency fund of around $1,000. That should be enough to cover most unexpected expenses. Then, you can continue increasing your emergency fund alongside other long-term financial priorities.


Saving for Retirement

Most financial advisors recommend that Social Security will not provide sufficient retirement income on its own. So you'll want to make sure that you are adequately saving for your retirement. Because of the power of compound interest, the younger you are when you start to save for your retirement, the better off you will be. If you save $2,000 each year starting when you are 20 years old, you'll have $836,852 at age 67 (with an 8% annual return). But if you wait to start investing until you are 30, you'll have less than half that amount — only $374,204[1].

Two popular forms of saving for retirement are a 401(k) plan and an Individual Retirement Account (IRA). A 401(k) is an employer-sponsored program that you sign up for through your employer. Many employers offer a full or partial match of any funds that you contribute. If your employer offers a match, it's a smart move to at least contribute enough to get the match — that is free money. There are two forms of IRAs to be aware of as well — a traditional IRA and a Roth IRA. Consult with your financial advisor to see which one might be best for your situation.


Buying Insurance

Many people are familiar enough with their finances to start saving for their retirement in a 401(k) and/or IRA account. A smaller number of people realize how important it is to protect their financial future through life insurance and disability insurance. Buying both of these types of insurance can protect your financial future from catastrophic occurrences. Especially if you have a spouse, partner, or dependents who rely on your income, you need to make sure that their future would be secure if you were to pass away or become unable to provide.

It's not just life insurance that you'll want to consider — disability insurance is also crucial to protecting your financial future. 25% of people will be unable to work at some point in their career due to illness or injury — if that were to happen to you, how long would your short-term savings last before you had to start dipping into your retirement? Making sure that you have sufficient disability insurance in case you're unable to work is an essential part of any financial strategy.


Starting a College Fund

If you have children or are planning to have children, you'll also want to start thinking about if or how you will provide for their higher education expenses. Historically, the cost of college (including tuition, room and board, books, and other expenses) has outpaced inflation, so you'll want to make sure you have a plan to pay for these expenses. Two popular ways to save for higher-education expenses are 529 plans and Coverdell Education Savings Accounts (ESAs).

If you aren't planning to have kids, then of course it may not make sense to save anything for future higher education expenses. Still, you may want to balance your investments to allow for flexibility should your situation change. In any case, it's generally a good idea to prioritize saving for your own retirement higher than paying for your kids' college. That is because there are grants, loans, and scholarships available to help pay for college, while there is not much available (other than Social Security) to help pay for your retirement if you've spent all your money paying for your children's college expenses.


The Bottom Line

There's a bit of an art to balancing how you allocate your long-term investments. After funding at least a basic emergency fund, you'll want to start putting money towards saving for retirement, covering higher education expenses, and buying insurance to protect yourself. The right balance between these items will depend on your unique financial situation, so be sure to talk it over with those that are closest to you.


Sourced from

INCOME INSURANCE Protect your income from injury and illness. From quote to policy in minutes!

Join the Discussion