The Help Desk

Your tough questions. MONEY's smart answers.
Presented by

Is there a standard ratio of college savings to retirement savings?

September 15, 2011: 5:05 AM ET

Is there a standard ratio of college savings to retirement savings? I understand that retirement always comes first, but I was just wondering if there was an accepted guideline. -- Josh Levin, Colorado Springs, Colo.

There is no standard ratio of college savings to retirement savings, says Mark Kantrowitz, publisher of Finaid.org. While it's true you can borrow for education costs and you can't borrow for retirement, the goal of course is to save enough for both. Here are a few rules you should follow for saving for college, advises Kantrowitz.

1. Use the one-third rule. Aim to save about one third of projected future college costs. Where does the rest come from? Another third will come from your current income and financial aid. The final third will come from your future income—or your kids'—in the form of loans. The idea here is to spread the cost of paying for college over a lifetime, which makes the hefty proce tag more manageable. When calculating how much to save, keep in mind that college costs increase by about a factor of three over any 17 year period.

2. Save in a tax-advantaged 529 college savings plan. You save after-tax dollars in 529 plan, but the growth is tax-deferred, and if used for qualified higher education expenses, withdrawals are entirely tax-free. Plus, 34 states and the District of Columbia give you a state income tax deduction or credit for your contributions to the state's 529 plan.

3. Student debt at graduation should be less than the student's expected starting salary—ideally, a lot less. Students who borrow more than their expected starting salary will have to use alternate repayment plans, like extended repayment and income-based repayment, to afford their monthly loan payments. Students who borrow more than twice their expected starting salary are at high risk of defaulting on their student loans, which can ruin their credit rating.

-- Walecia Konrad

Got a question for the help desk? Send it to

Posted in: Family Money, Retirement
Join the Conversation
Help Desk

Got a question about your money? We want to hear it! Each week we're answering your questions on CNN, Headline News and CNNMoney.com.

Your email or phone number won't be published; we'll use it to get in touch if we need more information about your question.
Help Desk Video
  • NEXT
    Not enough money in America's 401(k)s
    Despite the surging stock market bringing balances to record highs, the average Fidelity 401(k) account has less than $100,000 in it. That's just not enough. Play
  • NEXT
    BACK
    Explaining Obama's myRA
    President Obama unveiled a new savings plan for retirement accounts, aimed at encouraging people to start building their nest egg. But how exactly does it work? Play
  • NEXT
    BACK
    Tricks on how to save in your 20s
    Saving for your retirement in your 20s doesn't have to be a financial burden. Prioritizing your expenses is usually the first step in building a nest egg. Play
  • BACK
    Don't get fooled by Black Friday sales
    Here are some of the tricks that retailers use to make you think you're getting a deal. Keep an eye out for them while shopping this Black Friday. Play
Best Tips
Some of the nation's leading business owners, investors, and thinkers share their thoughts on rebuilding your wealth. More
These strategies can help you manage the challenges -- both emotional and financial -- of helping an aging parent from afar. More
You don't need to be fanatical to get to 780. Those in the know say these moves matter most. More
Featured Newsletters

Tips for saving and spending smarter.

Search This Column
View all entries from this: Week, Month
Help Desk
More help for your career, your investments and your budget.
Powered by WordPress.com VIP.