Confidence in Strength

May 16, 2023 Jace Gilleshammer
Brian Halverson
Brian Halverson – President & CEO

The recent news of Silicon Valley Bank (SVB) and Signature Bank failures should not be too surprising to anyone who understands the timelines and the ways they were conducting their business.

SVB and Signature did not utilize proper risk management and had client bases that were concentrated in riskier industries such as venture capital financing and cryptocurrency. A perfect storm led to the demise of these institutions: rising interest rates, a slowdown in venture capital activity, and clients who reduced their exposure to riskier assets.

As a trust company, we are NOT a broker-dealer. Nor are we a traditional bank that accepts client deposits and lends them out. Our clients’ assets are NOT reflected on our balance sheet. Heartland Trust is entrusted with our clients’ assets and maintains good stewardship on their behalf. As a trust company, we are regulated and routinely examined by the North Dakota Department of Financial Institutions. We are required to have a certain amount of our own assets pledged on our balance sheet. These funds come from our own revenue and commitments from our shareholders.

The assets we manage are ALWAYS our clients’ assets. They are NEVER ours to use in any way shape or form. We are a financial institution that maintains assets and invests funds on behalf of those we work for. This is the way we have done business since our founding and the way we will continue to operate. I get to tell the wonderful story of HTC and how strong our business is. We are proud to have been chosen by the individuals, families, charities, foundations, and businesses that make up our client base. The entire team of professionals at Heartland makes us so strong. We appreciate your confidence in us to help you along life’s journey.

Jace GilleshammerConfidence in Strength
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Saving for Retirement and a Child’s Education at the Same Time

May 16, 2023 Heartland Trust

Adapted from Broadridge Investor Communication Services 

Everyone wants to retire comfortably when the time comes. We may also want to help our children go to college. So how do you juggle the two? The truth is, saving for your retirement and your child’s education at the same time can be a challenge. If you make smart choices now, you may be able to accomplish both goals.

Know what your financial needs are.

The first step is to determine your financial needs for each goal. Answering the following questions can help you get started.

For retirement:

  • How many years until you retire?
  • Does your company offer an employer-sponsored retirement plan or a pension plan? Do you participate? If so, what’s your balance? Can you estimate what your balance will be when you retire?
  • How much do you expect to receive in Social Security benefits? (One way to get an estimate of your future Social Security benefits is to use the benefit calculators available on the Social Security Administration’s website, www.ssa.gov. You can also sign up for a mySocialSecurity account so that you can view your online Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor’s, and disability benefits.)
  • What standard of living do you hope to have in retirement? For example, do you want to travel extensively, or will you be happy to stay in one place and live more simply?
  • Do you or your spouse expect to work part-time in retirement?

For college:

  • How many years until your child starts college?
  • Will your child attend a public or private college? What’s the expected cost?
  • Do you have more than one child whom you’ll be saving for?
  • Does your child have any special academic, athletic, or artistic skills that could lead to a scholarship?
  • Do you expect your child to qualify for financial aid?

Many online calculators are available to help you predict your retirement income needs and your child’s college funding needs.

Figure out what you can afford to put aside each month.

After you know what your financial needs are, the next step is to determine what you can afford to put aside each month. To do so, you’ll need to prepare a detailed family budget that lists all of your income and expenses. Keep in mind, though, that the amount you can afford may change from time to time as your circumstances change. Once you’ve come up with a dollar amount, you’ll need to decide how to divvy up your funds.

Retirement takes priority.

Though college is certainly an important goal, you should probably focus on your retirement if you have limited funds. With generous corporate pensions mostly a thing of the past, the burden is primarily on you to fund your retirement. But if you wait until your child is in college to start saving, you’ll miss out on years of potential tax-deferred growth and compounding of your money. Remember, your child can always attend college by taking out loans (or maybe even with scholarships), but there’s no such thing as a retirement loan!

If possible, save for your retirement and your child’s college at the same time.

Ideally, you’ll want to try to pursue both goals at the same time. The more money you can squirrel away for college bills now, the less money you or your child will need to borrow later. Even if you can allocate only a small amount to your child’s college fund, say $50 or $100 a month, you might be surprised at how much you can accumulate over many years. For example, if you saved $100 every month and earned 8% annually, you’d have $18,415 in your child’s college fund after 10 years. (This example is for illustrative purposes only and does not represent a specific investment. Investment returns will fluctuate and cannot be guaranteed.)

If you’re unsure about how to allocate your funds between retirement and college, a professional financial planner may be able to help. This person can also help you select appropriate investments for each goal. Remember, just because you’re pursuing both goals at the same time doesn’t necessarily mean that the same investments will be suitable. It may be appropriate to treat each goal independently.

Help! I can’t meet both goals.

If the numbers say that you can’t afford to educate your child or retire with the lifestyle you expected, you’ll probably have to make some sacrifices. Here are some suggestions:

  • Defer retirement: The longer you work, the more money you’ll earn and the later you’ll need to dip into your retirement savings.
  • Work part-time during retirement.
  • Reduce your standard of living now or in retirement: You might be able to adjust your spending habits now in order to have money later. Or, you may want to consider cutting back in retirement.
  • Increase your earnings now: You might consider increasing your hours at your current job, finding another job with better pay, taking a second job, or having a previously stay-at-home spouse return to the workforce.
  • Invest more aggressively: If you have several years until retirement or college, you might be able to earn more money by investing more aggressively (but remember that aggressive investments mean a greater risk of loss). Note that no investment strategy can guarantee success.
  • Expect your child to contribute more money to college: Despite your best efforts, your child may need to take out student loans or work part-time to earn money for college.
  • Send your child to a less expensive school: You may have dreamed your child would follow in your footsteps and attend an Ivy League school. However, unless your child is awarded a scholarship, you may need to lower your expectations. Don’t feel guilty – a lesser-known liberal arts college or a state university may provide your child with a similar quality education at a far lower cost.
  • Think of other creative ways to reduce education costs: Your child could attend a local college and live at home to save on room and board, enroll in an accelerated program to graduate in three years instead for four, take advantage of a cooperative education where paid internships alternate with course work, or defer college for a year or two and work to earn money for college.

Can retirement accounts be used to save for college?

Yes. Should they be? That depends on your family’s circumstances. Most financial planners discourage paying for college with funds from a retirement account; they also discourage using retirement funds for a child’s college education if doing so will leave you with no funds in your retirement years.

However, you can certainly tap your retirement accounts to help pay the college bills if you need to. With Traditional IRAs, you can withdraw money penalty free for college expenses, even if you’re under age 59½ (though there may be income tax consequences for the money you withdraw). In a Roth IRA, you can withdraw the principal tax free if the account has been open for at least 5 years. But with an employer-sponsored retirement plan like a 401(k) or 403(b), you’ll generally pay a 10% penalty on any withdrawals made before you reach age 59½, even if the money is used for college expenses. There may be income tax consequences, as well. (Check with your plan administrator to see what withdrawal options are available to you in your employer-sponsored retirement plan.)

If this is all overwhelming or you need help putting the pieces together, a financial planner can help you with the process. The longer you wait, the less time you will have to save for any goal.

Heartland TrustSaving for Retirement and a Child’s Education at the Same Time
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