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Saving for College or Retirement – What Parents Need to Know

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It’s tough being a parent today. Most parents would like to give some kind of financial help to their children who want to go to college. But the costs of college today is very high as compared to the past decades.

Let’s take a look at the cost to go to college for four years:

In-State School

Starting in 2000                     $15,076
Starting in 2010                     $32,676
Starting in 2020 (projected)   $48,532
Starting in 2030 (projected)   $139,766

Private School

Starting in 2000                      $70,228
Starting in 2010                      $120,506
Starting in 2020 (projected)    $177,853
Starting in 2030 (projected)    $289,704

As a parent, the above-projected numbers for what it will cost to go to college, private or in-state public, is both depressing and frustrating.

If your child is eight years old and will be going to school in 2030, somehow you’d have to save over $130,000 (in state) to pay for the child’s education or over $65,000 if you wanted to pay for half of the cost.

To save $130,000 over the next 10 years you’d have to put away $9,000 a year at a 5% rate of return (assuming no major market crashes along the way). That’s just for one child.

If you are a 45-year old parent who wants to retire when you are 65, what if you forego saving for retirement so you can save for your child’s education?

If you started saving for retirement when you were 55 years old and could save $15,000 a year, you’d have only $223,000 saved at a 5% net return by the time you turned 65. If you could earn a net return of 7% you’d only have $253,000 saved.

Do you have any idea what the average medical costs are for a senior couple over their retirement lifetime (this does NOT include costs for long-term care)? $285,000.*

Do you like the math? This math is downright depressing.

Student loans—children can certainly take out student loans to pay for college, but as you may have heard, we have a student loan crisis in this country. We have more student loan debt than credit card or auto loan debt. Students are in such a big hole when they graduate that many feel hopeless.

Retirement Planning Loans—as depressing as it is for your children to take out student loans, there is NO SUCH THING as a retirement loan for seniors who didn’t save enough.

What does that mean? It means that as much as you want to be the best parent you can, you need to make sure you are budgeted to have enough money to TAKE CARE OF YOURSELF in retirement FIRST.

It doesn’t mean you are being a bad parent by not helping your children pay for all or even some of their college.

Budgeting—the key take away from this newsletter is budgeting. Most people DO NOT create budgets to be used not only for the short term but for the long term.

Most people have no idea

  • how much to save annually
  • how much money will be needed to pay medical expenses in retirement
  • how much money is needed to generate a certain amount of income in retirement
  • what the best places are to save for retirement (ones that can avoid stock market losses and even tools that can guarantee you a certain retirement income no matter how long you live).

It will be nearly impossible for you to reach your financial, college, or retirement planning goals without a budget and a clear road map of how to get there.

If you take nothing from this post, take from it that you need to make the time to create a budget and map out how you are going to reach your goals.

Help with your budgeting and financial decision making

Most people DO NOT use an advisor to help them plan for retirement or college savings for loved ones.

We would be happy to sit down and help you:

  • better understand your current situation and your future goals.
  • get budgeted to try and reach your financial/college/retirement planning goals.
  • pick the right tools so you can grow your wealth in the least risky manner possible to reach your goals.

To get the process started, contact us or schedule an appointment with one of our advisors.

* Fidelity Benefits Consulting estimate; 2019.

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