Please don’t be upset with me. I’m genuinely happy that you’ve been following the advice on saving for retirement and other financial goals. But now I want to talk about another important topic that might make you reach a little deeper into your wallets: college expenses.
Whether you’re young and recently graduated, newly married, or just had kids, you’re in a good position. Time is on your side when it comes to saving. This discussion assumes that if or when you have kids, you’ll want to send them to college and provide them with the best opportunities.
Let’s take a look at some estimated costs from my alma mater for the 2011-12 academic year:
– Two semesters of in-state undergraduate study cost $21,026, including $12,822 for tuition (15 credits/semester) and $8,204 for housing and meals.
– This totals $51,288 for a four-year course, assuming 120 credits.
In 14 years, the cost of tuition has roughly doubled. Assuming it doubles again in the next 18 years, you’re looking at around $102,576 for four years or $25,644 per year.
To save for this expense through semi-conservative funds returning 6% annually, you would need to save about $3,131.14 per year or $260.93 per month.
If you’re currently struggling to save for retirement, finding an additional $261 per month per child for college seems daunting. Most likely, you won’t be able to fully fund both retirement and your child’s education. If you must choose between the two, prioritize your retirement savings. Here’s why:
1. Your kids can take out loans for school; you can’t take a loan for your retirement.
2. Your kids have many productive years to repay their loans, while your ability to work diminishes as you age.
3. Your child may not want to go to college, but you will definitely want to retire someday.
You might not be able to fully fund their education, but saving something is better than nothing. Even $100 a month can help.
There are various college savings plans, each with its own benefits:
– **529 Plans**: These are similar to IRAs but for college expenses and offer state tax benefits. They cover a wide range of expenses but have limited investment options.
– **Pre-Paid Plans**: You can buy a future semester at today’s prices. However, these plans often don’t cover room, board, and books.
– **U.S. Savings Bonds**: These bonds are tax-exempt if used for education but currently offer low interest rates.
– **Personal Investments**: While not tax-advantaged, investing in mutual funds or dividend stocks can be a flexible option. High-yield savings accounts are also worth considering.
Whichever route you choose, avoid high-risk investments due to the relatively short timeframe.
By keeping these strategies in mind, you can better prepare for both your retirement and your child’s education.
