Do I Save for My Kid’s College or My Own Retirement?
by Dan Federman, CFP(r)
According to collegeboard.org, the average cost of a 4-year in-state public university costs $19,388 per year in today’s dollars. Parents with a newborn baby need to plan for this college expense today even though the money won’t be needed for 18 years. The total expected cost, including tuition & fees, room & board, and books & supplies, is projected to be to $201,108 in 18 years, assuming an inflation rate of 5%. If these parents plan to pay for 100% of college costs, they need to contribute roughly $450 per month into a 529 College Savings Plan for the next 18 years assuming an average 8% annual return on investments from a diversified portfolio of stock funds, bond funds, and cash. And this is just for one child!
If these parents have ample discretionary income and are able to save toward this college goal, then great, they can treat this as one of their routine monthly expenses. However, what if funds are tight and they have not saved enough for their own retirement needs? In that case, saving for retirement must take precedence over saving for college, primarily because a retirement goal must be “fully funded” by retirement age, and there are no “scholarships” for retirement. College expenses, on the other hand, may be “partially funded” by the parents, with the remainder being paid through financial aid, grants or scholarships (or, with some help from the grandparents).
To learn more about 529 Plans visit http://www.collegesavings.org/index.aspx or http://www.savingforcollege.com/.
To learn more about Ariba Asset Management Inc., visit www.aribaasset.com or call 800-808-7488 x101.
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