Retirement is important — but don’t forget to save for college!

vitucci-dont-forget-college-header-imageYou might be worried about retirement planning, and of course you should be.

According to one study, only 24% of baby boomers feel confident that their savings will see them through retirement. Another study puts the number at just 21%. Between rising health care costs, low savings rates, and a healthy dose of uncertainty, it’s no wonder if you’re laying awake at night.1

But it’s not just retirement that’s getting more expensive: it’s college.

As important as retirement saving is — and it is, or should be, a top priority for most people — college is becoming an increasingly critical part of the family budget.

How bad is it?

Reading about college tuition trends is downright scary.

For example, in 2005, public college tuition amounted to 35% of disposable income for the average American family. Today, it’s equal to 47%. In 2015, tuition and fees at American colleges rose 3% — even though overall inflation was nearly flat.2

When will it stop? Whether your kids are in high school or kindergarten, these numbers are enough to keep you up at night.

That’s why it’s important to save — and to start now.

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Even financial aid can’t help you.

The vast majority of financial aid from the federal government comes in the form of loans. While these can be extremely useful for students, they still have to be paid back.3
Today, total student debt has topped $1.2 trillion.4

To make matters worse, state funding for education dropped sharply since the onset of the recession — by nearly 30% per student since 2008.

This is the first time in history that more than half of the cost of higher education has fallen on students.

Of course, you might point out universities also provide funding to their students. Some of that funding is incredibly generous: for example, Stanford is free for families earning under $125,000 per year, and many Ivies are similarly focused on easing the financial strain of attendance.5

But generosity is increasingly concentrated at the highest-ranked, wealthiest institutions.

It’s not hard to imagine why when you discover that:

  • 60% of gifts to universities go to just 40 schools.
  • The richest 50 schools have an average of $3.5 billion in endowments, but the average for the top 850 schools is only $113 million.

What about scholarships?

Thankfully, scholarships have been getting more accessible.

There are millions of scholarships available to undergraduates, and while most may not cover much individually, amassing several could put a healthy dose of preparation and work ethic can help put a strong dent in your tuition costs.

Of course, this requires a great deal of investment in applications. And no matter what your child’s age and temperament, it’s difficult to guarantee a good education on the basis of potential awards.

Count on yourself

It’s possible that your child will get a full ride to an Ivy League, this isn’t a realistic goal for most people. Instead, parents need to focus on building their own assets and targeting scholarships wherever possible.

Take these steps to prepare:

  • Make it a priority to save for college, whether it’s through a college-focused vehicle or other means.
  • Help your child to understand the cost of college attendance and contribute to savings (even nominally) — this could also help him or her build realistic expectations about the college experience
  • Encourage your child to outperform academically: it will help make him or her a more attractive candidate for awards and scholarships.
  • Spend time on scholarship applications as early as is realistic. The more funding you can amass, the better.
  • Take steps to make your finances more compelling from a financial aid standpoint, to the extent it’s prudent and possible.

College and retirement: both come with their own frightening statistics, but making each one a success for your family is possible — and with a little luck and a lot of legwork, you can maximize your chances at enjoying each.

Let Us Help!

We can discuss this topic and more at a complimentary appointment. As a bay area retirement planning coaches, we can give you a review and make suggestions based on your retirement objectives.

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1 Jamie Hopkins. “retirement Preparedness Confidence Hits Historic Low According to Report.” Forbes Personal Finance, April 12, 2016. http://www.forbes.com/sites/jamiehopkins/2016/04/12/retirement-preparedness-confidence-hits-historic-low-according-to-report/#56e62d8c2b24

2 Kim Clark. “College Board Says Tuition Rose Faster Than Inflation Again This Year.” Time Money. Nov 4, 2015. http://time.com/money/4098683/college-board-tuition-cost-rose-inflation-2015/

3 College Board. Federal Aid Per Student By Type Over Time. https://trends.collegeboard.org/student-aid/figures-tables/federal-aid-student-type-over-time#Key Points

4 Unless otherwise noted, all statistics in this section are from:

John W. Schoen. “Why Does a College Degree Cost so Much?” CNBC, June 16, 2015. http://www.cnbc.com/2015/06/16/why-college-costs-are-so-high-and-rising.html

5 Kelley Holland. “The High Economic and Social Costs of Student Loan Debt.” CNBC. June 15, 2015. http://www.cnbc.com/2015/06/15/the-high-economic-and-social-costs-of-student-loan-debt.html

Important disclosures:

The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by United Planners.

To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk.

Neither diversification nor asset allocation can ensure a profit or prevention of loss in times of declining values. United Planners does not render tax advice.

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