We have all read about the escalating costs of higher education. According to CollegeBoard, tuition and fees to attend a public university increased by 13 percent over the past five years. The idea of paying for college can be quite intimidating.
At about the time that kids are old enough for college, parents begin thinking about their own plans for the future. Unfortunately, the timing can present some challenges as parents try to figure out how to balance these financial priorities.
In a recent installment of “Your Future, Your Finances,” I had the opportunity to sit down with Judith Ward, senior financial planner at investment firm T. Rowe Price, to get her perspective on balancing retirement and college planning. Ms. Ward has over 32 years of experience helping individuals make sound financial decisions.
T. Rowe Price’s recent “Financial Tradeoff Survey” found that parents tend to put kids first and sacrifice saving for their own retirement. One reason behind this decision, according to Ms. Ward, is that college seems more immediate than retirement.
Another reason why parents often put retirement savings on the backburner is because they want to be there for their children, both financially and emotionally. Ms. Ward advises parents to think of themselves as well as their kids. The fact is that retirement can last for decades, and you need your savings to last.
When saving for college, consider these tips:
- Shop wisely for a school. An out-of-state college can cost more than twice the tuition and fees of an in-state school.
- Encourage your children to take advanced placement courses while in high school. This may enable them to earn college credit without the costly tuition and fees, thus reducing the number of college courses that they need to take and lowering the tuition bill.
- Think about making a down payment on your kids’ education rather than covering the costs entirely. In reality, parents would have to save $450 per month from the time a child is born to fully fund an education. This may not be realistic for most families, so making a partial payment that will help fund an education is a good alternative.
Certified financial planners like Ms. Ward recommend 529 college savings plans as a preferred way of saving for college. There are tax advantages to these plans, and they are flexible in that they can cover just about any type of education expense. As Ms. Ward said, “Parents can either save now or borrow later.” Programs like 529 savings plans can help parents plan ahead and potentially prevent their kids from graduating with a high amount of student loan debt.
Ms. Ward provides excellent insight on balancing the costs of college and the need for saving for your own retirement. In our interview, she also reveals some common misconceptions about college savings plans and retirement planning.
To watch the entire interview, go to https://www.youtube.com/watch?v=PA57QPNHdI0&index=41&list=PLk-2b0dGvkFhk8Nj78tljpnc3fxkMecBf.
Brian Kuhn CFP® is a financial planner at PSG Clarity in Fulton, Md. Securities offered through Triad Advisors, Member FINRA / SIPC. Advisory Services offered through Planning Solutions Group, LLC. Planning Solutions Group, LLC is not affiliated with Triad Advisors. PSG Clarity is a division of Planning Solutions Group, LLC.