My wife and I tried to do all the right things when it came to college planning. We started saving early on, opened 529 accounts, began campus visits when my daughter, Abby, was a freshman in high school, and signed up for her SAT training well ahead of time.
But still, Although we feel very confident that we’re on track and have many years of earnings ahead of us, now that we’re in the middle of paying Abby’s college bills, I jokingly say to my friends: “will we ever be able to retire?”
No matter how well you plan, it’s hard not to wonder. After all, One of the many things you learn when you send your child to a university is that the costs are often much higher than you anticipated. We’re not just spending money on tuition, but on all the other invisible extras — the dorm room supplies, the lunches and dinners not covered by the meal plan, and the car we just bought Abby, so she can have reliable transportation.
When I talk about this with other parents, a lot of them say, “I know… but I’ll worry about it later.” That, of course is fine — most of us are devoted and will do anything we can to ensure our children have everything they need.
But speaking as both a wealth advisor and a fellow parent, you have to have a game plan.
If the whole subject feels overwhelming, you are far from alone, and oftentimes it can seem easier to ignore a stressful situation than work through it. But in this situation it’s even more critical to take the initiative and start planning for your future. By tackling the issue, you’ll probably find that you can still give your child a good chance in life — without working until you’re in your nineties.
Here are four steps you can take to make it happen.
Understand your costs, and reduce them wherever possible
Before you can figure out how much you can contribute, whether to college or to your retirement account, you need to have an understanding where your money goes.
You can use my Expense Analysis Worksheet to figure out what you’re spending money on. Are there areas where you can cut back? You might not think it’s possible before you do the exercise, but I haven’t had a single client who wasn’t surprised by something in their expense analysis.
Take the time to do this today, and you might just find a few hidden resources you didn’t know about.
If your child is already in college or close to it, you should see if there’s an opportunity to save on his or her expenses. If you haven’t decided on a school already, maybe think more about that in-state public university instead of the private school. Maybe your child could live at home instead of in the dorms, or accelerate his or her coursework to graduate a bit early. There’s also the option of going to a two-year community college before transferring to the more expensive dream school.
Of course, everyone’s individual situation is different and each parent has an idea of what will be best for their child. The point isn’t that you have to do one of these things; it’s to get you to think about the options for action that are most appropriate for you.
For example, Abby decided that it would be best for her to go to a school that was a little further away, even though she had considerable scholarship offers from two local ones. Although we were able to, this isn’t always the right decision. It’s just what she decided would work best for her first venture on her own.
No matter what your ideas, the savings you can generate from budgeting and reducing costs can be redirected to the most appropriate place for your individual situation. It might mean more money for extra tuition payments, college savings, or for your retirement account.
Remember, when it comes to college savings, there is nothing quite like the 529 plan for getting the most bang for your buck. I’ve said it before and I’ll say it again, these accounts are great for building a college fund. You can learn more by reading two of my recent articles about 529 plans and preparing for college.
No matter where your extra savings go, always remember that it’s never too late to take control and start setting money aside. It might seem like just a little bit, but each extra dollar can really add up over time. I can’t even imagine how much all the $10s and $20s I’ve given to my children over the years would add up to! It’s more about consistency than the amount you set aside. Take those small sums over the course of years, and you might find yourself with a significant savings account.
Thinking about retirement: What do you have? What do you need?
You also need to think about what you’ll need in retirement.
Where are your savings now? How much do you need to add each year to reach your goals? Talk to your advisor about the current path you’re on and whether or not you need to make some changes to get on the right track.
Maybe you could consider investing a little more aggressively or work a few years longer, or perhaps you could think about future cost-saving measures, like downsizing your home.
By taking the time to figure out how the numbers actually look, you’ll be able to remove some of the horrible weight these issues can put on your shoulders. Think about how stressful it is to say to yourself, “I’ll never retire,” or “I’ll just keep working until I can retire.”
On the other hand, imagine if you could get a handle on the big picture and say, with some certainty, “I plan to retire at 60.”
Wouldn’t that be a lot more reassuring? It’s all a matter of taking charge of the situation and, again, having a game plan.
Plan for uncertainty
A recent Sallie Mae survey found that one-third of families were surprised by unexpected costs related to college. That’s a lot of people, and I can vouch for it. For example, when you go to collegeboard.org they basically tell you to add roughly $1,500 to $2,000 for “estimated personal expenses,” — I can assure you, the reality is much, much higher than that!
It illustrates the point that there is a lot of room for error when planning for college. Don’t get blindsided: build some padding into your savings or your budget so that you’re ready for unexpected costs, whether it’s a really expensive set of textbooks or those peak travel date airline tickets to bring your child back home for the holidays.
Enlist your child for help
Finally, consider enlisting your child to help pay for certain things, like those textbooks.
The same Sallie Mae survey found that 61% of parents think that paying for college should be a joint responsibility, so you’d be in good company if you ask your kids to contribute. Maybe a summer job or a part-time job during the school year is in order.
Again, it’s not always the right move — we haven’t asked Abby to contribute yet. But if your situation calls for it, you can’t feel bad for asking your child to help with the costs of his or her education.
Don’t give up!
Whatever you do, don’t give up and ignore the problem or resign yourself to a lifetime of work.
You can retire: it might just take some planning and possibly a few tough decisions. Balancing priorities, costs, and the dreams you have for your children isn’t easy, but I promise you this: the stress of all those bills and expenses will be much easier to handle if you understand the numbers you’re working with — and if you take the time to make a plan.
Written by Bradford Pine with Anna B. Wroblewska
To learn about retirement savings, download my free eBook, “10 Tips You Need to Know About Your IRA Rollover.” This short book is packed with critical information that will help you make the right decisions about your retirement savings.
Written by Bradford Pine
Bradford Pine Wealth Group – New York City Financial Advisors
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