COLLEGE AND RETIREMENT
“What you don’t know could cost you thousands of dollars”
Paying for the cost of a college education and saving for retirement at the same time can be difficult and sometimes it may seem unattainable to do both at the same time.
With the uncertainty of the market (which changes every year) and college costs continuing to outpace the national inflation rate, many families are forced to choose between saving for retirement or paying for their student’s college education.
A recent financial industry publication contained a headline declaring, “Market’s Woes Complicate Retirement Planning.” In the article, the author made a statement: “Some investors will take less from their nest eggs – or keep working.” These two headlines are not the exceptions to the rule but are the norm in financial publications across the nation.
The concepts of bear markets and taking less or working more during retirement has been forecasted throughout our society over the last 30 or 40 years. Retirement planning and knowing how to pay for college expenses has forced many families to choose one or the other and many planners try to separate to two all together. They feel each are separate problems and should be dealt with individually.
However, I believe paying for college and saving for retirement are two problems rolled into one. Both are complicated to understand and to think otherwise is being naive.
I take a different view when it comes to retirement and college issues. I believe it has introduced a sense of reality for most families that have college bound students. Most families do not know or not understand that our market today does not always go up. In fact, the market over the last 10 to 12 years has go down further, faster and stay there longer than at any time in the past. Therefore, planning to pay for college and protecting your retirement nest egg at the same time is or should be in the forefront of any financial plan.
Most families put off planning for college until the student’s senior year in high school and this is where the problem really begins. You cannot or it is very difficult – if not impossible, to solve a $70,000 – $160,000 problem in a few months let alone a few years.
You Need To Become More Knowledgeable
Parents’ of college bound students need to become more knowledgeable about the various options available to them when it comes to retirement and paying for college. Many parents are only hearing one side of the story when it comes to paying for college expenses. The sad part of this scenario is the story they are hearing is causing many families to pay more for a college education than they need to.
Today we have more students and parents borrowing for college than anytime in our history. This borrowing has a drastic impact on the future financial lifestyle of the student and has a more devastating impact on the parents’ future retirement goals. The more the parents borrow, the less money they have available to save for retirement.
If you are working with a planner, they should provide guidance in regard to living off your present income and provide you with ideas on how to pay for college expenses without depending on financial aid and save for retirement at the same time.
Have you discussed these things with your planner or consultant?
• Has your planner discussed how to take distributions from your retirement – Fixed-dollar or Fixed-percentage distributions? Knowing how to take distributions ahead of time could enhance your retirement lifestyle.
• Has your planner discussed how to make your retirement principal last throughout your retirement years, based on your income needs?
• Has your planner informed you that the market moves in THREE different directions instead of TWO and have they told you, you could lose your principal dollar two out-of three times during your retirement years due to the three market cycles?
• Has your planner consulted you on the dangers of borrowing too much for college costs and if you must borrow – how to borrow the correct way?
• Has your planner or consultant discussed with you tax ideas that can be used to lower your college out-of-pocket costs, therefore leaving additional money that can be used to increase your retirement savings?
• Has your planner explained to you that TAXABLE scholarships (merit, need or athletic) could be more beneficial than TAX-FREE scholarships?
• Has your planner told you, contributions into your 401-K or IRA must be added back into the financial aid formula when calculating your potential for financial aid?
• Has your planner or consultant shown you how to pay for 65% to 75% or more of college costs WITHOUT spending any more money than you are spending now, other than a Stafford Loan?
• Has your planner discussed with you how to potentially deduct up to the equivalent of 100% of college costs off your income taxes if you have a home based or a small business and use the tax savings to help fund your retirement?
• Has your advisor told you how to use the information on the student’s 1098-T form to potentially save you thousands of dollars in educational costs?
All these items will have an effect on how you prepare for retirement. The more you can save on college expenses, the more you will have available for retirement.
Finally, I would greatly appreciate your comments and suggestions on retirement and college cost issues that may be of concern to you. So, please let me hear from you – mark@collegefundingadvisors.net.
Mark Maiewski, CCPS