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Retirement vs. College Funding: How To Successfully Plan for Both

By: Investor Solutions

By: Investor Solutions, Inc.

The cost of a college education is rising five percent per year, faster than the rate of inflation. It is estimated that by the year 2019, a college education at a private college will cost a mind blowing $257,000 for four years! Are you prepared to shell out that kind of dough for your children’s education? How will that affect your own financial security during retirement?

Studies indicate that only about 1/3 of Americans are saving enough to meet their retirement goals. Couple that with a need to fund your child’s education, and you may have a serious economic dilemma on your hands. Given these alarming figures, the only way you will be able to meet your education and retirement goals is to start early and remain disciplined.

There are a number of responsibilities that parents are faced with; among the most important is the ability to provide a fair education for your children. Traditionally, there have been three ways to fund college expenses: from parent’s current income, financial aid/scholarships/grants, from parent’s personal savings. In recent years, a myriad of other college savings programs have been introduced: prepaid tuition programs, Education IRA’s, Roth IRA’s, 529 Plans and more. There are many choices available for parents, but the most important consideration in planning for college is to start saving as early as possible. The earlier you start to save, the lower the regular contributions will have to be. It’s never too late, or too early to start saving for college.

Prioritize

It’s not easy to be a disciplined saver. In an age where instant gratification is a way of life, it’s tempting to spend today and worry tomorrow. Unfortunately, this will lead you and your child to an unfavorable outcome.

Parents must learn to live within their means and prioritize if they wish to provide for their child and themselves in the future. Is that trip to Disneyland really more important than opening junior’s savings account? Could you maybe put off building your swimming pool until you were certain you had a sufficient plan for retirement?

Involve your children in the planning process

Parents should be straightforward with their children about how much they will be able to afford. If the child wants to go to a name-brand school that costs $30,000 a year but the parents can only afford $15,000 a year, the student can take part in the choice to find alternative financing or go to the cheaper school. By allowing your children to participate in the planning process, you will all be working toward a common goal.

Encourage your child to research scholarship opportunities during their senior year in high school. Most scholarships are merit based, but many others are based on other factors. The free money is out there; you just have to look for it. Check out the following guide on scholarships, grants and loans

Let the student assume some of the responsibility

If you have not been a diligent saver and find that you do not have enough to help your child through school, there are options. A number of alternatives are available for college students: grants, loans, work-study or (gasp) a job.

You may wish to consider financial aid to fully or partially fund your child’s education. If you feel responsible for paying for your child’s education but did a poor job of planning ahead, you may help out by paying off your child’s loans after graduation. Check out http://www.studentloan.com/ for valuable information.

The federal government has made it possible for virtually anyone to attend college, despite cost and despite parent’s income. Student loans and parent loans are readily available at low interest rates and payments are often deferred until the student graduates (for most full time students). The application process may be somewhat cumbersome, but the benefits far outweigh the (time) costs. In 1999, $68 billion in financial aid was awarded to families across various income levels. The College Board estimates that nearly 50% of the nearly 16.7 million students receive aid in some form another. Too many families incorrectly assume that they won’t qualify because they feel they are too wealthy.

Another viable alternative your college bound child may consider is a free ride from the government in return for some military commitment. The GI Bill allows men and women to serve their country for two, three, four or six years. They have various programs to choose from. For more information click here. There also four fine military academies that offer world-class educational opportunities along with built in career and service options.

Limited funds, limited choices

The consequences of funding education before funding retirement may lead to inadequate retirement funds or prolonging your work years. The difference between an Ivy League school and a middle of the road university can translate into retiring at seventy-six versus fifty-eight. The choice is yours.

The decision to put your child’s education before your own retirement is not only an economic decision, but also, an emotional one. Parents feel (and have) an overwhelming responsibility to provide a better way of life for their kids, but if they plan carefully, they won’t have to risk their own well being to accomplish this.

Plan ahead

There is no excuse for poor planning. You owe it to your children to offer them a decent education. You also have a responsibility to yourself to provide for a comfortable retirement. Do yourself and your children a favor, start saving early, conduct regular reviews of your goals and stay disciplined. A financial plan is no good unless you’re able to stick to it. You will all be better off in the end.