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. With the uncertainty of the market today, the economic strain we are all feeling 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 the two all together. They feel each are separate problems and should be dealt with individually. However, we believe paying for college and saving for retirement are two problems rolled into one. Both can be complicated to accomplish and to think otherwise is being naive.
At Dream Strategy, we take a different view when it comes to retirement and college issues. We believe in introducing a sense of reality to our families who have college bound students and the cost of a college education is more expensive than ever before, but that doesn’t have to mean taking out loans you can’t afford, while sacrificing your golden years. Therefore, planning to pay for college and protecting your retirement nest egg at the same time is in the forefront of most of our college/ retirement financial planning strategies.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?
1. 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. 2. Has your planner discussed how to make your retirement principal last throughout your retirement years, based on your income needs? 3. 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?4. 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?5. 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?6. Has your planner explain to you that TAXABLE scholarships (merit, need or athletic) could be more beneficial than TAX-FREE scholarships? 7. 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?8. Has your planner or consultant shown you have to pay for 65% to 75% or more of college cost WITHOUT spending any more money than you are spending now, other than a Stafford Loan?9. 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? 10. 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.
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[…] families are not prepared for, and the two go hand-in-hand. Check out Eric’s post, entitled Paying for College and Planning for Retirement - A Double Edged Sword? over at […]
Pingback by Carnival of College Admission--Turkey Edition — November 26, 2008 @ 12:05 pm
events planner…
Good post. I am looking into these issues on my blog….
Trackback by events planner — December 24, 2008 @ 12:16 pm
student loans help in paying…
I usually agree with your article content, but in this case I am sorry to say that I do not share your views….
Trackback by Eric — December 25, 2008 @ 12:21 pm
college financial aid…
It sounds interesting but I am not sure that I agree with you completely….
Trackback by college financial aid — December 27, 2008 @ 1:59 am
applying for scholarships…
I found your post interesting and share most of your views, but just dont get your second point….
Trackback by Jessie — January 3, 2009 @ 8:22 am
When you are preparing to send your kids to college you must be aware that taking out loans is a bad idea. Depending on scholarships is not the answer either. How will you pay off $80,000 in PLUS loans? You know how?… over thirteen years at an average of $900 per MONTH. Will you sacrafice your IRA or 401k to pay them off and get slammed by the tax man or hope to get an inheritance. If you plan correctly, you can use the equity in your home to plan the next 20 years of your life and retire comfortably… or not. How much longer are you going to lose money in your mutual funds or 529 plans. Those 529 plans sounded great at the time… now that they dropped 50%, not so good, huh? If you with us or with an experienced college financial advisor you would have never invested in those plans… they stink. PERIOD. By-the-way, you need a 100% rate of return on all the money you lost on your non-qualified funds just to get back where you started. Let me know when the market will turn around like that. The stock market is volitile and can punish the small investor. The market is great if you have the capital to invest, but remember… the house always wins in the end. You need safe investments and secure places for your money when your kids are in college and you need a plan of what you’ll do when they are out. We can show how to pay for college without saving for it and it is easier than you think.
Comment by Eric — January 6, 2009 @ 5:51 pm
College Student Make Money…
After reading this post, I am not sure I understand what you are trying to relate. Please expand on your thoughts a little more. Thanks…
Trackback by College Student Make Money — January 15, 2009 @ 5:45 am
For parents of college students, paying for college is one of the biggest investments they will ever make. We offer alternatives to our clients than just taking out huge PLUS loans. Because retirement is usually 10 to 12 years away for many parents… tapping into their retirement to pay for college should be a last resort. At 8.5%, $80,000 ends up costing them $119,000 for only 4 years of college. What if the student goes 5 or 6. There are absolutly better ways to pay for college without sacrificing your retirement.
Comment by Eric — January 15, 2009 @ 9:02 am
noxtheking…
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Trackback by noxtheking — January 31, 2009 @ 11:30 am
We try whenever possible to provide the best info for our readers. If you like what you see… tell a friend and keep reading every week.
Comment by Eric — February 2, 2009 @ 11:27 am
homebased income…
It sounds interesting but I am not sure that I agree with you completely….
Trackback by homebased income — February 3, 2009 @ 10:39 pm
financial aid…
financial aid posted on Saturday Thanks for the info, my readers loved the post….
Trackback by financial aid — March 7, 2009 @ 1:15 am
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