A study by Personal Capital found that 70% of wealthy Millennial families are putting college savings ahead of retirement. That is a classic “heart vs. head” mistake for the simple reason that students can get loans and scholarships for college, but parents will not get loans and scholarships for retirement.
There is a lot of talk about how expensive college is. And that is definitely the case. However, what people do not talk about is that retirement is even more expensive than college. So, you want to make sure you have your retirement figured out before you start saving for or paying for college.
That is why I focus on Retirement Readiness in Chapter 8 of Never Pay Retail for College. You need to make sure you are putting away enough for retirement before considering how much you can afford to pay for college for your child or children.
Questions to Ask Yourself
If you haven’t answered the five critical questions regarding retirement, you can’t possibly back into your college budget. Do you know…
- What rate of return you need your savings and investment dollars to earn so your money will last as long as you do?
- How much do you need to set aside each year so your money will last as long as you do?
- How many years do you need to contribute to your nest egg so funds will last through life expectancy?
- How much will you need to downsize if you don’t change what you’re currently doing?
- How will paying for college impact the answer to these four questions?
Parents should answer these questions before establishing a college “budget”.
There are a lot of options to help keep the cost of college down. Start expectations. In a 2016 study, T. Rowe Price surveyed 1,086 families across the U.S. The report found that 62% of children expected their parents to cover the cost of “whatever college I want to go to.” Well, I’d like to live in Jennifer Aniston’s Malibu beach house but I don’t think I can qualify for the mortgage!
If you would like some help applying logic and experience to the process of selecting and paying for college, I would love to help. Get in touch today for a complimentary consult and let’s talk about what the future could be.