Retirement or “The College Fund."
Are you faced with that choice? For many parents, figuring out the right balance between those two financial goals has always been tricky, but it’s become particularly challenging in today’s economy. Most families have tightened their household budgets; for those where a breadwinner has lost a job or had their income cut, saving for college has become a difficult, if not impossible, goal that takes a back seat to more immediate priorities.
So how are families coping, and what are some of the strategies being employed to deal with this significant expense?
The recent recession pushed some families to look to grandparents to help with education funding, according to Carl Amos Johnson, a fee-only fiduciary adviser based in New Hampshire. “This is where the 529 Plans shine: As an asset of the grandparents.”
Other financial planners said they’ve been working with clients to help re-evaluate college goals. As part of this process, they look at the degree program that the child is hoping to pursue, the job prospects for that degree, and the income that can be expected from it. One alternative that some families consider is to have their child attend a community college or junior college for two years, and then transfer to a university of their choice for the final degree. This saves parents money on tuition, room and board if the child stays home during the first two years, according to Sean P. Kelleher, principal of Riverchase Financial Planning in Lewisville, Texas.
Not all students, or their parents, are willing to consider the community college option. “I am getting a lot of clients that are having an issue with overspending for college,” said Laura Scharr-Bykowsky, a principal at Ascend Financial Planning in South Carolina. Parents “are aggressively funding their kids’ education to the detriment of their retirement. They are focusing too much on the short-term goal.”
Instead, parents should set expectations up front with their children, and have a frank conversation with them about what they can, and cannot, afford, Scharr-Bykowsky said.
This is particularly true since many families have invested their college savings in portfolios that have suffered declines in recent years.
“Where habits have changed or may need to change is the savings rate,” according to Philip Lee of Modera Wealth in Boston. “I have had to sit in front of a client and tell them that because of the portfolio declines, the monthly amount they need to contribute to meet their goals has increased, and increased significantly, and that’s a tough message.”
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