People grapple with how to prioritize their financial goals. Many are confronted with saving for your kids college and at the same time saving for retirement. These goals can feel overwhelming especially if you don’t know how much you’ll need.
Understanding College Costs
The current average net price of private nonprofit four-year institutions is $27,370 according to the College Board. Knowing the cost of attendance typically rises at a rate of 3.1%, this means that it will cost over $114,000 for all four years of college.
It’s good to know this average, but you may want to plan specifically for Sarah to attend her top college pick. With Quatro, it’s easy to estimate how much college will cost whether Sarah is in sixth grade or in the process of applying for admission to college next year. With our free paying for college calculator, you can plug in the name of the college and then select from the sticker price, average net-price, or income-based net price to find out how much all four-years will cost. Plus, you can figure out how far your existing college savings will stretch.
Understanding Retirement Needs
According to data from the Bureau of Labor Statistics, the average over-65 household has $48,885 in expenditures. Since the average person live at least 20 years post retirement and the current rate of inflation is 1.8 percent according to the US Inflation Calculator, this means you’ll need on average over $1,150,000 to cover your expenditures. Of course, based on which state you live and your lifestyle wants, you may need much more than that.
Once again, averages are good, but consider diving into GoBankingRates comfortable retirement costs per state data. You’ll find that Hawaii tops the list as the most expensive with $117,724.18 and Washington, DC ranks as a pretty close second at $100,879.90 Luckily, states like Mississippi ($53,071.87) and Oklahoma ($54,558.13), and Arkansas ($54,743.91) make it feel more doable.
Consider Rate of Return and Alternatives to Savings
What makes it complicated to decide the impact of college savings vs.retirement savings is also related to the interest earnings of investment mechanism. If you are 47 years old, plan to retire at 67, and are earning a 6% return on your investment, the value of your money could triple by your retirement party.
Now think about what you will do if you don’t have enough money to retire or pay for college. If you don’t have enough for retirement, you options are limited. You may have to work longer, consider moving locations, look for programs for elderly to help with housing, or lean on your relatives (including your kids).
If it’s college, you will have financing options to pay for the expenses. Student loan rates vary depending on who is borrowing and credit strength. Currently, the Federal Parent PLUS Loan is 7.08% (but don’t forget that 4.236% loan fee). Know that there are also Private Parent Loan options that are just in the parents name. College Ave Student Loans currently has rates as low as 5.59% with no fees for people with excellent credit strength.
Need Help, Talk to an Expert
Although some people believe in the do it yourself (DIY) model of financial planning, others seek the counsel. When weighing out the savings goals, rate of return, and alternative resources if savings is not enough, consider reaching out to a financial advisor, Certified Financial Planner (CFP), or Certified Public Accountant (CPA). Each provides guidance to customers for compensation on investment management, tax planning, estate planning, and more.
Colleen MacDonald Krumwiede is a financial aid and paying for college expert with over a decade of financial aid experience at Stanford GSB, Caltech, and Pomona College and another decade at educational finance and technology companies servicing higher education. She guides go-to-market strategy and product development at Quatromoney to transform the way families afford college.