I am helping successful families confront a financial dilemma that most families did not face a few decades ago: how to plan for both their years of financial independence as well as their children’s college tuition.
In Central Oregon we have experienced some of the most challenging economies in the county since 2008 when both the real estate and stock markets simultaneously collapsed right in front of our eyes. Today it is a pleasure to see Tyvek around Bend again- a sign that new construction has returned. Real estate sales are increasing significantly, and we have experienced three positive years in the stock market. The equity markets are not far from a new record high!
Although many indicators show the economy is improving, national studies paint a discouraging picture showing that a majority of Americans run the risk of running out of money in retirement amid low savings rates, high unemployment, declining wealth, investment losses and falling home prices. It may sound more like the perfect financial storm.
It is truly a dilemma as most hard working families today do not have the ability to financially prepare for their retirement, as well as their children’s secondary education. They just can’t afford it. I have always been one to stress the importance of education. I don’t ask my children if they are going to college. I ask them where they would like to go to college. With that being said, I typically suggest to most families that they put retirement first.
A new Millionaire Corner survey shows that investors are seven times more likely to identify “adequate retirement savings” – as opposed to college tuition – as their most significant financial concern. In fact, retirement savings trumps the entire menu of financial worries, including job security, personal debt, home values, inflation and health care costs, while college tuition comes in dead last. Only four percent of investors identify college costs as their top financial concern, compared to nearly 28 percent who say they are most worried about saving enough money to last through retirement.
That makes a lot of sense to financial advisors who summon the airplane analogy: In the event of a sudden drop in cabin pressure, put on your own oxygen mask first, and then help children who are traveling with you. The example serves to illustrate the importance of helping yourself first, so that you’ll be in a better position to help others. Parents who make saving for college tuition a priority may run the risk of running short of funds in retirement and becoming a burden on others, according to Jean C. Setzfand, vice president for Financial Security at AARP, an advocacy group serving America’s senior citizens.
College costs have risen steeply in the past few decades but so have the number of options for paying college tuition. This includes scholarships and loans. No one offers grants, scholarship, or federally guaranteed loans to support you when you retire. Options for funding retirement are generally limited to working, and saving and investing part of each paycheck. If you start saving for college when your child is first born, it becomes much easier to achieve that goal as relatively small contributions have time value of money to grow and compound. It is the idea of doing ordinary things (a small contribution amount) extraordinarily well (each and every month) to reach your goals.
To better the chances of meeting both retirement and college tuition goals, I recommend taking full advantage of employer sponsored retirement plans, such as a 401(k), and other retirement vehicles, such as IRAs. These types of accounts offer tax advantages and many offer employer matching funds. Never turn down free money!
David Rosell is President of the Rosell Wealth Management in Bend. He is the Past President of the City Club of Central Oregon and a Past Chairman of the Bend Chamber of Commerce. David can be reached at 541-385-8831 or www.RosellWealthManagement.com.
Investment advisory services offered through Rosell Wealth Management, a State Registered Investment Advisor. Securities offered through ValMark Securities, Inc. Member FINRA, SIPC 130 Springside Drive, Ste 300 Akron, Ohio 44333-2431. 800-765-5201. Rosell Wealth Management is a separate entity from ValMark Securities, Inc.
