The real cost of college for many parents is they won’t have nearly enough money to be financially independent when they would like to be. They may have had plenty if they didn’t give hundreds of thousands of dollars to their kid’s college(s).
AS a financial advisor for over 25 years, I’ve seen many people under the age of 60 completely unprepared ( although most people aren’t aware of this) to maintain their lifestyle without their current income.
What do you think?
Do the math: If your retirement savings is $1,000,000 and you pull the safe amount of 4%/year out – that gives you $40,000 per year, before taxes.
Could you live on that?
“No” is the answer for many people. The good news is that you can also get a major boost from Social Security. Ideally, people in good health would benefit greatly from waiting until Full-Retirement Age (FRA). Currently, the full benefit age is 66 years and 2 months for people born in 1955, and it will gradually rise to 67 for those born in 1960 or later. Early retirement benefits will continue to be available at age 62, but they will be reduced more.
How long until your savings plan reaches $1,000,000?
If you would like a 2nd Opinion on your retirement planning readiness click here to get started.
Why aren’t you saving more of your money?
By the time you are 50ish and start thinking about being financially independent, you’ll still be making serious choices about how you spend your income.
Before you get down on yourself for not saving enough, starting too late and overspending (compared to our parents) think long and hard about your college spending on your children.
If you want to pay for your child’s college, it will be a major hurdle to your financial independence plan. For example, most Big Ten schools cost from $40-$65,000 per year!
Do the math: 4 years x $40,000 = $160,000 x 3 kids= $480,000
You don’t need to let your child go to any school they want and can get into! For one, you can’t afford it! A second reason is that a state school for a fraction of the cost can provide your child a great education too.
The WSJ reported that college tuition’s rose at 2.9%, the lowest annual increase since 1975. Great, but that is not going to help parents with teenagers on their way to four-year schools.
The longer you waited to start funding this goal, the steeper the climb. COLLEGE COST CALCULATOR Click on the calculator provided by the IL Bright Directions 529 College savings Plan to run a quick college funding analysis.
One problem created by parents that have decided to prioritize the college savings goal is that they are doing so at the expense of their financial independence goal. Using the example above, that $480,000 is drained from the retirement fund and that will likely create a shortfall.
What are the most common strategies to help overcome the shortfall in retirement savings:
- Work longer – without a pension, most people will need to work beyond age 65
- Pay off debt – a dramatic decrease in lifestyle and debt payments can go a long way to allow you to be financially independent
- Invest for long-term growth – your retirement plan investment needs to grow and be there for you for your lifetime (20-40 more years) consider a growth portfolio to help keep up with inflating cost of living
- Minimize taxes – downsizing and moving to a low property and state tax area/state can have a significant impact
- Minimize taxes from investments – investing in vehicles that do not generate taxable income c
My passion is to shake my peers and wake them up to the financial realities they are dealing with is high. Money is nothing more than a “medium of exchange” and people should consider how to best match up their current and future lifestyle priorities with their day-to-day financial decisions would help them accomplish those goals.
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