College savings article from Money magazine

Discussion in 'Budget Board' started by disneysteve, Apr 20, 2006.

  1. disneysteve

    disneysteve You have to enjoy life, not go

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    This month's (the May issue) Money magazine has an article about one family and how they are planning to pay for their son's college education. The son is 18 and will be starting college in the fall. They have saved just $9,500. The husband is 55 and the wife is 52. They earn $110,000/year. Also, they have saved less than $40,000 for retirement but expect to need about $1 million to retire by age 65.

    I think this is just the kind of family we are often talking about here. Good income but lousy savings. The article does say they had "unexpected family expenses" but didn't give any details.

    The article also said that the average American family has saved less than $7,000 for college by the time their child is in high school. The exact amount was $6,625. Sorry, but even if you go to a state school, 7K isn't going to get you too far.

    Plus, how the heck do these folks expect to go from 40K to 1 million in retirement funds in the next 10 years? They would need to save about 50% of their gross income each month and earn a 10% return on their money to end up with $1 million at age 65. That ain't gonna happen. If they could invest 20% of income, a more reasonable possibility, and earn 8% which is doable, they would end up with about 425K, less than half of their expected need.

    Dad is quoted as saying, "Should we have saved more? Yes, absolutely. I wouldn't call us terrific financial planners, but the bottom line is, we'll find a way."

    If anyone knows a way to turn 40K into a million in 10 years, let me know. I'm a pretty optimistic guy, but I really wonder what is going to happen to the baby boomers over the next 2 decades as they reach retirement with inadequate savings.
     
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  3. punkin

    punkin <font color=purple>Went through pain just to look

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    Hey, that's not far from where I am except my DD is only 13 and I have $8K saved for her college. My retirement is a whole lot better though (more than 2X theirs) and I am only 39 so I have more time for it to grow.

    I plan to pay for college with a combination of loans for DD and out of my current earnings. Up until this year I was paying $13K per year for private school for DD13 so I think I can swing it.

    I am also behind on savings for my DD7. I only have $4K saved for her.

    I am also very optimistic.
     
  4. KelNottAt

    KelNottAt <a href="http://www.wdwinfo.com/dis-sponsor/" targ

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    OK. I'll bite. Other than "we'll find a way," did the article say how they're gonna pay for college?
     
  5. Julia M

    Julia M DIS Veteran<br><font color =red>not clever, not wi

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    The one thing I hope I do is get my kids to open up their own IRA's and 401K's, ASAP. Does having an IRA impact college financial aid?

    My dh started a 401 K when he first started working, but only put in up to what the company matched. Not bad, but he's kicking himself he didn't do more young. At least he did something!

    I'd like my kids to open IRA's when they first begin working, even summer jobs. Even if it's small amounts.....I'd like them to have that concept.

    Isn't there something that shows it's better to put money in a 401 K from 22-30, than it is from 30-50? I remember seeing something like that.

    In terms of college, what is typical of some families I know that mom has stayed at home with the kids. When she goes back to work, that money is used for college.

    We don't have tons of college savings, but we do have some. I only work part time, but I anticipate going back to work full time some day and that will go towards college. Maybe not a perfect plan, but something.

    However, when both parents already work, and the income is already spoken for, that's hard. The child will either need to go the community college route, or look at loans, or going to school part time.

    Julia
     
  6. disneysteve

    disneysteve You have to enjoy life, not go

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    Sounds like you are already in much better shape than these folks and you are 16 years younger. And your oldest won't be in college for 5 years, not 5 months.
     
  7. JuneChickie

    JuneChickie <marquee behavior=alternate><img src=http://www.wd

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  8. disneysteve

    disneysteve You have to enjoy life, not go

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    They made a number of suggestions:

    Pick a cheaper school. The kid's first choice is U. of Oregon, which is over 25K/year. So they suggest doing a public college or splitting the 4 years - 2 at a public school then finishing at the private school.

    They talk a little about applying for aid and comparing offers from different schools. They advise against having the parents borrow against their home equity or their retirement savings ("retirement suicide" is the term they use).

    Their #1 tip: "Tighten your belt." Squeeze every possible dollar out of the family budget. Cut things like restaurant meals and vacations and consider trading in their SUV for an economy car. Sounds familiar, huh?

    #2: Spend 529 money first because colleges look at that as an asset which can reduce financial aid offers. By spending it first, they may qualify for more aid in future years.

    #3: Share the cost. Let the kid take on some debt, but not so much that it will be unmanageable when he gets out.
     
  9. arminnie

    arminnie <font color=blue>Tossed the butter kept the gin<br

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    This isn't going to help this particular family, but for people with lower incomes this article is very helpful.

    The moral of this - if you have smart kids make sure they work like crazy to make good grades.



     
  10. disneysteve

    disneysteve You have to enjoy life, not go

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    Sounds like you guys have done just fine with what you had to work with, especially raising 6 kids and now preparing to take in your grandchild.

    You must have had a great mortgage if the car will cost the same as the house payment. At least the car will be paid for in 4 or 5 years and then you'll have that money to put aside.
     
  11. Lyn5

    Lyn5 <font color=green>If the tag fairy stops by, green

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    :guilty: college has been on my mind more and more lately....time goes by too fast and my kids grow by the day. My oldest is starting K soon, so after much thought and research, DH and I decided to contribute less to paying off our debt (house) and to use the money we used to pay for preschool/childcare towards saving for college. It was a hard decision, I really want the mortgage gone, but our rate is 4.75% on 30 years, so we decided that saving for college was the way to go. There are so many competing needs and desires, it is very difficult to make the decision on how to set prorirties, at least for me it is. And, I am thankful we have been able to pay for childcare all these years, I figure if we have managed this long, what is another 18 years :rolleyes:
     
  12. punkin

    punkin <font color=purple>Went through pain just to look

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    Actually it's slightly more than 4 years. She's going into 9th grade this fall (yes, she is very young-but she has an October birthday). In order to save enough money to fully fund her education at my alma mater, I would have to save over $200K over the next 4 years. :lmao:

    That is just not going to happen. She better get some financial aid.
     
  13. Chicago526

    Chicago526 <font color=red>Any dream will do...<br><font colo

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    Just curious, but what do you do that you earn so little when both of you have college degrees? The only thing I can think of that pays so little is teaching, but teachers almost always get pensions (and often very good ones) and you said you'd have to work forever.

    Anyway, if you don't have it, you don't have it! No flames here!
     
  14. crisi

    crisi DIS Veteran

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    The Stanford thing is great - but the competition will be fierce. Here is what is happening in the Twin Cities:

    http://www.mnscu.edu/media/newsreleases/2006/010906powerofyou.html

    Basically, if you graduate from a Minneapolis or St. Paul High School, your tuition is paid for the first two years at a small number of state schools. Only one is a four year university. Its a pilot, with only five years of funding, but they hope it catches on.
     
  15. punkin

    punkin <font color=purple>Went through pain just to look

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    Actually, the very competitive schools with huge endowments have always given better financial aid than the cheaper colleges. Stanford probably would have given out huge amounts of financial aid for anyone making less than $45K anyway and this just sounds like good publicity for the school.
     
  16. dvcgirl

    dvcgirl DIS Veteran

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    Yes, they'll find a way....it's called "continue working". Make no mistake about it, there are a lot of people in this boat. Also, they really can't afford to put their son through college, but like many others, they probably will help as much as they can....and further impact their ability to save for retirement.

    Also, even if they had 1 million, that would bring their hypothetical retirement income to around 70K (counting SS).....still a bit cut from 110K a year. If they are lucky and can save 425 and get that 8 percent....their income is about 47K. Going from 110 down to 47K....tough to do.
     
  17. DawnM

    DawnM Dawn

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    Our county here in NC is just starting a new High School this next year. It will have grades 9-13 and will be held on the Community College campus. At the end of grade 13 the student will graduate with a HS diploma AND two years of CC under his/her belt! All for free at a ps.

    I thought that was a great plan!

    I don't know where we will be when my oldest starts college. We have just recently gone down to one income and I could go back to work full time if necessary.

    In SoCal we made over 100,000 per year and here in NC we make a little less than 3/4 of that, but we live so much better here on less. In retrospect, we probably should have purchased a smaller home and had either no mortgage or a smaller mortgage, but it is done now.

    I am concerned about getting my 3 kids through college in the future. My alma matter is now close to $30,000 per year (including room and board). My husband's alma mater is close to $40,000 per year.

    Nothing wrong with community college first! Also nothing wrong with a local state University and living at home. That said, I will also say that if my child is passionate about a particular school and gets in and keeps his grades up, we will help him find a way to pay for it.

    Dawn

    PS: How much should one have in a retirement account?
     
  18. crisi

    crisi DIS Veteran

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    Yeah, my husband is the graduate of one of the privately well endowed schools - one of the best endowed in the country. (get your mind out of the gutter). He left with some student loan debt, but not nearly the amount the college cost. But those schools can be highly competative because of the financial aid they have, as well as many of them being really well respected schools.
     
  19. punkin

    punkin <font color=purple>Went through pain just to look

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    Mind in the gutter? Who me? I am a lofty-minded graduate of a well endowed University. My superior mind refuses to sink to such levels. :cool1:

    Seriously though... That is presicely what I did and my student loans were not astronomical. Most of my aid was in the form of grants.
     
  20. JuneChickie

    JuneChickie <marquee behavior=alternate><img src=http://www.wd

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    Chicago ****** nope ,, not teachers ,so no teachers pension for us ,, and yes
    ,, there are lots of people out there with college degrees making less than 50 thousand a year. Just because you go to college does not guarantee you a 100 thousand plus a year job.

    DisneySteve :::,, Our mortage when we first got it 16 years ago ,, was 900 a month ,, at that time our taxes and ins. were included in that and started out at 250 a month
    in escrow. Now our taxes and ins. are almost 600 . our home value has increased
    along the way and so have the taxes we have to pay on it... that leaves 300 a month
    for our new car payment ,,, 250 for the car payment and 50 a month for the
    ins. payment.. so heres the math for you ,,,,, 600 for home taxes and ins.
    250 plus 50 for our car. ,,, equals 900 ,, (which was our normal house payment untill
    we paid it off. ) Hence,, """ the money that was going on the house "" is going on the car payment ,,,,,
     
  21. MrsPete

    MrsPete DIS Veteran

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    I suspect it'll be a combination of things:

    Social security will change, probably benefiting those who failed to save. Or perhaps just Medicare will change since health care is such a concern for everyone, especially the elderly. Why? Senior citizens are a powerful group, and the politicians can't afford to piss them off.

    More and more seniors will continue to work (at least part-time), which will make things difficult for younger workers who won't be able to get a foothold in the work force.

    More and more senior citizens will be forced (key word being forced, not doing it out of choice) to sell their homes and live with their children.

    More and more seniors will develop a taste for cat food.
     

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