Can You Afford College & Retirement?
I believe most people in our area under the age of 60 are completely unprepared ( although most people aren’t aware of this) to maintain their lifestyle without their current income. What do you think? Not saving enough, starting too late and a lavish lifestyle (compared to our parents) are three major reasons you may not have nearly enough money to be financially independent any time soon.
Do the math: If your retirement savings is $2,000,000 and you pull the safe amount of 4%/year out – that gives you $80,000 per year, before taxes.
Could you live on that? How long until your savings plan reaches $2,000,000?
Another major obstacle is the cost of college. 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 $30-$50,000 per year!
Do the math: 4 years x $40,000 = $160,000 x 3 kids= $480,000
The WSJ reported today that college tuition’s rose at 2.9%, the lowest annual increase since 1975. Great, but that is not going to help us 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 click to read: 9 WAYS TO INVEST TAX-FREE
My passion to shake my peers and wake them up to the financial realities they are dealing with is quite 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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