Have you ever considered that saving for college is different than saving for your long-term retirement?
Let’s start with the fact that, when saving for college, you’re saving for a specific year (the year of high school graduation). When you’re saving for retirement, it’s more likely you’re saving based on the amount of financial accumulation you want to have. Think of it this way; if you plan to retire but the market’s down you can keep working a bit longer. Try telling an eager teenager they have to wait a couple years before heading to college.
Next up, keep in mind the amount of time you have to build that college-savings fund is much shorter than the time available to save for retirement. Typically the time from birth to college entrance is 18 years, conversely, heading into retirement could span 40 years or more.
One investment strategy to consider, according to a Morningstar article is, “A college portfolio’s asset allocation should begin downshifting into cash and bonds when the child is in grade school, and the portfolio should be dominated by bonds by the time the child is in high school. That’s because an equity-heavy college fund that encounters a bear market in the years leading up to college could incur losses that it couldn’t recoup during the student’s time horizon.”
Now, we aren’t saying this is the blanket answer when saving for college. Every situation is different and you need to build your strategy with the help of a financial professional.
Another common savings approach is the 529 college savings program. These “age-based options aim to provide age-appropriate asset mixes that gradually become more conservative over time.”1 In addition to the “set-it-and-forget-it” mentality that a 529 provides, you will typically discover several tax advantages. Contributions are made from after tax dollars, earnings accumulate on a tax-deferred basis, and the qualified distributions are tax-free.
“The cost of college in the US from 1982 to 2018 has only gone up,”2 leaving many wondering how they will afford their child’s education when the bill comes due. With the average student loan debt in the US at $37,013 according to the Department of Education,2 you’ll want to create a smart financial strategy when your child is still very young.
Financial planning spans a variety of needs and having a fiduciary available to walk you through each situation is important. If you’re wondering about saving for your child’s education or have any other financial planning questions, please call us today at (603) 261-3736.
Bob has a passion for making your money work hard for you. He takes profound joy in ironing out a plan for a long and comfortable retirement, no matter what your current income or level of wealth. With a work ethic second to none, he has a zeal for transforming uncertainty into stable ways for you to protect your future and your family. He knows that the quality of your life you enjoy today can remain as rewarding—or even better—after retirement.
With a strong background in information technology, Carol is instrumental in building operational policies and strategies that keep the organization functioning smoothly. Carol’s organizational skills and her flexibility to jump from priority to priority along with her commitment to customer service makes her an essential part of the Grimard Financial team. When Carol is not working with the Grimard Financial Family, she is a very creative and accomplished photographer.