Can I Afford to Send My Kids to College?

Know the Cost of College

The first step to take, no matter what season of life you’re in, is to understand the true cost of college. Many colleges promote the “sticker price” of tuition, which may or may not be what you’ll end up paying after merit and need-based awards, along with other expenses like room and board, textbooks, and school supplies. Take every college on your child’s list and focus on determining the actual cost of attendance. This should include:

• Tuition
• Need or merit-based awards your child qualifies for
• Room and board
• Gas, parking, and transportation
• Textbooks
• School supplies (think laptop, special software for their degree program, etc.)
• Dorm or apartment furniture
• Commuting costs if your child lives at home

You may be surprised the actual costs are notably higher than the advertised sticker price. However, this isn’t always the case. At some colleges, you may find the already-low tuition is further decreased when taking into account awards and aid.

Once you know the actual costs of colleges your child is considering, you can calculate whether or not you can afford to fully fund their education expenses.

When You’re In Your 40s

The biggest “win” you have in your 40s is time is on your side. You have a longer horizon between now and retirement. If your children are still young, you also have a longer stretch of time before they head off to college. With this much wiggle-room, you have more flexibility to plan education funding.

Start by calculating your retirement timeline and how much you currently have saved. Once you have those two figures, you can determine the gap between how much you have saved right now, and how much savings you need to add before retiring. Not sure how much you need to retire? Start using a retirement calculator to get a baseline. Then, if you’re ready to dig deeper, reach out to a financial planner for help.

Now that you know approximately how much monthly savings you need for retirement, you can prioritize college savings based on your other expenses. The equation looks like this:

Total Income – Retirement Savings – Living Expenses = College Savings Funds

At this stage of your life, you don’t want to sacrifice retirement savings to fund your child’s college education. However, if you’ve been a diligent saver in the first half of your career, you might find you don’t need to contribute quite as much to reach your retirement savings goals.

The next step you can take is to cut “extra” expenses to boost your children’s college savings. Without sacrificing retirement contributions, you want to free up cash flow to continually grow their 529 Plan. To do this, you can:

• Remove “extra” expenses like family vacations for a few years to funnel money toward college savings
• Ask loved ones to send any “gifted” funds for your kids straight to their 529 Plan
• Get your kids involved – middle and high schoolers should be able to contribute a portion of their part-time earnings toward college costs

In Your 40s With a High School Senior?

If you have kids who are still moving through the K-12 school system but your oldest is about to head off to college, consider contributing only to your oldest’s 529 Plan – not the accounts for your other kids. You can help contribute to your oldest’s college costs over the next several years, then when they graduate, you may be able to change the beneficiary on their 529 Plan to one of your other children and continue to save.

When You’re In Your 50s

Are you in your 50s and sending your high schooler off to college? As you near retirement, you ideally have more funding flexibility due to a heftier retirement savings pool. Your first step, as always, is to calculate how much you have saved for retirement versus how much you’ll need to retire comfortably. If the gap between those two numbers is sizable, you may need a reality check. With less time between now and retirement, there’s fewer options. These include:

• Delaying retirement to save for both retirement and education costs
• Not funding your child’s education at all; this option allows you to take advantage of catch-up contributions to your retirement savings account so you can retire comfortably and on time
• Increasing your cash flow by negotiating a pay raise or launching a side hustle – then contributing those funds toward your child’s college savings
• Minimizing expenses – consider downsizing or moving to a lower cost-of-living area to maximize your income

If you choose to delay retirement, make sure you (or your partner) are healthy enough to continue working, and that you’ve considered how extending your career will impact your other financial and lifestyle goals.

What if You’re on Track to Retire Comfortably?

In a perfect world, you’ll already be on track to retire comfortably and will have been contributing to your child’s college education by your 50s. If so, you may be better served by figuring out which accounts you’ll use to fund both retirement and your child’s education.

For example, you might have a 529 plan for your child to partially cover tuition costs. You might also have a sizable Roth IRA you were planning to use for retirement. If it makes sense with your retirement income strategy, you could consider taking a penalty-free Roth IRA withdrawal to cover the remainder of tuition expenses. Then, in the years leading up to retirement, you can continue contributing to the Roth IRA to boost your savings further.

When You’re In Your 60s

If you’re in your 60s and have kids in college or are enrolling soon, you have a unique set of considerations when determining your ability to help them. You’re either near retirement or already retired, which gives you slightly less flexibility for 529 Plan contributions (or to cover tuition bills) unless this was already part of your retirement income strategy.

If you’re in your 60s and do have enough saved to retire comfortably, but don’t have enough saved to afford your child’s college expenses, you have one clear option: Find a way to work part-time in retirement. This could be through consulting or developing an encore career, but either would help you create more cash flow.

Beyond that, it’s important to be cautious. You don’t want to spend down your retirement savings to cover tuition costs because you likely won’t have a long enough timeline to make up those savings, either through earned interest or pre-retirement contributions.

What if You Have More Than Enough in Retirement?

If you’re currently retired (or a few years away) and have more than enough to retire comfortably and cover your child’s college expenses, you’re in a great spot! Your biggest consideration will be determining the best retirement income strategy to cover your living expenses while paying for your child’s tuition bills in a tax-efficient way.

For example, you’d typically withdraw from taxable accounts first, then wait to tap Roth assets until later in retirement. However, if you aren’t retired yet and need to cover education expenses, you can take penalty-free withdrawals from a Roth IRA to do so.

If you have questions about developing a tax-efficient withdrawal strategy, it can be helpful to reach out to a financial planner for more information.

The Keys to Sending Your Kids to College Successfully

Your primary focus should always be taking care of yourself before helping your children. Anytime you jeopardize your own retirement to help them “afford” college, you’re doing everyone in your family a disservice. The last thing you want is your kids having to help you in retirement because you shorted your own savings to fund their education.

College affordability can be a challenging topic. Our team of advisors can help evaluate your unique situation based on your season of life, and create a plan that works for your whole family. If you need help determining whether or not you can afford your children’s college costs, reach out today.