Goal Mining
Financial Planning Insights from Bob Dockendorff JD, LL.M



home circle  RETURN HOME         

With College Savings For Little Ones, Just Get Started and Do What You Can

Most frequent air travelers are familiar with the safety briefing prior to takeoff. One of the most explicit instructions spell out what to do when air is low during an emergency and oxygen masks descend from above:

“For adults traveling with children, please attend to your own mask first, then to your child’s.”

This seems strange, and against parental instinct. Most parents would make sure their child is ok first, and then worry about themselves. But it turns out the risk of losing oxygen is so great during that period that  parents who fumble around helping their child initially may lose their ability to function so quickly that they may not even be capable of affixing the child’s mask, and could even cause irreversible damage to themselves. 

Once that sets in, parents are of no use to anyone, and the child is potentially worse off. 

Basically, parents could totally freak out and make the situation worse for everyone

Instead, the instruction calls for parents to calmly and quickly get themselves situated, and then help their children. 

Why am I talking about this? Because so many of my clients express a huge desire to save for their kids’ college educations at the expense of their own retirement. I’ve also seen parents mortgage their home and liquidate portfolios to make tuition payments. As soon as an acceptance letter arrives from a target school (or any school, sometimes)—the examination of cost is almost absent from further action. It becomes “pay the bill by any means necessary.” 

This is the financial equivalent of freaking out and fumbling around with an oxygen mask.

Also, if you can stroke a check for private school tuition without making a dent in your financial plan—this article isn’t for you. 

This is about considering the tradeoff between funding college vs. retirement, and what sacrifices will be necessary. Too many times it’s a “no brainer” that college costs comes before anything else.  

Of course, parents want the best for their kids, and we can’t diminish the value of a good education, but it doesn’t make long-term financial sense to prioritize a college education over retirement savings. 

The Dreaded Education Savings Projection

I’ve discussed the cost of college with many young clients—it’s not pretty. College costs have risen higher than almost any other cost in our economy. From 1985 to 2013 the cost of a higher education rose by 538%, compared to 121% for consumer price index and 286% for medical costs.  

The average cost of one year of private college is over $50k for the 2017 – 2018 school year.

If we conservatively assume a VERY LOW 3.5% growth rate on the cost of college over eighteen years, the total cost of a private university education will be $398,507. 

If we then assume $100k in aid, that leaves a savings goal of around $300k. 

If we assign an annual growth rate of 6% to savings, and our young parents haven’t saved anything yet, they would need to save $777 per month, starting today. Most people don’t have an extra $800 lying around each month after all their other savings goals. 

If you have a few kids and haven’t saved anything yet (as many clients do), it’s much worse—likely a few thousand per month at least. 

I have never made it a formal recommendation that clients meet the suggested savings goals of an education projection.  

You can see how these conversations get ugly. For super high earners, fine, but for most people that have other financial priorities (paying down their own debt, saving for retirement, buying a house, etc.), this burden seems unreasonable. 

Why compromise your future to keep up with a bubble?

Before piling all of your savings into a 529 fund ahead of your retirement account, doesn’t it make sense to pause and think about a simple cost/benefits analysis in light of this bubble? 

Again, I understand the benefit of a college education, and I’m not advocating against college. Rather, I’m saying that parents and students should focus more on the cost side of this analysis. 

Instead of asking “What do we need to do to pay for this?!”, parents and students should think more critically about:

  1. Is college the right move for your child? (probably yes)
  2. Ok…is PRIVATE college the right move for your child? (arguably NO, but if so, then…)
  3. Ok, can you afford to pay for private college through savings without denting your retirement? (probably NO, so…)
  4. Just do what you can. 

What does that mean? 

For younger parents, save a comfortable number each month in 529 plans. Start with $100, $200, or whatever you can easily absorb into your household cash flow to know that you’re doing SOMETHING. 

Just start, and keep going. Each year or two, as pay increases, try and increase your contributions. You’ll be amazed what that account looks like in ten years.

Where does this get you? 

When your child is nearing college age you will have saved enough to make a meaningful contribution toward their education. Probably enough for full in-state public costs, or maybe one or two years of private college. This will lead to a meaningful discussion with your son or daughter about where they’re going to college, why they’re going to college, and how they’ll pay for it. 

It creates the much-needed economic evaluation of a college degree, rather than simply paying whatever the college chooses to charge. 

The real benefits of this strategy are that (1) you keep a sound perspective on your entire financial picture and (2) you view college for what it is—an economic decision. 

Instead of bowing at the feet of higher education, parents should take control of their financial situation and realize that they shouldn’t subject themselves or their children to a cost that has ballooned outside the realm of good economic value. Parents should make sure they’re safe, fund their retirement, and do their best to pay for an education—but not at the expense of everything else they’ve worked for. 

 

Claro Advisors, LLC
185 Dartmouth St., 6th Floor
Boston, MA 02116

This email address is being protected from spambots. You need JavaScript enabled to view it.
  • Phone:
    (617) 379-3270
  • Toll Free:
    (800) 604-2838
  • Fax:

    (866) 920-4359

Client Logins

Disclosure: Claro Advisors LLC ("Claro") is a Registered Investment Advisor with the U.S. Securities and Exchange Commission ("SEC") based in the Commonwealth of Massachusetts. Registration of an Investment Advisor does not imply any specific level of skill or training. Information contained herein is for educational purposes only and is not to be considered investment advice. Claro provides individualized advice only after obtaining all necessary background information from a client. This report is not a financial plan and is not intended as a solicitation or advice to purchase specific investments, but the information provided can assist you in evaluating your current financial situation and your ability to achieve your investment goals. Any projection of investment outcomes is hypothetical in nature, does not reflect actual investment results, and is not a guarantee of future results. Similarly, other information regarding various investment outcomes are hypothetical in nature, do not reflect actual results and are not guarantees of future results. The projections may not include all taxes applicable to your situation. Past performance is no assurance of future results. Investments may fluctuate and lose value, and unexpected market movements may result in changes in rates of return and anticipated performance. Claro does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation. Claro will provide all prospective clients with a copy of our current Form ADV, Part 2 ("Brochure") prior to commencing an Advisory relationship. Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. or toll free at 800-604-2838 with any questions.

© 2019 by Claro Advisors, LLC. All Rights Reserved.