Is It Too Late for My Kid’s College Savings Plan?
Everyone can agree that education is important and costly. College savings can be so overwhelming that it paralyzes some from developing and implementing an investment plan. The high and increasing costs, coupled with the uncertainty in capital markets, oftentimes creates inaction that can be detrimental to one’s long-term college savings goals. Sometimes seeing some averages and linear assumptions, along with a little nudge can get one started. It is never too late to plan for the future.
According to CollegeBoard.org (https://trends.collegeboard.org/college-pricing/figures-tables/tuition-and-fee-and-room-and-board-charges-over-time-1973-74-through-2013-14-selected-years), the average Tuition, Fees, Room and Board for 2013-14 is $40,917 per year for a private nonprofit four-year institution, and $18,391 per year for a public four-year institution. Over the past decade alone, these costs have increased an average per year of 2.1% and 3.2% above inflation, respectively. With CPI averaging 2.4% over the same period, the cost of colleges rose 4.5% and 5.6% respectively. Assuming costs continue to increase at these levels over the next 20 years, the cost for the private institution would be $98,680 per year and $54,687 per year for the public institution in 2033-34. In other words, a child born in the next year or two may be looking at an undergraduate expense of somewhere between $237,819 and $422,172.
In order keep pace with the roughly 5% rate at which college costs are growing, investors are required to save more or take on more investment risk. This is a major reason why planning early and increasing the time horizon is very beneficial.
These numbers are not insurmountable with a disciplined plan. Assuming an average investment return of 6.5% over the next 20 years, one would need to invest roughly $119,811 today for the private institution and $67,492 for the public institution. If one was to wait 10 years to begin saving and investment for this same goal, the lump sum amount invested would need to be nearly doubled. Using all the same assumptions, while saving and investing monthly, requires one to invest roughly $906 per month and $510 per month respectively. Waiting 10 years to begin this monthly plan nearly triples the amount necessary to save and invest to achieve the goal.
In summary, time is of the essence. Consult a trusted, professional advisor to help review your existing plan, or create and implement an updated strategy. Plan now for our most important assets, our children.
All suggestions and comments are welcomed.
Anthony J. Basalla