How Can Education Planning Impact Retirement?
Hello Eagle Wealth Community,
If you’re a parent or grandparent, then you might already know that having a plan in place for a child’s future opportunities is one of the greatest acts of love.
We teach our children to dream big and believe they can overcome any obstacle. By planning wisely, you can help tackle the financial hurdle of funding their higher education — and smooth the way for them to pursue their dreams.
Sometimes that’s easier said than done. The cost of higher education has skyrocketed in recent years. The U.S. Department of Agriculture estimates the cost of raising a child to the age of 17 for a middle-income family will be about $285,000.1 That’s roughly equivalent to the median value of a new home in the U.S.2 And if you’ve already traded that supercharged convertible dream for a minivan, you can expect your kid’s college education to cost nearly $527,000.3
But before you throw your hands up in the air, you might consider a few strategies to help you prepare for the cost of higher education.
First, take advantage of time. What's the time value of money? It means that the money in your pocket today is worth more than the same amount will be worth tomorrow.
How can that be? It has more earning potential. If you put $100 a month toward a college education, after 17 years’ time, you would have saved $20,400. But that same $100 a month would be worth over $32,000 if it had generated a hypothetical 5-percent annual rate of return.4 The bottom line is: the earlier you start, the more time you give your money the potential to grow.
Second, don’t panic. Every parent knows the feeling — one minute you’re holding a little miracle in your arms, the next you’re trying to figure out how to pay for braces, piano lessons, and summer camp. But remember, many people get some sort of help in the form of financial aid and scholarships. Although it’s difficult to forecast how much help your student may get in aid and scholarships, these tools can provide a valuable supplement to what you have already saved.
Weigh your choices. There are a number of federally and state-sponsored, tax-advantaged college savings programs available. Some offer prepaid tuition plans, and others offer tax-deferred savings.5 Many plans are state-sponsored, so the details will vary from one state to the next. A number of private colleges and universities now also offer prepaid tuition plans for their institutions. It pays to do your homework to find the vehicle that may work best for you.
Set a budget. If you decide to fund a portion of your loved one’s education, set a budget, and stick to it. There are many ways to offer support. Setting boundaries and expectations now will pay off in the future.
What about using retirement savings? If you’re contemplating tapping into your own investments to help pay for your loved one’s college, take some time to think about your own financial priorities and goals. It’s important to remember to model responsible financial behavior before you offer help. That means taking a careful look at where you source education funds from.
Here are 3 things to consider before dipping into retirement savings to pay for college.
It’s natural to want to help our loved ones, but just like on an airplane, make sure to put on your oxygen mask first. Give your family members confidence that you'll be set during retirement. They'll thank you later. Even better, when you take good care of yourself you can show the next generation how rewarding it is to take care of themselves.
Give us a call if you have questions about how education planning fits into your financial plan.
Wishing your child boundless opportunities,
Your Eagle Wealth Team
As a reminder, our client appreciation event originally scheduled for this Friday, September 24th, has been postponed. Don’t fret Eagle Wealth community, we’re focusing our energy on planning the absolute best 2022 event. We can’t wait to see you soon!
P.S. Don’t forget you can still pick up complimentary High Desert Museum passes at the office. Or if you’re out of town check out the virtual exhibits here.
The Week on Wall Street
Stocks weakened ahead of this week’s Federal Reserve meeting and amid persistent concerns about the Delta variant’s impact on the economy.
The Dow Jones Industrial Average was flat (-0.07%), while the Standard & Poor’s 500 fell 0.57%. The Nasdaq Composite index lost 0.47% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, dropped 0.65%.1,2,3
Despite a string of economic reports painting a healthy picture of the U.S. economy, investor sentiment remained cautious. While tamer inflation and higher-than-expected retail sales may typically be constructive for the market, any investor enthusiasm it generated was fleeting.
The market appeared all week to be encumbered by a tentative, apprehensive mood. The Delta variant remained an overhang, but it was more than that. Investors appeared concerned about September, which historically has been a weak month for stock prices. The market also was concerned about fiscal and tax policy proposals emanating from Washington D.C., news of an economic slowdown in China, and by what the Fed may announce following its September 21-22 Federal Open Market Committee meeting.
Taking the Economic Pulse
A series of economic reports released last week provided investors with a broad snapshot of the state of the economic recovery.
Inflation showed signs of moderating, rising 0.3%—an elevated rate, but well below June and July’s increases of 0.9% and 0.5%, respectively. The consumer remained strong as retail sales rose 0.7%, an unexpected jump. Manufacturing reached pre-pandemic, while the labor market continued its recovery, with initial jobless claims coming in near pandemic lows and continuing claims hitting a new pandemic low.4,5,6,7
THE WEEK AHEAD
Key Economic Data
Tuesday: Housing Starts.
Wednesday: Existing Home Sales. FOMC (Federal Open Market Committee) Announcement.
Thursday: Jobless Claims. Index of Leading Economic Indicators. PMI (Purchasing Managers’ Index) Composite Flash.
Friday: New Home Sales.
Source: Econoday, September 17, 2021
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.
Companies Reporting Earnings
Tuesday: Adobe, Inc. (ADBE), Fedex Corporation (FDX), Autozone, Inc. (AZO).
Wednesday: General Mills (GIS).
Thursday: Costco Wholesale Corporation (COST), Darden Restaurants, Inc. (DRI), Trip.com Group (TCOM).
Source: Zacks, September 17, 2021
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.