Putting children through college, retirement saving collide

Parents in their 50s packing children off to college struggle with the dorm steps.

But the real worry is how to help pay for college while saving for retirement.

Jeffrey Strzelczyk, a corporate vice president with UBS Financial Services, understands the strains parents face. The St. Joseph, Cockeysville, parishioner is a father of five children who are attending Catholic school.

“College is so expensive now, you can’t fund it as you go,” he said. “You need to set some money aside when they’re young so that you have some growth time.”

He points to 529 plans that offer significant savings benefits.

And parents shouldn’t grab their chest at the sight of tuition prices that resemble annual salaries.

“A lot of schools have pretty significant endowments, so you can get some money from the school,” he said.

For those parents who didn’t start saving years ago or whose college savings didn’t keep pace with recent tuition hikes, paying for college becomes a balancing act of how much borrowing to do – and who should do it.

It’s an individual choice whether the parents will borrow the money for college or have the student take out the loans and ultimately end up with the debt.

“It’s such a personal thing,” said Mr. Strzelczyk.

He also counsels taking a hard look at the loans and what they’ll buy because student loans often take 10 to 15 years to pay off. For example, if students have to borrow $80,000 to go to college but will earn an extra $20,000 a year in their chosen field because they have a college degree, then they’ve earned back the loan amount in just four years of work.

A student who plans to enter a high-paying field might feel secure enough to borrow a lot to attend a pricey private school, but a student entering a lower-paying field may want to choose a school that will result in less debt.

At the same time, parents are trying to ensure they won’t have to work forever.

They’ll be counseling their kids not to make the same mistake they did – not saving for retirement early enough.

“Right out of college put a couple thousand dollars in a Roth IRA,” suggested Mr. Strzelczyk.

For those who didn’t do that, it’s still not too late to build up a retirement nest egg, thanks to new regulations that allow people over 50 to make larger contributions to retirement plans.

“The government is allowing you to put in additional money so that you can save more from 50 to 65,” Mr. Strzelczyk said. In that age group, workers can add $5,000 more to their 401Ks and $1,000 more to IRAs annually.

“You have the ability to put a lot away in a shorter amount of time,” said Mr. Strzelczyk.

When the kids are finally out of school, parents can catch up with the maximum retirement contributions.

Retirement income is a combination of a pension – which few people have anymore – social security and investable assets. Mr. Strzelczyk said a good rule of thumb for retirement is to have retirement income that equals 80 percent of your former salary. For example, if you were making $100,000 annually, you’ll want $80,000 a year to live on in retirement.

He advises sitting down with a financial planner to figure out the best way to make that income happen.

“The No. 1 thing I would stress is start to save early even if you’re not saving a lot – compounding has a huge effect,” he said.

Even if you’re hitting 50, you still have a chance to get the compounding benefits on the money you save today for the next 15 years.

Catholic Review

The Catholic Review is the official publication of the Archdiocese of Baltimore.