Tough choice between saving for retirement, kids' college educations

Posted: Friday, February 20, 2004

NEW YORK (AP) One of the toughest dilemmas parents face is how to save for their children's college educations and, at the same time, for their own retirement.

Most parents want to do well by their kids, aiming to get them into the best schools so they have a running start at a good career and a prosperous life.

But experts warn that parents shouldn't jeopardize their own financial security for the sake of their children.

''There are a lot more different ways for financing a college education than there are for retirement,'' said Fran Kinniry, a specialist in investment counseling and research with the Vanguard Group in Malvern, Pa. ''As the old saying goes, 'You can't get a loan for retirement.'''

Kinniry advises that parents focus first on fully funding their retirement accounts, whether company-sponsored 401(k) accounts or Individual Retirement Accounts. Savers get double benefits, because such accounts are funded with pretax dollars and earnings compound tax-deferred.

After that, he said, parents can think about setting up college savings accounts, such as the Section 529 programs offered by many states.

''If people have their retirement covered, they can take comfort in the fact that there a plentiful options for financing education, from scholarships and grants to loans that don't even generate interest until graduation,'' Kinniry said.

Kids, too, can build their own college savings accounts during their high school years and, if necessary, work part time while going to college, he said.

Part of the problem, of course, is that college has become very expensive.

The College Board, a nonprofit educational organization best known for administering the SAT exams, said tuition and room and board at public, four-year colleges is averaging $10,636 a year. At private colleges, the cost for the current academic year averages $26,854.

Such numbers are daunting to Yvette Romero, 56, a publicist who lives in Glen Ridge, N.J. Her daughter, Caitlin, is a high school senior who plans to go to college next fall.

Romero and her husband, Web designer Kevin O'Connell, have saved some money for Caitlin's education, including funds from family inheritances.

''I feel lucky that we've been able to set some aside,'' Romero said. ''But given the cost of college these days, it's no where near the whole thing. And that's worrying.''

The family will be looking at the possibility of scholarships and grants as well as loans, Romero said. But she acknowledged that money won't be the deciding factor.

''My daughters said the other day, 'What if I get a scholarship to the lesser college but get accepted to the better school with no scholarship?''' Romero said. ''We said immediately, 'You'll go to the better college.' You always want the best for your child.''

Kacy Gott, a certified financial planner with Kochis Fitz in San Francisco, said one strategy families can adopt is to develop multiple savings targets.

For example, estimate what it will cost to fund your retirement at 80 percent of your current costs and a child's college education at a basic level, such as two years at a community college and two more at a public university. Then start saving toward those goals.

''It's not about whether to educate your kids or not, but about a basic level that you can handle ... and still be able to retire at 65,'' Gott said. He added: ''After a few years, see where you are, and make adjustments.''

It may be that you can step up savings to fund retirement at 100 percent of your current costs and maybe later, think about funding four years at a public university for a child.

''The key is to start saving as early as possible,'' Gott said. ''It's never going to get any easier.''

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