Money Matters: College and retirement goals – WMUR Manchester
Perhaps you have been planning for certain financial goals for many years. Meeting goals, such as funding for retirement or a child’s education, usually takes a considerable amount of time. You want a quality education for your child and a wonderful retirement for yourself.Let’s consider some initial planning points. You will want to start saving for retirement and education goals as soon as possible. Saving consistently over time is the key to meeting these goals. As to retirement, saving in a retirement plan, such as a 401(k), is a good start. It is beneficial to save in your 401(k) plan at least the amount that will give you the most employer match available. Your employer can help you fund your retirement. Consider using a 529 plan for college education costs. These plans can provide you with tax benefits along with your savings. When your child is getting closer to college, gaining an understanding of the costs is crucial. This could include reviewing how financial aid is determined and what your financial aid package might look like. Colleges and the federal government may use different formulas in determining financial needs. The federal government looks at the family income and assets. As a general point, the federal government can assess up to 47% of parental income. It will include 50% of a student’s income over a certain amount. The parent’s assets are included at 5.6% while a student’s assets are included at 20%. Home equity and retirement assets aren’t included in the parental assets. To compile this data, the Free Application for Federal Student Aid is prepared. The form uses income from two years prior, which is called the base year. It will use current assets in the analysis. Now that you have some basic information, it may make sense to review some additional items. The first is the type of financial aid you may receive (whether need-based aid or merit-based aid). A net price calculator is available on college websites to give you an idea of the financial aid you might receive at a certain school. Middle and higher-income families might have a harder time justifying need-based aid and repositioning of your assets could help. Some strategies to consider is the timing of discretionary income. You might be able to avoid a base year by doing so. The child’s income also counts. It might make sense for the child to time his income during a base year. Assets that are included in the aid formula may be used instead to increase investment in your college and retirement savings account. It could also be used to pay down consumer debt and/or your mortgage. Just make sure your emergency reserves are adequate. It might also be time to purchase a car or do some home improvements to reduce those countable assets. While need-based aid is often considered, don’t overlook the possibility of merit–aid packages. Some colleges will use this to attract students. Often, merit-aid doesn’t consider a family’s finances.Once you have done all the research on what your out-of-pocket college costs are, you can make the comparison to what you have saved. There may be a gap. The gap can be filled with student loans. To avoid this result, some parents will consider borrowing or taking distributions from their own retirement savings. This might not be the most beneficial thing a parent can do for his or her own future. To put this in perspective, a child can usually borrow for education funding. However, generally, no one is going to lend you money to fund your retirement. Saving for your own retirement now may put you in a much better position to help your child pay off his or her student loans down the road.As this process can be complicated, it can help to have professional advice. You may want to discuss your situation with a certified financial planner.
Perhaps you have been planning for certain financial goals for many years. Meeting goals, such as funding for retirement or a child’s education, usually takes a considerable amount of time. You want a quality education for your child and a wonderful retirement for yourself.
Let’s consider some initial planning points. You will want to start saving for retirement and education goals as soon as possible. Saving consistently over time is the key to meeting these goals. As to retirement, saving in a retirement plan, such as a 401(k), is a good start. It is beneficial to save in your 401(k) plan at least the amount that will give you the most employer match available. Your employer can help you fund your retirement. Consider using a 529 plan for college education costs. These plans can provide you with tax benefits along with your savings.
When your child is getting closer to college, gaining an understanding of the costs is crucial. This could include reviewing how financial aid is determined and what your financial aid package might look like. Colleges and the federal government may use different formulas in determining financial needs. The federal government looks at the family income and assets. As a general point, the federal government can assess up to 47% of parental income. It will include 50% of a student’s income over a certain amount. The parent’s assets are included at 5.6% while a student’s assets are included at 20%. Home equity and retirement assets aren’t included in the parental assets.
To compile this data, the Free Application for Federal Student Aid is prepared. The form uses income from two years prior, which is called the base year. It will use current assets in the analysis.
Now that you have some basic information, it may make sense to review some additional items. The first is the type of financial aid you may receive (whether need-based aid or merit-based aid). A net price calculator is available on college websites to give you an idea of the financial aid you might receive at a certain school.
Middle and higher-income families might have a harder time justifying need-based aid and repositioning of your assets could help. Some strategies to consider is the timing of discretionary income. You might be able to avoid a base year by doing so. The child’s income also counts. It might make sense for the child to time his income during a base year. Assets that are included in the aid formula may be used instead to increase investment in your college and retirement savings account. It could also be used to pay down consumer debt and/or your mortgage. Just make sure your emergency reserves are adequate. It might also be time to purchase a car or do some home improvements to reduce those countable assets.
While need-based aid is often considered, don’t overlook the possibility of merit–aid packages. Some colleges will use this to attract students. Often, merit-aid doesn’t consider a family’s finances.
Once you have done all the research on what your out-of-pocket college costs are, you can make the comparison to what you have saved. There may be a gap. The gap can be filled with student loans. To avoid this result, some parents will consider borrowing or taking distributions from their own retirement savings. This might not be the most beneficial thing a parent can do for his or her own future. To put this in perspective, a child can usually borrow for education funding. However, generally, no one is going to lend you money to fund your retirement. Saving for your own retirement now may put you in a much better position to help your child pay off his or her student loans down the road.
As this process can be complicated, it can help to have professional advice. You may want to discuss your situation with a certified financial planner.
