College Funding vs. Retirement savings

[Lonewolf]

I was reading an article on CNN Money this weekend (can't seem to find it now) which was a "how do you stack up" type of article. Now knowing where you live and how much you earn makes these generalizations something I take with a grain of salt, but I was still surprised with some of the results.

It said a family of 4 (2 children), the average college savings a year is $4100. Now I had thought at doing 4800 a year in the exact same scenario we were "way ahead" of the curve. Now my little people are just 5 and 3, so as they get older, I will probably increase that with salary increases, but still surprised to see it so high. I was curious to what the board thought of that median college savings number.

In addition, again not too much of a shocker, but surprised people haven't learned, the same median number for retirement was still close to 6% in 401K's. I realize my kids mean the world to me, but if I couldn't fund my 401K at a much higher rate, I would help my kids with student loans later in life vs. minimize our retirement goals. I wish I could post a link, just found it interesting.


Lonewolf

[jIM_Ohio]

I think most college savings guidelines are geared towards the upper middle class.

Most middle class and lower class people should focus in retirement savings (only) and paying off mortgage (with whatever is left) before investing a penny for college education.

In addition those lower and middle class families have access to some tax credits (incentives) to use after tax money to pay for college (because in some cases you can get money back dollar for dollar -100% return, some cases its 50% -pay $2, get $1 back, and in other cases you can get back 20%- pay $5 and get back $1). I want to challenge anyone which can get a 20% return on their 529 (that is possible if money is invested a long time)... and to get the 100% return in a 529, the money would need to be invested for 9 years (probably) or possibly longer (if you invest conservatively).

If you want more information on getting the money back, read up on the hope credit and lifetime learning credit.

[b4freedom]

You have to understand that these news stories are complete BS.

For starters, let’s talk about the way the message itself. Many of the “informational” news stories are designed for some subconscious targeted marketing. Often times you’ll see a news story on TV and a few minutes later it’ll be followed up with a commercial that will “remedy” the problem within the news story. For example, the remedy to feeling guilty about not saving enough for your kid’s college fund can be solved by calling xyz financial firm to talk about “financial planning”. Don’t trust “informational” or “testimonial” type news. It’s not news. Its meaningless data designed to confuse and/or guilt you into an upcoming marketing pitch.

Now let’s talk about how the numbers are complete BS.

They are talking about average. Let me show you how screwed up “average” is.

Let’s say you have 10 people. Of those 10 people: 9 people have $1, and 1 person has $100. Based on these 10 people, the average person has $10.90. That means that 90% of these 10 people have BELOW AVERAGE dollar amounts.

Now take a look at this website: The L-Curve: A Graph of the US Income Distribution. See how skewed the income distribution is towards the super rich in the United States? They screw up the income distribution (and therefore screw up the “averages”).

Let’s go back to the above example of 10 people. The MEDIAN dollar amount is $1. If they reported the MEDIAN, the story would be completely different. In fact, they wouldn’t air it because nobody would have an emotional response, thereby making the upcoming commercials pointless.

Now, MEDIAN can have problems as well. But, the information you need is both MEDIAN and AVERAGE. Unless both pieces of data are present, the “data” being presented to you should be treated as MEANINGLESS.

I read an article yesterday (have to find it) that said that 65% of American households are living on $65,000 or less per year. I don’t know of a single family living on $65,000 that is maxing out their retirement savings option, let alone saving $4100 for college.

[GregOlney]

Get a financial needs analysis so you can see if your college funding is to much or to little depending on what kind of school. If you are over shooting then put it into your 401k