Well, it looks like “the Boy” – our seventeen year-old son is set for where he wants to go to college. I’ve written before on the cost of college, but wanted to share a little bit about how we have saved & planned for his matriculation into post-secondary education. Many people can’t conceive of retiring before your kids are done with college, but I feel confident that we are well set in that department. How did we do it?
When my son was very little, we went to a weekend work event as a family and my boss told me “start saving for his college now!” The boss had three boys in college at the time and he said he had wished he had saved much earlier. Our son was probably only about three years old at that point. Before he turned four, we started a 529 account and were very diligent about putting money in. As you probably know, money in the 529 plan grows tax free as long as the funds are used for college expenses.
We chose the 529 plan in a neighboring state, where my parents live. Their state had a good program and if we gifted my parents some money, my Dad could make the 529 contributions and take a deduction on his state taxes. Worked well for everyone.
It was tricky to know exactly how much to put in the account for him. We looked at college costs for four kinds of schools in progressive order of cost: small state schools, large state schools (Big Ten), smaller private schools, and nationally known private schools. My wife and I attended a small state college, but we wanted ‘better’ for our son. At the same time, I didn’t see him likely heading off to the Ivy League, Notre Dame, or Stanford (long odds). So we decided to save enough that he could go either to the big state college, or the local private university. With only one child, you don’t want to deposit more into the 529 than you will use (although it can be used for grad school or transferred to a cousin). This meant saving about $2K a year when he was small, $4K when he was in grade school, and up to $8.5K when he was in junior high. The good news is the money built up quickly and we haven’t made a single additional deposit to the account since he started high school, and the account is close to $100K now.
You can see how quickly his 529 account ramped up. In the last fifteen years, we only saw one down year, which was 2008 when the stock market fell so dramatically. I haven’t messed too much with the risk profile of how the money was invested. Early on I chose one of the “age adjusted risk profiles”. That means a good portion of the money is invested in bonds at this point.
The school he wants to go to is pretty expensive – the official price is about $45K a year (tuition, room & board). That said, there is a lot of financial aid available – based on the students’ grades & ACT scores – even for families that are pretty well off. Our son is a good student (not great 4.0 GPA, though) and got a very good score on his ACT Test. He also has done a lot of activities, service work, and some athletics, so that should help.
Based on the “College Cost Net Calculator” that they have on their website, our son would qualify for almost $20K in aid. Most of it is a pure “merit gift”, with a smaller percent available as low interest loans or work study job pay. We won’t want him to take out loans (although the work study is a good idea), so the $25K-$30K a year we end up paying out for him will almost completely be covered by the amount we have saved in the 529 since he was little. Since we currently pay tuition for him to go to a Catholic high school ($13K/yr), I think our cash flow will actually get better once he goes to college as his 529 balance is withdrawn.
College is certainly a daunting expense. Not many families look at a six-figure amount for anything more than the family house in their entire lifetime. I’m glad that we started saving early and appear to have the hurdle cleared. It would be hard to think about retirement at my age, if this major cost wasn’t taken care of.
How are you thinking about college costs relative to your goals for retirement?