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How to Plan for College Costs in Retirement

In today’s rapidly changing economic landscape, proper financial planning has become more critical than ever. When it comes to saving for children’s college expenses, accounting for inflation is a fundamental aspect that cannot be overlooked.

Inflation, the gradual increase in the cost of goods and services over time, has the potential to erode the purchasing power of your money if not factored into your financial strategy.

Rising Costs of College vs. Inflation

Did you know that in 1980, the price to attend a four-year college full-time was $10,231 annually – including tuition, fees, room and board, and adjusted for inflation – according to the National Center for Education Statistics? By 2019-20, the total price increased to $28,775. That’s a staggering 180% increase.

But let’s look at it another (and more sobering way):If the cost of going to college increased consistently with the U.S. inflation rate over the last 50 years, students today would be paying between $10,000 to $20,000 per year to attend public or private universities.

Inflation is a natural economic phenomenon that affects virtually every aspect of our lives. From groceries to healthcare to college costs, the cost of living tends to rise over time.

If not addressed in your financial planning, inflation can have a profound impact on your savings’ ability to cover future expenses. This is particularly relevant when it comes to saving for children’s college education, given the long-term nature of the goal.

Preserving Purchasing Power

Imagine you start saving for your child’s college education when they are born. Over the next 18 years, you diligently save a significant amount. However, if inflation averages around 3% per year, the cost of college education could easily double during that time. Without accounting for inflation, you might find that the money you’ve saved falls way short of covering the actual expenses when your child is ready to enroll.

By accounting for inflation, you ensure that the purchasing power of your savings remains intact.

You are essentially future-proofing your investments, allowing them to maintain their value over time. This safeguards your ability to meet rising expenses without compromising the quality of your child’s education.

Realistic Goal Setting

Incorporating inflation into your financial planning helps set realistic goals. When planning for a future expense like college, it’s essential to understand the true cost. Ignoring inflation can lead to underestimating the required savings amount, potentially causing stress and financial strain in the long run.

When you accurately account for inflation, you gain a more accurate understanding of the amount you need to save to cover college expenses. This empowers you to allocate your resources effectively, thereby minimizing the risk of falling short and maximizing the chances of achieving your goals.

The Power of Compounding

Compound interest is a powerful force in wealth accumulation. When you invest your savings, they have the potential to grow over time. However, if you fail to account for inflation, your investment returns might not keep pace with rising costs.

Inflation-adjusted returns are crucial to ensure that your investments genuinely generate wealth and provide the returns you need to meet your financial goals.

Mitigating Financial Stress

One of the primary purposes of financial planning is to alleviate financial stress and provide peace of mind. Inflation, when unaccounted for, can disrupt this objective. Unexpectedly high costs can lead to last-minute financial scrambling, potentially forcing you to compromise on the quality of your child’s education or take on substantial debt.

By accounting for inflation, you are adopting a proactive approach to financial planning. You are preparing for the future’s uncertainties and ensuring that your child’s educational aspirations are not compromised due to financial constraints.

Planning Matters

Financial planning is a holistic process that requires careful consideration of various variables, with inflation being a critical one. When saving for children’s college expenses, it’s vital to factor in inflation to preserve the purchasing power of your money, set realistic goals, harness the power of compounding, and mitigate potential financial stress.

At West Advisory Group, our primary focus is on harnessing the potential of our clients’ journeys, much like adjusting the sails rather than being solely dictated by the wind’s direction. 

Through our distinctive process, PEAK FORMula, we steer towards aligning your aspirations with actionable plans, particularly when it comes to securing your children or grandchildren’s education – a priority we hold dear just as you do.

Our dedication lies in weaving this crucial objective into your overarching financial roadmap. We invite you to take the next step and schedule a complimentary call with us. During this call, we’ll delve into how our PEAK FORMula can serve as your guiding star, expertly navigating you through every life phase.

It’s important to recognize that by factoring inflation into your financial strategy, you’re not just preparing for the future – you’re actively shaping it. 

Your child’s education and your family’s financial well-being stand to gain from your proactive approach. With time as your ally, well-informed financial decisions at this juncture can lay the foundation for realizing your aspirations.