A college cost reality check

Hey Pete,

Do you remember the ING commercials that said, “What’s your number?” Since then I’ve always wondered, what is my retirement number? I have no clue. How do I determine the number? Is there some super secret financial equation that will bring me enlightenment? 

Also, I have twins who are in 7th grade, how do I estimate how much I will need to put them through four years of school? 

I’d appreciate any advice you can give!

Todd

Hey Todd,

Great questions.

Since 1978 the cost of college has risen 1,225%. Yeah. There isn’t really an appropriate follow-up to that statistic, huh? Other than to say, there is some good news. Plenty of schools are trying to change this by enacting tuition freezes, meaning your kids would “lock-in” their rate freshman year and continue to pay the same tuition for their remaining four years.

Let’s get into the numbers. We’ll go with the state tuition average of $21,447. Since your kids have five years until they start college we’ll assume a 5% inflation rate. Which brings your grand total of savings needed to $117, 979.00… per kid. Oof. There is no way to soften the blow. College is extremely expensive. I highly recommend scholarships and other alternative methods for paying for school. Student loans don’t solve a problem, they create one.

As for your retirement number, it’s complex. But if you want a simple answer all you have to decide is how you want to live in retirement. What annual amount of take-home pay do you want to have in retirement? Divide this number by .04 and you’ll have the total you’ll need to save for retirement. If you want $100,000 annually, you’ll need to save 2.5 million. It’s a simplistic equation, but it will at least give you a ballpark goal.

Cheers!

(Courtesy of WIBC)

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