Tuesday, July 8, 2008

Parents Should Focus on Retirement First

A recent study by Putnam Investments found that most parents are finding it harder and harder to save for retirement while saving for their children's education.

The two biggest factors are the move away from defined benefit plans and that women are having children later in life. The move from defined benefit plans (pensions) to 401(k) plans is a glaring obstacle since workers now need to make the decisions on the amount to contribute and what investment decisions to make.

Couples having children later in life gives them less working years to save for educational needs. The birth rate for mothers 30-34 has risen 83% since 1975.

Additionally, the credit market tightening (fewer student loans) and home value decline (equity decreased) has also been an issue in saving for college.

Over the past 30 years, college costs have risen much faster than income (844% to 304%).

In the end, the main issue will be what options will be available for college students, and the need for parents to gauge the risks and rewards of saving for retirement versus education.

We feel that retirement should trump educational needs since a student can receive scholarships, grants, loans, etc. for college, but for retirement, you are usually on your own. Just remember to get in the financial aid forms early!

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