Money Makeover – Saving for college and retirement at the same time

October 21, 2007

I had the pleasure to work on a Money Makeover for the Kansas City Star recently. Here’s the article that appeared in the KC Star this morning…

Money Makeover: Couple frets over saving at the same time for their retirement, kids’ college expenses

by Gene Meyer
The Kansas City Star

Steven and Angie Cortez look into the future and see a financial dilemma they want to resolve now.

The couple, who both are educators and not yet 40, theoretically will be eligible to retire when Steven turns 53 and achieves the combination of age and years in service to qualify for Kansas Public Employees Retirement System teachers’ benefits.

That doesn’t seem realistic, the Olathe residents say, because their children, twins Kennedy and Carson, who turn 6 Monday, will still be in college when the milestone arrives.

They don’t mind postponing retirement for a few years. But they are concerned about how best to prepare now to hit two humungous savings targets — college and retirement — so potentially close together.

“We’ve been told that we should max out our Roth IRA savings before we contribute anything to college funds, but I’m not sure that’s the best way to go,” Steven Cortez said.

Neither target is an easy one.

Some rough, back-of-the-envelope calculations based on College Board projections show that the $50,000 it costs to send a student to a public college for four years now may more than double by the time Kennedy and Carson are freshmen. For a private school, the already higher costs will almost double too.

But a financial planner who analyzed the Cortezes’ situation more thoroughly calculates Steven and Angie also need to accumulate $1.97 million in the next two decades to supplement his KPERS and their other projected retirement benefits so he can retire at 60 and live as comfortably as they do now.

“Retirement savings should be your higher priority,” said Kristine McKinley, the certified financial planner from Lee’s Summit who examined the Cortez’s circumstances.

Saving for retirement often is more urgent than saving for college, McKinley said. First, as is the case with the Cortezes, retirement requires more money than college. Second, families have resources such as loans, grants or scholarships to turn to if savings come up short. Retirees have far fewer alternate choices.

But there’s good news too, McKinley told the couple.

Saving more aggressively and more efficiently now for retirement should also provide a potential cushion to help with the college funding if that’s needed.

The keys are Roth IRAs that the Cortezes opened to provide tax-free income when they retire. In a jam, Roth savers also can withdraw money they’ve contributed — but not the investment profits earned — before retirement without incurring penalties, she said. Pulling money out also will trim the account’s potential growth, however, so it shouldn’t be done lightly.

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Beacon Financial Advisors, LLC, is a fee-only financial planning and Registered Investment Advisory firm headquartered in Lee’s Summit, Missouri and serving the greater Kansas City area.

The firm offers comprehensive financial planning services. Beacon advisors work solely for their clients. Click here to learn more about our services.

About Us

Kristine McKinley, CFP®, CPA, is the founding principal of Beacon Financial Advisors, LLC, an independent, fee-only financial planning firm located in Lee’s Summit, Missouri and serving the greater Kansas City area.

Kristine focuses on providing fee-only financial planning, investment advice, and tax preparation to individuals and families from all income levels.  About Us

In the News

Investment News – Kristine McKinley discusses the 0% Social Security COLA (for 2016) in No Social Security cost-of-living adjustment in 2016.

Kiplinger Magazine/NAPFA – Kristine McKinley answered reader’s tax questions during the 2013 Jump Start Your Retirement Plan Days sponsored by Kiplinger magazine and the NAPFA Consumer Education Foundation.