It’s never too early to save for college

Editor’s note: Second in a series of articles on paying college costs.

DES MOINES, Iowa – The challenge of saving for a comfortable retirement has a few more degrees of difficulty for parents.

They want to be able to retire when they’re young enough to enjoy at least a few work-free years, but also want to help send their kids to college.

Striking the right balance is one of the biggest struggles parents face. And it can be tougher for older parents whose target retirement age may be that much closer to the time when their kids are in college.

Parents typically pay about half of the cost of college for their children. For many it’s about ensuring that their family’s next generation enjoys the enhanced job prospects that can come to college grads. But the price tag is steep. Annual expenses currently average between $15,000 a year for in-state four-year public universities to $35,000 for private four-year schools. And those costs rise an average of 6 percent a year.

The vast majority of parents start saving for college expenses early. Some 80 percent started stashing away money before their child turned 7, according to Sallie Mae, the nation’s largest student lender.

And there’s little doubt that starting early helps tremendously. Parents who saved for seven years or more accumulated two to three times the amount of parents who saved for shorter periods.

Financial advisers recommend that if an employer will match your 401(k) contributions, you should save that much – at a minimum. Parents can then set aside college money through an account such as the increasingly popular 529 savings plan.

The 529 plans operate much like a 401(k) plan. Account contributions are placed in mutual funds or other investments. Parents can also opt for a prepaid tuition plan that allows them to purchase college tuition for their kids in today’s dollars, such as Washington’s GET plan.

While there are any number of college savings strategies, putting retirement first makes sense because the common advice is that there aren’t any retirement scholarships. Parents face a finite number of years to build up enough money for retirement, while a student has more options for paying for education including grants, scholarships, loans and part-time job earnings. The parent likely has fewer choices for retirement – working longer being the most likely and perhaps least palatable.

Floyd Saunders, of Andover, Kan., used those strategies and more to help four of his five children get a college education. At 60, he’s working on figuring out how to put his fifth – who’s just entered high school – through college.

A management consultant who spent most of his career in financial services, Saunders said he knows he’s behind on retirement saving.

He said parents facing such financial challenges should recognize that they don’t have to pay the full cost of a child’s college education.

A good way to begin to assess the necessary balancing act is to get a handle on the cost of college. Several calculators are available online. Don’t be scared by the figures. Keep in mind that, on average, grants and scholarships pay about 23 percent of the college costs, and student loans about 14 percent, according to Sallie Mae.

The advantage of an account like a 529 is that the earnings grow tax free. But investing in the stock market is always subject to volatility.

What’s more, in the current market where interest rates are anemic, parents need to be sure they’re not investing too conservatively at the cost of generating enough growth to meet their goals.