Calculating the cost of college and retirement

Saving for college

URBANA, Ill. — Knowing how much money to save for your child’s college education and your own retirement can be complicated. University of Illinois Extension consumer economics educator Kathy Sweedler suggests using online calculators as a first step in calculating the costs.

“Most college websites provide estimated cost of living plus tuition for a year,” Sweedler said. “Visit the site of a state school and a private school to get a range of possibilities and multiply that number times the number of years your children will be in college.

“According to the College Board, the 10-year historical rate of tuition increase is approximately 6 percent. I might be figuring a little high with these numbers, but I personally prefer to plan that way.”

Goals

Sweedler said that often families are managing multiple goals such as deciding how to pay off student loans, save for a home, and plan a vacation. She recommends visiting the Consumer Federation Protection Bureau’s website to use their new student debt repayment assistant at www.consumerfinance.gov/students/.

“The site can help people explore the most effective way to pay off student loans while managing other life needs and goals. The Income-Based Repayment Calculator is really helpful,” Sweedler said.

Retirement planning

For those planning for retirement, Sweedler admitted that not knowing how many years to plan for can be a stumbling block to saving at all.

“Many people underestimate how long they are likely to live and don’t save enough money,” Sweedler said. “How long do you think you’re likely to live? You can estimate it by using one of many longevity calculators on the Internet. The Longevity Game at www.northwesternmutual.com, helps you see how different variables can affect the prediction of how long you’ll live.

“While longevity calculators are not crystal balls, because people underestimate their lifespan, using one may remind you that you need to plan for quite a few years, even decades, in retirement,” Sweedler said.

How much Social Security to expect is another question when planning for retirement.

“It’s important to know how much money you’re likely to receive from Social Security, and whether you’re opting to receive Social Security payments early, before you’ve reached full retirement age, will affect your monthly check,” Sweedler said.

Online tool

If you don’t know, Sweedler recommends using the calculators at the Social Security website, www.ssa.gov/estimator/. “Gathering this type of information can help you decide how much you need to start saving now for retirement,” she said.

Website calculators can be helpful in financial planning, but Sweedler also recommends seeking advice from other sources.

“Meeting with human resource staff at your workplace might help you answer retirement planning questions,” she said. “And sometimes it just takes a pencil and paper. Make a list of expenses versus your current income and double check that you’re saving for future goals as well as paying for current expenses. The future gets here quicker than we expect it to, so planning ahead is vital.”

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