- The Washington Times - Monday, March 13, 2006

Who comes first: you or your child?

For parents of school-age children, the answer isn’t so easy. Saving for retirement is already a challenge for some, but as college tuition costs gallop ahead of the rate of inflation, parents face pressing questions of financial priorities.

Jack Browand, 38, a recreation supervisor for the city of Alexandria, has started college savings accounts for his two daughters, Alaina, 4, and Jacquelyn, 2, but acknowledged that he was “probably a little behind the eight ball.”

“At the beginning, it was pretty much $100 a month into the accounts. Now, it’s cyclical,” said Mr. Browand, whose wife stopped working when the girls were born. “I’ll probably be working till I’m 90.”

Although saving for his daughters’ college tuition is a priority, Mr. Browand said, he is wary of skimping on his own retirement, which he funds through a deferred-compensation plan offered to Alexandria city employees.

“Now, considering life expectancy, I’d like to have a second career. Especially if you want to stay in this area, you must almost make what you made when you’re retired to keep your standard of living,” he said.

A survey of more than 1,100 parents of children younger than 18 found that 37 percent say saving for college is their top financial concern. Thirty-four percent cited retirement as their top priority. The rest put saving for a car, house or other large purchase at the top of their list.

The study was conducted by the Vanguard Group, a mutual-fund company based in Valley Forge, Pa., and Upromise Investments Inc., a Needham, Mass., company that sets up college savings accounts for consumers.

Sixty-four percent of parents who expect their children to pursue higher education have started saving for college, an expense that is increasing.

The College Board said the average cost of tuition at a four-year public institution climbed 7 percent from $5,126 in the 2004-05 academic year to $5,491 in the 2005-06 year. Tuition at private institutions rose 6 percent from $20,045 to $21,235.

For families that have started saving, the average amount saved is nearly $4,700 per child, the survey said.

Despite escalating tuition costs, financial advisers warn parents against saving for college at the cost of their own secure retirement.

“Too often, parents are putting their children’s college ahead of their own retirement planning needs,” said Ric Edelman, who heads Edelman Financial Services in Fairfax. “It’s understandable they feel the parental obligation to do this for their children. In many cases, this is what their parents did for them. Unfortunately, today’s economic environment is very different from that of a generation or two ago, and it is no longer reasonable for parents to shoulder the burden to the point that they’re damaging their own financial future.”

Thirty-one percent of parents said they expect to pay all or most of their child’s tuition costs, the study showed. Fifty-eight percent said they expect to pay for some or a little, and 11 percent plan to pay for none.

Many parents in the Washington area can afford to save for college and put away for retirement at the same time, but if it comes down to a choice, they should pick retirement, Mr. Edelman said.

“You can get to college without any money — it’s called student loans. You can’t get to retirement without any money; there’s no such thing as a retirement loan,” Mr. Edelman said. “The child will have 45 years to pay for college. The parents, in most cases, have only 10 to 20 years to pay for their own retirement.”

Trible Greaves, 42, a legal secretary for the U.S. Department of Agriculture, said she doesn’t plan to cover the entire tuition costs for her three children, but hopes to ease the burden with savings bonds and eventually some savings accounts.

“I’ve thought about it. I haven’t really started saving,” said Mrs. Greaves, who has an 8-year-old son, Nicholas, and two daughters, Alexaundra, 5, and Angelina, 1. “My son’s in third grade. I’ll probably have to make a move in a few years or so, probably no later than sixth grade.”

Like Mr. Browand, Mrs. Greaves, whose husband, Robinson, works for Wal-Mart, is putting retirement first.

“We have Thrift Savings with the government. I upped my percentage quite a bit to try to increase my savings because I don’t plan on working forever,” she said.

Once parents have an emergency savings account in place and are funding their own retirement, it is time to begin saving for college, said Greg McBride, a senior analyst for Bankrate.com. Parents should keep in mind that their savings are only one of many sources of funding and that by the time their children enter higher education, tuition probably will be too expensive for savings to cover everything, he said.

“The savings you accumulate are just a piece of the entire pie,” Mr. McBride said, adding that most students receive some form of scholarship, grant or loan to help pay for tuition.

One of the most popular college-savings options — and, Mr. McBride said, the most effective — is the 529 savings plan, a tax-friendly savings account administered by states. Prepaid tuition plans are also popular, giving parents the opportunity to purchase future tuition at today’s rates. Other ways of saving for college include Coverdell accounts, education IRAs and education bond programs.

In the Washington area, enrollment in 529 plans grew substantially from 2004 to 2005. In the District, the number of accounts climbed by 1,592 to 5,783 in 2005. Enrollment in Maryland 529 plans increased by 10,000 accounts to 87,197 in 2005. Complete data for Virginia’s three 529 plans were not available, but the state’s prepaid tuition plan grew by 11,000 accounts from 2004 to 2005.

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