Military Officer - November 2006 - (Page 67)

would behoove parents and students alike to develop a solid plan of attack to save for college, designed to maximize student aid and minimize debt at graduation. There are three cardinal steps to developing your family college funding plan. Get More With MOAA Military members have told MOAA that paying for college is one of their top financial concerns, and in response we have partnered with the Vanguard Group International to provide The Vanguard® 529 College Savings Plan to military families. Through this partnership, military personnel and all MOAA members will be able to open a 529 plan with Vanguard for an initial investment of only $50 (instead of the $3,000 normally required to open an account). Because of Vanguard’s low costs and prudent investment strategy, MOAA believes The Vanguard 529 College Savings Plan will be the best plan for a large number of military personnel and MOAA members. Nevertheless, MOAA and Vanguard encourage you to compare it to your home state’s 529 plan. Some incentives might make your state plan a more effective college savings option. To learn more about this new partnership, compare 529 plans, and view answers to frequently asked questions, visit www.moaa.org/col legesolutions after the program officially launches Nov. 15, 2006. Don’t sacrifice retirement Most parents are willing to go to great lengths to help their children succeed in life. With the U.S. Census Bureau estimating that a college graduate enjoys a more than $1 million lifetime earnings advantage over a high school graduate, many families view a college education as an absolute imperative. However, if you forego saving for retirement or withdraw monies earmarked for retirement to fund college costs, you run the very real risk of becoming a ﬁnancial burden to your children later in life. Your ﬁrst step as a parent or grandparent is to determine how much you are willing to contribute to college funding. While many parents endeavor to support their children’s educational efforts to the greatest extent possible, a valid school of behavioral ﬁnance thought holds that children should be responsible for funding some part of Saving Early Pays Off Child’s Monthly Lump Sum Age Savings Needed Deposit Birth 7 14 $210 $304 $552 $27,625 $33,725 $41,100 their college expenses, even if their parents can afford to pay all the costs. For instance, you might agree to cover 100 percent of the in-state costs for your state of residence, with your child responsible for anything above that. Or you might cover the ﬁrst three years of undergraduate and ﬁrst year of graduate school to encourage your child to complete his or her studies as efﬁciently as possible. Whichever approach you use, both parents should agree on it, all children should be treated more or less equally, and the parents’ commitment level should be communicated to the child as early in the college-planning process as possible. Start saving early The earlier you start saving for college, the better prepared you will be. EFC Expectations Parents’ Income $45,000 $45,000 $90,000 $90,000 $150,000 $150,000 Parents’ Savings $50,000 $50,000 $100,000 $100,000 $100,000 $100,000 Number in School 1 2 1 2 1 2 Annual EFC $2,500 $1,550 $19,300 $9,700 $37,450 $18,250 For instance, suppose you commit to funding four years of in-state public college, costing $12,000 total in today’s dollars, and assume 5-percent annual college inﬂation and an 8percent return on your investment. “Saving Early Pays Off,” at left, indicates how much you will need to save through graduation, based on your child’s age when you start. Funding requirements for out-ofstate public and private colleges can run two to four times higher than the amounts listed above, so early funding is critical. A broad range of savings tools can help you prepare for college expenses. For a headto-head comparison, see “Compare Savings Plans,” next page. No single saving option ﬁts every situation, but the combined power of tax-deferred compounding and taxfree withdrawals makes Section 529 college savings plans very attractive. Choose your Section 529 plan wisely: Some plans, particularly brokersold plans, are loaded with high fees and expenses. Even if your state plan offers a deduction on state income taxes, it might not be as good a deal as another state plan with a lower fee structure. In general, look for the NOVEMBER 2006 MILITARY OFFICER 67 http://www.moaa.org http://www.moaa.org/collegesolutions http://www.moaa.org/collegesolutions

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From the Editor From the President Your Views MOAA Directory Rapid Fire Washington Scene Financial Forum Ask the Doctor Chapter Activities Cover Story: Financial Guidebook Got (the right) Insurance? A Penny Saved, a Degree Earned The “Y” MOAA Scholarship Recipients Pages of History Information Exchange Member Books MOAA Scholarship Donors MOAA Member Services Advertising Index MOAA Calendar Sounding Taps Encore

Military Officer - November 2006

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