Proper financial planning that provides for our financial needs in retirement is perhaps the prototypical example of willful blindness. We all know that most people have not saved enough to provide for a sustainable long-term income in retirement. The core issue here is that we (as a society and as individuals) are making consistently bad financial decisions that affect our futures, beginning with how we pay for Continue reading
I recently came across a calculator developed by Morningstar to help families estimate future college costs and to determine whether they are on track with saving to meet the future costs of higher education. Let’s have a look at what this tool can and cannot do and how such a tool may be useful.
The key variables that determine the future cost of a college education are:
(1) How many years remain until your son or daughter starts college
(2) Whether they will attend a public or private college
(3) How long they will remain in college, and
(4) Whether they will actually pay the “sticker price,” or receive financial aid, grants, scholarships (etc., etc.)
The Morningstar calculator assumes that your student will, in fact, be paying the full advertised cost of the average public or private university. This is a fairly large limitation to the utility of the tool all by itself. The average student does not pay the advertised price of attendance. In fact, Continue reading
If your New Year’s resolutions include saving more for a loved one’s future education, your mind may have turned to 529 plans.
Though the performance of these plans improved last year, according to a recent Wall Street Journal story, there are many such plans, and they vary widely in quality. They particularly vary in terms of the investment options they offer once you’ve put your money into the plan.
“Saving for college is a major financial planning item. Local governments have set up tax exempt saving plans for College which is a great idea. Somehow, what we have ended up with is a confusing mess. The problems come when you look into the details of the plans,” says Simon Napper, president of MyPlanIQ, a firm that analyzes investing options in corporate 401(k) plans as well.
As illustration, Napper put together an analysis of how well investors would have done in the following state plans if they had allocated their investments in a diversified manner. Continue reading