The Domino Effect: How a lack of College Planning Can Topple Your Retirement
We all want the best for our children, and for many, that includes a college degree. But let's be genuine for a moment: the price tag for that degree can be terrifying. We see figures like $45,000 or $50,000 per year for an in-state school, and the math just doesn't seem to work. It’s a source of incredible stress for families, and rightly so.
The conversation about saving for college often gets siloed. We talk about it as one distinct goal, while retirement is another. The reality is that these two goals are intrinsically linked. In fact, a few missteps in college planning can create a domino effect that makes a comfortable retirement incredibly difficult, if not impossible.
Today, I want to talk about a few of the less-discussed strategies and hidden variables in the college funding game. This isn't about telling you what to do, but about presenting a broader perspective so you can make more informed decisions for your family.
Rethinking the "Four-Year" Degree
When we picture "college," we almost universally picture a four-year university experience. But at a cost of $45,000-$50,000 a year, that traditional path totals $180,000 to $200,000. The most common way to cover that gap is through student loans, which can burden a graduate for decades.
There is, however, an alternative path that has become increasingly practical: the "wholesale" approach.
This involves steering a student toward two years at a community college followed by two years at a state school. The first two years—often covering general education requirements—can be completed at a fraction of the cost. The student then transfers to the four-year university, still earning their degree from that institution, but having bypassed two years of its highest tuition. The primary objective here is debt minimization. Graduating with a manageable loan balance, or none at all, is a massive financial head start in life.
The 529 Plan: A Double-Edged Sword?
The most common piece of advice families receive is to open a 529 plan. They offer tax-deferred growth and tax-free withdrawals for qualified education expenses. On the surface, they seem like the perfect tool.
However, it's crucial to understand how all assets are treated when it's time to apply for financial aid. When you fill out the FAFSA (Free Application for Federal Student Aid), your assets are assessed to determine your "Expected Family Contribution" (EFC). This EFC number is the gatekeeper; a lower EFC can mean qualifying for more grants and aid—what we might call "cheaper, freer money."
Here's the potential trap: A large 529 plan balance, which is typically counted as a parental asset, can increase your EFC more significantly than other types of accounts might. In contrast, a standard brokerage account held by the parents might, in some scenarios, have a different impact on the EFC calculation.
This isn't to say 529s are "bad." But it is a call to be aware of the full financial picture. The goal isn't just to save money; it's to save it in a way that doesn't inadvertently disqualify you from thousands of dollars in potential aid.
Time Horizons and the Problem with "Safe" Money
Let's say your child is 14. You have a short "time horizon" before that first tuition bill is due. When the time horizon is short, the conventional wisdom is to reduce risk. You don't want to be fully exposed to market volatility right when you need to withdraw the cash.
A traditional "safe" option for this short-term money might be laddering Certificates of Deposit (CDs), which offer a guaranteed yield. It feels secure. You know exactly what return you'll get.
But in a high-inflation environment, "safe" takes on a new meaning. Let's imagine your CD yields 4%. That seems okay. But what if tuition costs at your target school rise by 6% that same year, and overall inflation is 5%? Even though your balance grew, your purchasing power shrank. The money you saved now covers less of that tuition bill than it did a year ago.
This is the financial tightrope parents are walking: balancing market risk (the chance your investment could lose value) against inflation risk (the guarantee that your cash will lose value over time). In this environment, it can feel impossible to get ahead, and "safe" investments might just be a way of losing ground more slowly.
The End Game: Why This All Circles Back to Retirement
Poor college planning doesn't just impact the student. It has a direct, profound, and lasting impact on the parents' ability to retire.
I recently spoke with a couple who are facing this exact scenario. They did everything "right" by sending their three children to good schools. But now, those three adult children are living at home. Why? Because their salaries, while decent, are not enough to cover both their significant student loan payments and the high cost of rent.
As a result, the parents are covering the household's monthly spend—to the tune of $10,000. Their retirement savings have stalled. They cannot afford to stop working. This is the domino effect in action.
Planning for college isn't just a 4-year or 18-year goal. It's a 40-year decision that shapes the financial health of two generations. It requires thinking critically, questioning conventional wisdom, and understanding that the most "obvious" path isn't always the one with the best outcome.