TTHC 32 – Roger Whitney. Can You Plan for Retirement AND College?

Today’s episode brings Roger Whitney, “The Retirement Answer Man,” to the microphone who will be indeed answering some of our questions on retirement planning with college in sight.

Roger has been a financial planner for 24 years, walking with his clients through the retirement maze. Eventually he developed a podcast and blog on the subject on his website offering tips and guidance along with a free retirement toolkit.

Later, I’ll be answering a question about owning a business and its impact on your success in receiving financial aid. You may have gotten conflicting answers from well-meaning friends, so we’ll break it down for you.

How do you approach college AND building your own nest egg?

Roger sees the college planning process as a balance sheet decision. When he himself was just starting a business with his partners, he had to make a decision on whether to continue to save for college or invest in his business. He opted to channel the cash flow toward the business to structure the funds so that down the road when his kids would be ready for college, he would also.

I also have advised families with small children, let’s say three years of age or so, to focus more on building their net worth and structure themselves financially. A lot can happen in 15 years and to put the money toward college may be a bit premature.

Let’s get more creative

I’ve often heard the adage, “You can borrow for college, but you can’t borrow for retirement.” It’s true, but it’s not always helpful when it comes to facing a tuition bill.

Roger feels we aren’t nearly as creative as we should be when it comes to selecting and paying for college.

“College is a major industry…the availability of financing for college feeds the tuition rate increases that we’ve seen over the past 10 or 15 years,” he says. He’s seen parents fund their students four-year tuition in a major that leaves them jobless and in deep debt.

According to Roger we need to “do college” differently, not just focus on the four-year university experience.

In his own experience, he laid out the balance sheet for his daughter, who as a high school junior was passionate about being a band teacher. She also said she wanted to attend Texas Christian University. When they reviewed the salary of a band teacher (perhaps about $40,000 per year) and the cost of TCU (about $50,000 per year), he was hoping the logic of the numbers would work a little magic.

Not so. She was crushed; however he also later learned that her initial decision was in part based on her own band teacher who had graduated from TCU, and he happened to be “hot.”

So, parents, understand that it’s your role to offer options, but also a framework with limits. Roger explains that it’s a fine line between supporting your kids’ dreams and desires and enabling them.

What is creative college planning?

Roger had a client who had the means to pay for his son’s education at Rice University. In talking with the son, Roger explained that he could go to community college for the first two years to get the basics out of the way, live at home and save about $80,000. He could then transfer to Rice and split the difference.

The idea was not just to get the student thinking in different economic terms, but also the parents, who often see only one option. Roger wishes more people would seriously consider community college to help control costs of college.

However the lure of the “college experience” is strong, and families who want that need to examine whether it’s worth taking on the debt it may require. In addition it’s up to parents to examine their student’s reasons for wanting to attend the school they do. It’s not unheard of for students to pick a school based on its fight song, so a little logic in a college planning discussion is needed. Parents, this is where you come in.

I’ve also seen students who, because they have not been exposed to large loan amounts, will view a $5,000, $50,000 or $500,000 loan amount as being in the same camp. They’re all big numbers, so what’s the difference?

What should the expectations be for students?
For Roger, his son is a freshman at Texas Tech, and the agreement is that he will work, and the college costs (tuition, meals, room and board) are paid for by Roger and his wife. This is valuable for students to understand responsibility and their own role in getting an education.

For families that will need to take on more loans, there should be a similar mindset. Ask your student what they are willing to do to make college happen? I also suggest to parents if they are taking on the majority of debt that they write up a contract that requires repayment first before a student buys a new car, or if they have an apartment, that they get a roommate to help with rent. This also requires that students exhibit responsible management of their finances.

Get that degree, but do so smartly

Unless your student is planning on working in the top law firm or medical facilities in the country, it’s not important from which school they’ve received their degree. The highest priced university therefore won’t be in most student’s interest, and it can save parents money. Your work ethic, how you interact with others and competency really are what make the difference.

However, Roger agrees that getting the bachelor’s degree will make a difference in what jobs are available to you and how quickly you can get those jobs. Especially for students who aren’t in the top 10 percent of their class and have had to work for their B or C, the bachelor’s is what lifts the ceiling once you graduate.

That said, students should not graduate with degree in hand and expect a six-figure income. Students should enter the workforce knowing what they have to offer an employer that makes them valuable, rather than look to an employer to see what they can get from them.

As with all things, it’s all about attitude: no one owes you a job; instead ask yourself what do YOU have to offer in a job?

Retirement v. College: Advice for Parents

Over his career, Roger has seen many parents sacrifice their financial futures for the education of their kids and that simply doesn’t make sense. It’s one thing to want to help the next generation, but if you don’t help yourself first, you won’t be there for them in the future.

It’s a tough trade-off, but if you have already taken some of the advice we’ve talked about already (having your kids take an active part in the college financial planning, providing some structure and limits, etc.), that trade-off may not be necessary.

It’s a matter of picking priorities and putting the money behind it. If you look at some families’ cash flow it would seem the priorities are for sports tickets, vacations, etc., and not college or retirement.

This is where sitting down with a financial planner and reviewing your net worth statement. Roger explains that if you take your list of priorities and where the cash is going, sometimes the evidence can be pretty damning.

What you say is a priority and where you’re spending your money can be two alternate realities. The key is to have a process and look at the facts to modify your habits. Those who aren’t addressing the issue aren’t likely going to achieve much success.

I suggest that a automatic monthly sum be used to invest in college, and Roger agrees that having some repeatable process will serve as a good compass.

He quotes Kent Davis in saying, “If you are enslaved to your compass, you can enjoy the freedom of the seas.” Financially, your compass is having a process in making these decisions which will give you the freedom to think creatively and live a more balanced life.

When it comes to tapping into your retirement savings to pay for college, Roger considers it a loan, and rarely something he would recommend. Ideally if you know college is coming, the smarter way is to move cash toward that investment v. taking what you’ve already set aside for retirement.

Is it a good idea to ‘play the market’ when college is in sight?

Investing is meant to be a long term proposition, so any investment in the markets should be done with an understanding of what an investment can bring over time. The shorter the timeframe you have to work with, the less clarity there is, and the risk of having the capital drawdown or a loss is greater. If college is in the picture within three to five years, rethink investing those dollars in the market.

Roger’s 3 Quick Tips

• Do a net worth statement and understand your cash flow so you can understand where the resources are going to come from for college (think beyond a 529 plan)
• Think seriously about stair stepping the college experience – start with community college before taking the step to a larger university
• Highly encourage your kids to work and to have some skin in the game – this is their future

Visit Roger’s website, RogerWhitney.com, to get your free Retirement Toolbox and to tap into his podcasts and blogs.

QUESTION OF THE DAY – Does owning a business count against me when filling out the FAFSA?

Depending on who you may have asked, the answer could have been yes absolutely, or no.

My answer is… maybe. Here’s why:

1. How big is your business? – Many small business owners will not have to report their business on the Federal financial aid forms. Businesses with less than 100 employees, be more than 50 percent owned by the family and a US-based corporation. This covers a majority of business owners filling out the FAFSA.
2. Are you applying to colleges that require the CSS? – along with the FAFSA certain colleges require the CSS Profile, and part of that process includes the Business Supplement Form (or Farm Supplement Form). These are relatively complex and it’s best to have your accountant help you. Some colleges may use this information, especially if the value is considered high. This form asks about:
   1. Assets, cash reserves
   2. Tangible property, buildings or equipment
   3. Depreciation
   4. General revenues, what officers are paid

So, if you’re a realtor in a one-person office, this may not impact your overall financial aid, and it’s not likely to be held against you.

Schools like Harvard, Yale, USC, NYU and the like will ask for this more involved information. This is because they are also offering students much larger scholarships, and the CSS Profile provides that. As institutions like this are more likely to offer need-based scholarships, the picture these forms provide help ensure that the scholarships are being given to the right people.

All schools (roughly 4,000 in the US) require the FAFSA, and by comparison there are only 350 or so schools that require the CSS Profile.

LINKS AND RESOURCES

Grant’s Website

Read more: How to Go to College for Free and Reality Check

The “How Did You Get Into That?” podcast

Visit and Learn How to Find and Do the Work You Love

More information on 529 and Coverdell college savings plans

Learn more about tax advantages for college tuition like the American Opportunity Credit, Lifetime Learning Credit, or for every option, check out the IRS’s Publication 970

THANKS FOR JOINING US!

We’d like to extend an invitation to our listeners to share their feedback and questions. Our website offers a couple of ways for you to share your questions with us, and we’d love to hear from you.

Contact Us to submit a question to our email
Leave us a voicemail message on the computer! (We use questions for future shows because it’s likely other people have the same question.)

If you find our podcasts helpful, please share us on social media and tell your friends.

The bottom line is that we care what you think and want to help you out, so we’d appreciate you reviewing us on iTunes or on Spotify. And even better, receive automatic updates by subscribing to the show on iTunes or Spotify.