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Ask USAA: How much do I need to save for my newborn for college?

This content is provided courtesy of USAA.

 

Whether it is saving for public or private college, starting early can help.

 

Hello, and welcome to the Ask USAA. My name is Scott Halliwell, and this is our featured question. Our question comes to us from a new mom by the name of Crystal, and she wants to know, "How much do I need to save each month for my newborn for college?"

 

Well Crystal, congratulations on the new addition. I remember those days very well, and, frankly, for me they were very exciting, but sometimes they were very scary, 'cause I wasn't sure how I was supposed to take care of a baby. Unfortunately, though, not knowing how to take care of a baby isn't the only potential scary thing about having a child. So is college savings at times. Would you believe that in order to save up enough for an average university, it would literally take almost as much saving each month as it would take to buy a brand-new car, but you'd have to make the payments for 18 years.

 

I did some calculations on the USAA College Savings Calculator, and I'd like to show you how they play out, so you'd have a better idea what this all means. Let's start at looking at a public university, and we're going to assume $15,000 a year at cost and $60,000 total for four years. The challenge is here, of course, that college costs keep inflating, right? So in this case, we've used historical inflation rates, and you can see that that $60,000 initially works out to be about $164,000 for the four-year university by the time the 18 years goes by. To accumulate that amount of money, assuming you earn 8% return on your investments, which is purely hypothetical, you would have to save about $342 a month.

 

Now, let's take it a step further. What if your child wants to go to private school? And in this case I'm going to assume private school costs $35,000 per year or $140,000 in today's totals. Assuming those same growth rates, what you'll see is that it's going to be about $350,000 that someone's going to need to have available to have that same educational opportunity 18 years from now. Again, to accumulate that at an 8% rate of return, you'd need to save about $750 per month.

 

So, Crystal, do you need any more motivation to get started early on your college saving? Fortunately, since your child is just born, you have some good news here. That is you have a lot of time available for you. The bad news, though, is you're probably going to need every minute of it. To do some of the calculations on your own or adjust them from what I showed you here a little bit ago and to get some information on some of the most popular savings strategies for college, I invite you to check out the College Savings and Planning section of usaa.com. You can find it by typing "college savings" in the search box in the upper right-hand corner. So, congratulations once again, Crystal, on the new addition and happy saving for that education.

 

 

 

Views and opinions expressed in this program are provided for informational purposes only and are subject to change. This discussion is not tax, legal, estate planning or USAA product advice and is unique to the member only. The law concerning tax and retirement plans is complex, penalties are severe, and the laws of your state may differ. Consult with your tax, legal or estate planning professional regarding your specific situation.

 

Investing in securities products involves risk, including possible loss of principal.

 

Past performance is no guarantee of future results.

 

This material is for informational purposes. Consider your own financial circumstances carefully before making a decision and consult with your tax, legal or estate planning professional.

 

Systematic investment plans do not assure a profit or protect against loss in declining markets.

 

Examples given are hypothetical illustrations and not necessarily an indication of the benefits or features of any USAA product.

 

Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

 

USAA means United Services Automobile Association and its insurance, banking, investment and other companies. Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers. Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License #0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer.

 

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