Saving for College – Proactive vs. Reactive - Medicare Insurance Advisors | Medicare Insurance Advisors

Saving for College – Proactive vs. Reactive

Saving for College – Proactive vs. Reactive 

A Bright Future for only $5.67 Per Month

By Katie Loveday           

Katie Loveday interview with Blake McCoy

Katie Loveday interviews Blake McCoy, owner at IIC

As a student at the University of Tennessee, I know how expensive a college education is. I pay hundreds of dollars every semester for books and supplies, and every year my jaw drops a little further when I see that the cost of tuition has gone up again. I also have a two year old son, and that puts these facts in a whole new perspective for me. If the cost of tuition is so high now, what is it going to be in 16 years? The average tuition at a public university today is already high at about $8,000 a year. Private schools are even worse; they average at 28,000 per year. These costs increase every year. I don’t want my son to worry about not being able to go to his preferred school because it’s too expensive or be saddled with vast amounts of student loan debt when he graduates. But how on earth can I, a struggling college student myself, save money for his tuition? I want to be proactive, so that my son has the best chance for a bright future. I have interviewed Blake McCoy, owner of Independent Insurance Consultants, to find out about some of the ways I can ensure that I will be prepared when it’s time for my son to go to college.

Me: How much should I aim to save for my son’s college tuition?

Blake: Public four year universities charge an average of $8,000 per year for tuition, and private universities average around $28,500. So, it really depends on what school your son will attend. You also have to take into account the rising cost of tuition.

Me: Is it ever too late to start saving?

Blake: The younger your child is when you start saving, the more time you have for money to grow in an account. Waiting until your child is 10 or 11 will just cut that time in half. You could even start saving when your child is in high school, it’s better late than never.

Me: What kinds of college savings plans are there?

Blake: The most common type is a 529 savings plan. You start out with a certain amount, and then you add to that amount monthly or yearly. Some parents only contribute once a year when they get their tax return.

Me: What do you recommend?

Blake: Anyone who wishes to save can tailor a plan to fit their needs. I personally would use a fixed annuity as my 529 savings vehicle. It grows at a set interest rate over a set amount of years. Fixed annuities have better rates than CD’s without the risky ups and downs of the stock market.

Me: You’re a new father. Is that what you are doing to prepare for your son’s education?

Blake: We are actually doing two things. We do have a fixed annuity within a 529 savings plan, but we also took out a whole life policy for him.

Me: What’s a whole life policy?

Blake: You’ve probably seen them advertised on TV: things like the Gerber policy. The one that we have is through Mutual of Omaha. It’s for all ages, but they start at age zero. The whole life policy will last until it’s 100 years old, and at the same time we have a fixed interest rate within the life insurance policy that builds cash value.

Me: At what rate does the cash value grow?

Blake: The life insurance builds cash value at about 3%, and the fixed annuity grows at a minimum of anywhere from 3 to 5%.

Me: And are both of these plans affordable? Could someone with a low income afford to save this way?

Blake: Yes, they’re both very affordable. With the fixed annuity within the 529 plan, you don’t have to contribute a lot. You can set it up so that it works for you. And whole life policies are really cheap. A lot of people, even grandparents, choose to take out a whole life policy because it is so affordable. For example: for a boy under the age of 4, $5.67 a month will buy a $10,000 whole life policy that will also build cash value on the premium.

Me: Can you give me an example of how the fixed annuity within the 529 savings plan works?

Blake: Sure. Let’s say you start out with $600, and you decide to contribute $50 per month at 3.5% for 18 years. Keep in mind that 3.5% is a relatively low estimate for a fixed annuity, so a plan might grow at a higher rate of interest. If you invest this way you’re going to end up with a little over $16,000. If you just double your monthly contribution to $100 a month, then at the end of 18 years you will have about $30,000.

Me: So what advice do you have for parents who are wondering about saving for their child’s college education?

Blake: Save as much as you can and start as soon as possible.

            Yes, college is expensive, but once I uunderstood my options, I realized this is not an unattainable goal. In today’s economy, the importance of a post-secondary education is becoming more and more prevalent. Employers are placing emphasis on job applicants with a college degree. When our children are adults, higher education will only be more important. The plans discussed above can be personalized to fit a family’s specific needs. So, fellow parents, I leave you with this question: What’s your excuse? If I can save for my son’s college education, so can you!

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