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    Planning for College Costs While Preserving the Retirement Nest Egg

    Posted by Bill Jackson J.D. CLU on Wed, Oct 02, 2019 @ 12:00 PM

    College costs are substantial enough to have the potential to compromise the parent’s retirement plans or produce burdensome debt for the college student. The costs can range from $100,000 for some local state-supported universities to $280,000 for many prestigious private schools. Most parents with pre-college age students range in age from 40 to 60 years old and most are concerned with how much college will cost. They are unsure of how much government aid they will receive. Some have set money aside in a 529 plan, state tax-free college bonds, or a prepaid tuition plan, but many have done little planning.

    college-costs-retirement-nest-egg
     

    Counting the Costs of College

    Helping your clients determine college costs is easier than in the past. There are several online calculators which are even college-specific and can pin down the cost for the student’s intended school. These calculators also have the ability to consider the effect of inflation on costs for students with a number of years before they reach college age.

    Importance of Time

    Families that need help with college planning typically fall into two categories: families that have five or ten years to plan and families whose children are on the doorstep of entering college. Each of these situations requires a different financial approach.

    When College is Years Away

    For younger families there are few assets that have the flexibility and tax advantages of cash value life insurance. All of the alternatives mentioned before have limitations on when and for what purpose the money can be used. The cash value of life insurance can be used at any time for any purpose even if the student does not decide to go to a university.

    This is a typical example and summary of college costs and timing for a younger family. State: CA, Husband age 53, Spouse age 49, Son age 12, Daughter age 10. The family’s desire is to send both to a four-year college in CA (public). They would like to have the funds to do this and a protective element in case one or both spouses die early.

    Projected Yearly Costs

    Wife
    Husband
    Son
    Daughter
    Pomona
    Long Beach
    Yearly Total
    49
    53
    12
    10
         
    50
    54
    13
    11
         
    51
    55
    14
    12
         
    52
    56
    15
    13
         
    53
    57
    16
    14
         
    54
    58
    17
    15
         
    55
    59
    18
    16
    31725
     
    31725
    56
    60
    19
    17
    32677
     
    32677
    57
    61
    20
    18
    33658
    28840
    62498
    58
    62
    21
    19
    34667
    29705
    64372
    59
    63
    22
    20
     
    30596
    30596
    60
    64
    23
    21
     
    31514
    31514
    61
    65
    24
    22
         
    62
    66
    25
    23
         

    http://www.finaid.org/calculators/scripts/costprojector.cgi, http://money.cnn.com/tools/collegecost/collegecost.html

    One possible solution is fixed indexed universal life insurance. Fixed index universal life insurance provides a death benefit to your clients' beneficiaries. It can also help clients build accumulation value, which could be accessed through policy loans or withdrawals, for future needs such as supplemental college funding. 

    A well-designed Indexed Universal Life policy could potentially, in just six years, develop enough tax-free income to cover both students’ higher education. Most importantly, the potential solution is self-completing, meaning that even if the insured breadwinner dies early ... the income tax-free funds would be available to help complete the strategy. 

    To see illustrations for products that could work well in this type of strategy, contact us.

    Schedule a Call

    When Classes are About to Start

    The just-in-time family has very different objectives. They have already accumulated assets. The husband and wife are in their 50’s their daughter is 17. Their primary concern is securing government support for their daughter’s education. They have $750,000 in various banks and assets. Their daughter would like to attend UCLA. They will need some of this cash to be liquid to cover costs over and above grants and scholarships.  

    With their current asset positioning, the family would not qualify for financial aid. When they complete the FAFSA form to apply for support they would need to declare the $750,000.

    However, if the assets were repositioned into a life insurance policy, which is considered an important financial safety net for the family, those assets would not be included when filing the FAFSA and the family could potentially qualify for financial aid. 

    In addition to providing financial protection, permanent life insurance can provide accumulation potential to help supplement college costs as well as reposition assets to provide tax advantages and possibly allow someone to qualify for student aid. Financial professionals can consider these factors when helping their clients with college planning and retirement strategies.


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    FOR PRODUCER USE ONLY. NOT FOR USE WITH CLIENTS.

    This content is for informational and educational purposes only and is not designed, or intended, to be applicable to any person's individual circumstances. It should not be considered as investment advice, nor does it constitute a recommendation that anyone engage in (or refrain from) a particular course of action.

    For financial professional use only. Not for use with consumers. This material is intended to provide general information only. It is not intended to render legal, accounting, Social Security or tax advice, and the services of those professionals should be sought. Financial professionals who utilize this material may be able to identify potential retirement income gaps and introduce products, such as fixed annuities, as potential solutions. The testimonial may not be representative of the experience of other financial professionals and is no guarantee of future success.

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