Parents Deprioritizing Retirement to Save for College

Additionally, more than one-third of parents reported no financial plan for meeting their broader goals.

Although saving for college is a top priority for many parents and many have a plan for it, more than one-third of parents (36%) do not have a financial plan to meet their overall goals, Fidelity revealed in its “2024 College Savings Indicator Study” released Thursday.

Fidelity’s data suggest parents are increasingly prioritizing their children’s education ahead of their retirement savings. For only the second time in the study’s 17-year history, saving for a child’s education was ranked higher than saving for retirement. When asked about their top savings priorities, 73% of parents indicated saving for their child’s education, 62% prioritized saving for retirement and 57% focused on saving for an emergency.

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Moreover, 84% of parents plan to either maintain or increase their regular college savings contributions for the remainder of this year, potentially diverting funds that might have otherwise been allocated to their retirement savings, Fidelity reported.

“While saving for retirement has always been a top priority for parents, it’s not surprising to see them put more of an emphasis on college savings these past few years,” says Tony Durkan, a vice president and head of 529 relationship management at Fidelity Investments. “Our study revealed that parents continue to agree the value of college is worth the cost, and that cost continues to rise, so parents are increasing their expectations and changing how and where they save to meet this new reality.”

Among parents with children nearing college age, 68% said their child understood the total cost of their college education and the potential amount of student loan debt they may incur. However, 26% of these parents have not discussed the total cost of college with their child, and 35% have not talked about the amount of student debt their child may face after graduation.

Initiating the conversation about college costs can make a substantial impact, according to Fidelity. The study found that 80% of parents who discussed college expenses with their child have begun saving, compared with 61% who have not. Furthermore, 44% of these parents have opened a 529 account, compared with 29% who have not had the discussion. On average, parents who have talked to their child about college costs saved $20,000, while those who have not had a conversation about costs have saved $12,000.

Fidelity noted that financial professionals can offer valuable support and guidance to families. More than 80% of parents who work with a financial adviser say it gives them peace of mind regarding the college planning process.

Francesca Federico, co-founder and president of Twelve Points Wealth Management, says creating a plan and revisiting it often makes some parents more successful than others.

“We are born with habits from our own parents and families, and often they are not good ones,” she says. “The habit that can have the greatest impact on parents is simply saving early and often. This requires budgeting, a word everyone dreads.”

Setting long- and short-term goals helps parents achieve financial freedom, according to Federico. Long-term goals should guide short-term behavior, with savings and investing behavior informed by these goals. Parents should revise their plan along the way to adapt to any unexpected circumstances.

“Last but not least, use this as an exercise to educate the next generation,” she says. “Teach your children, nieces and nephews, or grandchildren how you think about money, how to save and how to be responsible in creating your future with money.”

Children’s Retirement

Recent changes legislated in the SECURE 2.0 Act of 2022 may also help address some of parents’ concerns about college savings by allowing 529 plan funds to be transferred to a Roth IRA, thereby giving children a head start on saving for retirement. The new rule can also help 529 account owners avoid taxes and penalties for withdrawals.

Although many parents anticipate their child will pursue higher education, 35% acknowledge that their child has considered not doing so. Fidelity stated that this uncertainty leaves many parents wondering about the future of their hard-earned 529 plan savings.

With the recent legislative changes, 529 plan assets can now be transferred to a Roth IRA for the beneficiary under certain conditions. The 529 account must be open for at least 15 years to qualify for the rollover, which is subject to annual Roth IRA contribution limits and an overall lifetime cap of $35,000. Additionally, the transfer must be made from contributions that have been in the 529 account for at least five years before the rollover to the Roth IRA.

Fidelity’s survey was conducted from April 15 through May 7, drawing response from 1,985 families nationwide with children high school age and younger who are expected to attend college or other further education. The survey respondents had household incomes of at least $30,000 per year and were the financial decisionmakers in their household.

Retirement Plan Tech Firm Turns to AI for Video ‘Hosts’

vWise goes live with AI avatars that can provide plan information and guidance to participants.

Less than two years ago, David Ferrigno noticed some videos making the rounds online, impressive deep fakes of celebrities.

Ferrigno, the CEO of a company that makes videos for retirement plan providers and plan sponsors, had one thought: “Why can’t we do that?”

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vWise Inc., the Aliso Viejo, California-based technology firm Ferrigno runs, is used widely in the retirement industry to make custom videos for participant groups ranging from onboarding to education to choosing the right level of deferment for their needs. Those videos, which used professional actors and high levels of production, used to take at least 6 months. Now, thanks to artificial intelligence, Ferrigno’s firm can turn them around in a matter of days.

“We had to schedule the actors, write the scripts, get the script approved, schedule the green screen studio with a 20-person crew to do sound, lighting, makeup and then spend all day in the studio,” Ferrigno recounts. “Then imagine when a client wants to make a change because they changed branding or have a new initiative? It could be a five-month process.”

Ferrigno’s team, he says, kicked into high gear not only to create AI-leveraged videos, but to make them at a higher quality level than those early deep fake clips. Even so, its avatar, “Erica,” has come online relatively fast and is already being used by some clients to make videos on 401(k) enrollment and deferrals. Now, if the firm needs to make a brand change or just wants to update some information, the new video can be turned around in a day.

“They can now iterate and maximize their funnel conversion rates much faster,” says Ferrigno. “They can even have one actor for multiple segments—one for Gen X participants, one for Gen Z or other target groups.”

vWise’s clients tend to be recordkeepers, asset managers and advisers who are all seeking to increase participant personalization. Ferrigno notes that vWise’s larger mission is to provide the technology to meet that need.

AI Video Host Erica

In a demonstration, he shows how a participant can be guided to a suggested deferral amount by typing in their income and retirement goals—with the integrated software not just making the recommendation, but taking them to the button to make the deferral happen.

“We are fully integrated with our clients,” Ferrigno explains. “That makes the difference.”

Now, thanks to AI video hosts, those clients can more quickly implement new offerings or changes to drive adoption, the CEO says. Whether offering a new managed account, retirement income option or health savings account, Erica’s schedule is always open.

Ferrigno also believes the move will be good for business. He sees the faster turnaround times and cheaper production costs opening his firm to go after more clients—such as more retail financial advisers and firms—and to go further down market in the plan sponsor space, with the ability to offer services to smaller plans.

“It’s easier for us to iterate and work across all the verticals—clients can put out more use cases more quickly without having to deal with long setup times,” he says.

And what about those great host actors? Ferrigno thinks they’ll be OK.

“They always had very busy schedules,” he says.

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