Don’t Know How Much You Should be Saving for College? New Fidelity College Savings ‘2k Rule of Thumb’ & Calculator Help Families Do the Math

BOSTON–(BUSINESS WIRE)–As high school seniors across the country eagerly contemplate where
they’ll head to campus this fall, it’s a reminder for parents with
younger children to revisit the age-old question “are we saving enough
for college?” For many families, the answer remains elusive. According
to Fidelity
Investments’ ^® annual College Savings Indicator Study,
nearly half are hungry for additional education when it comes to how to
best save for college, with seven-in-ten seeking more specific
guidelines to define how much they should be saving. The difficulty in
identifying how much parents should be setting aside may contribute to
the fact that the average family is currently on track to save only 29
percent of the amount of college costs they intend to cover by the time
their child graduates high school¹.

To bring more clarity, Fidelity has designed a new College
Savings ‘2K Rule of Thumb’ and customizable
College Savings Calculator, providing parents with the ability to
estimate how much they should be saving—whether they’re just getting
started or already thinking about campus tours.

Taking into account that the average American family leverages multiple
sources to fund college costs², the ‘2k Rule of Thumb’
focuses solely on savings³. Assuming a goal of covering 50
percent of annual college costs for a four-year public school from
savings, the rule is simple: multiply your child’s age by $2,000.
Applying this rule, if your child is seven years old:

$2,000 x 7 years old = $14,000

This total represents how much you should have saved to date to be on
track, assuming you will continue saving at the same rate and that your
child will be age 18 come time to head to campus.

“Every family’s situation will be unique, which means there isn’t a
one-size-fits-all answer to the question of how much to save,” said
Keith Bernhardt, vice president of college planning at Fidelity.
“However for many, a savings rule of thumb provides a much-needed
starting point from which families can build a more robust plan to meet
their goals.”

Customizing Your Savings Plan

While the ‘2K Rule of Thumb’ is a simple way for parents to calculate
general savings guidelines, for those who may want to cover more or less
of college costs, the rule can be flexible. Taking advantage of
Fidelity’ new mobile-friendly and easy to use College
Savings Calculator can help families tailor the rule to apply to
their specific situation. By answering a few basic questions, the
interactive calculator can quickly provide a customized view of how
current college savings measure up and how much more they need to put
aside moving forward to meet their goals.

• How Much Will It Cost? When it comes to the cost of college,
  the price difference between public and private schools can be
  substantial. According to College Board, the current cost of a
  four-year in-state public college is estimated to be $20,090 per year
  versus an annual cost of $45,370 for a four-year private college.⁴
  By inputting the cost of one year of school in today’s dollars,
  our savings rule of thumb and calculator applies how those costs may
  grow by the time your child heads to campus.
• How Much Will You Cover from Savings? Fidelity research shows
  parents continue to be committed to helping their children pay for
  college, in some cases influenced by their own experience with student
  loan debt, and others simply wanting to help their children get off to
  the best financial start they can. While parents often take the lead
  in covering college expenses, it is still the case that most families
  don’t cover the full cost from savings. Parental and student income,
  grants, loans and scholarships all play a role as well.
• How Much Have You Saved So Far and How Long Do You Have Until
  College? Whether you started saving early or you’re catching up,
  increasing your savings and ensuring it is invested appropriately can
  provide the best opportunity for growth to achieve your goals.

“Kids grow up fast, which is why your savings plan needs regular
attention in order to make adjustments as needed well before college
arrives,” added Bernhardt. “At least once a year, take the time to ask
and answer whether you’re on track to reach your goals. If you find
yourself falling behind, don’t be discouraged. There are steps you can
take to bolster your savings efforts now to alleviate financial stress
later.”

How to Jump Start Your College Savings

The good news is that more parents are motivated to save than ever
before, according to Fidelity research and customer data⁵.
More families have started saving, are saving in dedicated college
savings accounts and have established a plan to help them stay on track
with their college goals. In fact, Fidelity 529 college savings plan
account openings are up 36 percent through the first quarter of 2017,
compared to the same time last year⁶.

For families looking for additional ways to kick their savings into high
gear, check out these ways to give your college account a boost:

• Beat Procrastination: The best way to stop putting off saving
  for college? Make saving a habit by automating your monthly savings.
  Your college savings plan provider can help automate your college
  savings contributions so that regular monthly payments are transferred
  directly from your bank account. Or consult the human resources office
  at work for help, as many companies offer direct deposit as an option
  to put part of your paycheck into a college savings account. The
  easier you make it to save, the less likely you may be tempted to skip
  contributing.
• Dedicate an Account to College Goals: Consider using a
  dedicated account to save for future higher education expenses. One
  option is a tax-advantaged
  account such as a 529 plan, which allow you to invest savings that
  can grow over time, while account earnings can be withdrawn federal
  income tax-free for a range of college expenses. Saving in a dedicated
  account can also help families stick to their savings plan and feel
  more confident in reaching their goals. Fidelity research finds that
  88 percent of 529 plan owners have a financial plan in place to meet
  their college savings goals, and on average, have saved nearly $12,000
  more than families without a 529⁷.
• Invest Your Best: One key to reaching your college savings
  goals may be to adopt an age- appropriate strategy that reflects your
  child’s time horizon to college. Each year, revisit your plan to make
  sure the asset allocation suits your needs. 529 college savings plans
  can offer a range of investment options from low-cost index funds to
  actively managed age-based funds, which provide an age-appropriate
  asset allocation as your child grows up. Learn more about
  Fidelity-managed 529 Plan investment options here.
• Dedicate to Innovate: Whether it’s cutting out one restaurant
  visit a month, committing a percentage of a tax refund or paycheck
  bonus, or earmarking earnings from cash back credit cards, there are
  creative ways to save a little more each month that can significantly
  impact the growth of your college savings account over time. For more
  strategies to help families save and stay on track, check out Viewpoints:
  Five lessons learned for college savings and Fidelity’s
  Calendar of College Savings Strategies

Both online and in-person resources are available to help families
saving for college. Parents can access a full library of educational
articles, videos, calculators and other tools at Fidelity’s College
Learning Center. College planning specialists are also available to
answer questions and provide guidance at Fidelity 195 investor centers
across the county, or by calling 800-544-1914.

About Fidelity Investments

Fidelity’s mission is to inspire better futures and deliver better
outcomes for the customers and businesses we serve. With assets under
administration of $6.0 trillion, including managed assets of $2.2
trillion as of March 31, 2017, we focus on meeting the unique needs of a
diverse set of customers: helping more than 26 million people invest
their own life savings, 23,000 businesses manage employee benefit
programs, as well as providing more than 12,500 financial advisory firms
with investment and technology solutions to invest their own clients’
money. Privately held for 70 years, Fidelity employs 45,000 associates
who are focused on the long-term success of our customers. For more
information about Fidelity Investments, visit https://www.fidelity.com/about.

The UNIQUE College Investing Plan, the Fidelity Advisor 529 Plan, the
U.Fund^® College Investing Plan, the Delaware
College Investment Plan and the Fidelity Arizona College Savings Plan
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and managed by Fidelity Investments. If you or the designated
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or the designated beneficiary’s home state offers its residents a plan
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This information is intended to be educational and is not tailored to
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¹ Fidelity Investments, Fidelity Investments College
Savings Indicator, August 2016

² Sallie Mae, How America Pays for College 2016

³ Notes on Methodology: The analysis models a hypothetical
investor’s savings behavior in different market scenarios. Using the
characteristics of the “average American” compiled from industry data
such as:

• School type and cost – four-year public in-state college costing
  $20,090 per year
• Growth of college costs – 3% per year above inflation
• Desired savings percentage – 50% of gross tuition, fees, and room and
  board
• Time horizon and duration – assumed college start age of 18 and a
  four-year college duration

The rule of thumb assumes the hypothetical investor begins saving at the
birth of the student. It then solves for the flat, real (grows with
inflation) annual savings amount to meet the required spending need in
18 years. The spending need uses today’s cost-per-year estimate and
grows it annually by 3% + inflation until the expense is incurred over
four years. The resulting savings level varies by market conditions but
a “college x factor” (which helped to establish the 2K rule of thumb) is
determined at the 75% confidence level based on the analysis used to
arrive at the estimated effective rates of return. This means that in
75% of the hypothetical market scenarios (with differing market
conditions) the amount saved meets or exceeds the required spending need
and in 25% of the market scenarios the savings are not able to fully
fund the spending need. The assumed asset allocation for the analysis
uses three asset classes and a generic target date asset allocation
appropriate for college savers. The analysis is then repeated for each
age assuming the hypothetical investor had started saving a flat, real
amount at birth and solves for the required assets at the current age to
meet the spending need with 75% confidence. Once complete, the analysis
illustrates that the college x factor is similar for all ages. In the
“average American” scenario the college x factor is approximately 2,000
(2KX).

⁴ College Board, Trends in College Pricing Report 2016 –
includes tuition, fees, room and board

⁵ Fidelity Investments, Fidelity Investments College
Savings Indicator, August 2016

⁶ New account openings of Fidelity-managed 529 plans for 2017
through March 31, 2017, compared to the same time last year

⁷ Fidelity Investments, Fidelity Investments College
Savings Indicator, August 2016

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Fidelity Investments
Michelle Tessier, 201-915-7470
michelle.tessier@fmr.com
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