Kids' college or retirement -- your advice wanted

I agree that without some of their own input, kids don't fully valur their edumacation. As for myself, my folks paid one year of dorm (room and board). I took small student loans in my last two years and worked 25-30 hrs a week to pay for the rest. Loans were paid off one year from graduating.

I have told my kids that I would give them a full ride in their first year (since they had no opportunity to work PT during HS because of my overseas assignment), then I would pay tuition and books to the level of state college beyond that. They are then responsible for room, board, and any play money. I have also told them I would help with their first car and first year insurance on their own. They have to deal with car stuff beyond that.

Everyone's situation is different, but this seems to fit best with our situation and desire for our children's growth and development.

R
 
Will educated children provide a better extra leg for retirement than extra retirement savings? The kids education may diversify your safety-net if they are successful. Extra savings puts the money in the same leg with your savings. Then too, investment in your children does not always pay off especially if you are unwilling to go to them for help even when you are starving. But, by making sure they can fund themselves, you don't end up supporting them past adulthood either.
 
Why not try to do both? It is important to save for retirement -- otherwise you will end up in a mess, possibly dependent on your kids. But fancy cars, big houses and toys should come third after saving for the kids schooling. If you simply don't earn enough to cover your kids education, fine, you do the best you can. But if you make sufficient dough, help them out. College today is like high school when I was a kid. Without it, your kids are handicapped. If you don't care enough to give them a good foundation in life why did you bring them into this world?
 
bbbamI said:
IMO, if parents are able to put money in their children's college fund...I think it's wonderful. I applaud you.
:)
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I applaud you, too! I'm almost exactly the same age, with 2 children. We are in the process of saving for 4 years at a public university for each child. If it means that I work a year or two longer, so be it - we're already on on track for retirement in our late 40s, which - if I may say so :cool: is quite fabulous. I am happy to give this gift of education to my children. We are very fortunate to be able to save for them and for ourselves.

Charlotte
 
So lets see. You are saving to fund your own early retirement and a public school college education for each of your three children. You are on track to meet all this goals and you’re not even 40.

First and foremost, congratulations. You set a fine example for your children and others. You are clearly living beneath your means today and surely your sacrifice will pay off.

Regarding your question. I would prioritize funding retirement before college. The children have a potential additional source of funds to help them finance their education that might not be adequately explored if not needed, such as university assistance and borrowing. OTOH, you have no other options to achieve yours. This means your retirement goal is at greater risk, and this increased risk can only be offset by higher contributions.

An aspect you didn’t raise, but I will butt-in anyway, is you may also want to divert some additional funds to the mortgage – the 70% you don’t yet own. If not, this equates to you maximizing your contribution to education before examining other non-2Cor521 financing options.

As to your choice to fund your children’s college, 1) you sound like a great parent and 2) ain’t nothing easier that to tell someone else how to raise a child. You should do what you think is best, period. For the record, I paid for 100% of 4 college educations – my three kids and my own, and would do it all again exactly the same way.

Finally, a personal question. You are 39.9 years old, will reach FI probably at 46.6 but in some range between 46.5 and 47 (where’s the .0?) Are you an engineer by any chance?
 
MichaelB wrote, You are 39.9 years old, will reach FI probably at 46.6 but in some range between 46.5 and 47 (where’s the .0?) Are you an engineer by any chance?
__________________
hah hah...MichaelB, you took the words out of my brain :)
At any rate, our friend 2Cor is someone who calculates his age in weeks....how else can you tell when you're one-tenth of the way from being 40?
 
Do what you think is best for you and your family.

IMHO parents need to be sure their kids understand very early what parental contributions will be provided for college, cars, weddings, whatever.
 
Further clarifications, since some folks misread me yet again:

1. I may not RE when I reach FI. I will make that decision when I get closer.

2. I will not RE until I am FI and my children's college educations are fully funded.

A further question: My parents paid for my (and my two sisters') college educations. I didn't appreciate it as much at the time, but I sure as heck appreciate it now. Is there anyone on this thread who has (a) advised me to have my children pay for their own college education and (b) had their own college education paid for by their parents?

@Tadpole, I won't go to my kids for help even if I am starving. I consider them to be my responsibility, not the other way around.

@donheff, I will probably end up doing both. The question I have been asking is, should I divert extra income 80% to retirement, 20% to college, 100% to college and 0% to retirement, or some other ratio? And as I have been trying to make clear, I will be funding their college educations and I will retire early, it's just a question of which to fund more heavily for now.

@Charlotte, we seem to be in very similar situations. You said what I've been trying to say.

@MichaelB, thank you for your articulate reply. As far as the mortgage goes, I have 14 years left on a 15 year fixed mortgage at 4.625%, which equates to an after tax rate of 3.108%, so I will be prioritizing that pretty low. And yes, I'm a software engineer :ROFLMAO:

2Cor521
 
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I did Air Force for college. Finished the first two years for free while serving, then get GI Bill for after. Work experience on the shiny new resume didn't hurt either.

Plus Air Force = slim chance of getting shot.
 
SecondCor521 said:
The question I have been asking is, should I divert extra income 80% to retirement, 20% to college, 100% to college and 0% to retirement, or some other ratio? And as I have been trying to make clear, I will be funding their college educations and I will retire early, it's just a question of which to fund more heavily for now.
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I don't see any details on the difference between the funds. Money is fungible, when the time comes, you can use it for either.

So, why do you have two funds? Is this basically a tax question, or an asset allocation question? or ... ?
 
Independent said:
I don't see any details on the difference between the funds. Money is fungible, when the time comes, you can use it for either.

So, why do you have two funds? Is this basically a tax question, or an asset allocation question? or ... ?
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I have a traditional IRA, a Roth IRA, and a 401(k), which collectively I intend to use for retirement funding.

My kids have a mix of 529s and ESAs, which collectively I intend to use for their college funding.

I have a taxable Vanguard account in my name, which can be used for either.

I have two different sets of funds because that helps me see how I am progressing towards each goal. Also, to your point, I can asset allocate those funds differently easily as well -- my oldest child's freshman year college funds require a more conservative allocation than my retirement funds.

You're right in one sense that money is fungible. However, the different types of accounts have different rules and tax consequences that I'd rather not mess with, as well as advantages if one uses the funds for their intended purposes. In other words, I think I'll be ahead if the money that I end up spending on their college educations gets routed through their 529s and ESAs rather than my IRA's and 401(k)'s; a similar argument applies to not routing my retirement funds through their college accounts.

2Cor521
 
Rather than create separate accounts, I just invested for retirement and college in one portfolio. My retirement projections included college spending as part of the expenses. It also caused me to take out extra cash to cover a few years of college expenses in 2007, when the economy looked like it was going to weaken and I was spending pretty heavily for the next 8 years or so. Of course that's all back in equities now...

So I mingled the two, but tried to keep in mind the near-term spending requirements.

edit: my parents paid for my college, I'm paying for my kids.
 
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2Cor521,a lot can happen between now and college. Two in particular are
- a child opts for another path in life that does not involve college
- your children become eligible for some financial assistance

In either of these cases, excess funds in coverdells or 529s could be problematic. They can be used for other family members, so I would therefore limit total contributions in ESA/529 to the total cost of 2 children and keep the rest in a general taxable investment account. You already have 8 years funded, so I would hold it at the current level.

This also gives you more future flexibility for using your assets in different ways if you so choose.
 
Is there anyone on this thread who has (a) advised me to have my children pay for their own college education and (b) had their own college education paid for by their parents?
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As for who should pay, I think the most appropriate answer in this:

Bestwifeever said:
Do what you think is best for you and your family.

IMHO parents need to be sure their kids understand very early what parental contributions will be provided for college, cars, weddings, whatever.
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Everyone's circumstances are different. What really matters is that this be made very clear very early in life.
 
I'm with MichaelB. I didn't use the special college funding vehicles because I wanted to keep my options open. I figured the tax savings weren't worth the restrictions. Looking at the number of kids going to college today and graduating without jobs, I'd be cautious about telling kids that a four-year college is the only possibility.

My thought was to fund most of college out of cash flow (I would simply reduce my retirement savings during the time they were in college). In fact, instead of putting money into college savings accounts, I paid off the mortgage early. Then I could use money that wasn't going into the mortgage for tuition.

I think it makes sense to look at your total cash needs and select assets to have total cash at the right times -- i.e. I agree with your comment about more conservative allocations if you're going to have to withdraw soon. However, it looks like you'll still be working for the first two years your oldest is in school. I'd plan to cover those two years out of earned income.

Given all the above, you can see that I wouldn't add anything to dedicated college accounts, but that's a pretty individual decision.
 
As a generation, we are leaving our children with crushing debt. The debt that they will come out of school with will be an albatross around their neck. Hard working students, even those at the best schools who work hard are graduating school now and cannot find work and if they can, the pay is shocking and the clock on the student loans begins immediately. If (and it sounds like the answer is yes) you can put off ER for a year or two and give them this gift of freedom, when their own future is so uncertain, I say do so!
 
Everyone is different--guess that is what makes the world so interesting huh? We have the GET program here in Washington State, similar to a 529 but it is tied to tuition prices today. I originally bought shares at $61 a share and they are now $76 a share--unless I can get a better return on my funds in the market I think I will keep it where it is. I have friends who have 529's that have kids hitting college right now and they are a bit nervous about the impact of the market to their funds. The GET program is based on buying tuition credits at today's dollars for future use.

We have three years paid for our daughter and will buy four. We have told her that she will need to pay for graduate school AND work for her spending money, etc. in undergrad school--but we will pay for her education.

So for me I would choose to fund the education, but I can certainly see the points that others have made here that you may have enough already allocated this way and you might be better off not tying all your money up in the educational fund. I have had this same conversation with my wife and so far she has me convinced we need to fund that last year...hmmm...maybe I need to have a talk with her again? :)

Good luck--and congrats on having as much save so far!
 
I was fortunate to have parents who were willing and able to pay my way through college. I appreciated it then and I appreciate it even more now. Trying to reach FI is difficult enough without starting behind a mountain of debt.

I was (semi-)responsible at school. Picked a practical major. Didn't study as much as I should have. Took jobs in my field while going to school and graduated with about 2+ years practical experience plus the degree. The "free ride" from my parents made a lot of decision making a lot easier. Maybe I would have grown up faster without it, but I am very very glad I benefited from it.

I would like to do the same for my kids - and it sounds like OP would too. I hedged with saving for their college by not committing as much money as I could in restricted "college savings plans" but did keep separate accounts to keep the intention clear. Oldest is in school now and plan is working so far, though I will have to work longer to pay for these college educations - I think it is worth it to me to do so.

Should there be a retirement emergency - the money in the "college funds" is not entailed and I can use it as I wish. But I'm glad I set it aside and plan to deliver on what I promised myself (that I would fund kids educations).

Meanwhile - I'm still heading towards FIRE and being able to pursue things I dream of doing outside of having to make a living. I know I'm delaying that - but that is part of the social contract I made with myself as part of raising kids. It's a personal value of mine, and not everyone shares it (exDW didn't for example).

Do what you think is right. You seem in good enough shape financially that you should be able to do either or both, as you wish.
 
SecondCor521,

I can't give you or anyone advice on anything. But I don't think there is anything wrong with parents helping their children with college cost, if they can afford it.

My two children are going to the local state university, my alma mater. They stay at home while going to the school that's only a few miles away; I bought my home 20 years ago with this in mind. While in high school, they hinted of wanting to leave home for more personal freedom. I told them they would be free to do so, but on their own dime or try to get a full scholarship. What's wrong with my alma mater, a school that kids from other states come to attend, I ask. Guess who are staying home and behaving? :cool:

Anyway, they get free room, board, tuition, and a used car to go to school. They work part-time for spending money. I stopped providing allowances long ago. They have even offered to pay for their own textbooks. I could have easily paid for that, but let them feel good about paying something on their own.

It all depends on the parents' financial situation. I'd rather have my children having a headstart without debt than to leave them with an inheritance when I die. In fact, I have told them that the college education is the best gift I could give them, and that they should not expect any inheritance. The truth is that I do not wish to die broke and likely not to, but just want to set their expectations.

I did not set aside separate funds for the college costs. I did open their ERISA accounts, but the limit used to be the ridiculous $500/yr, hence these did not add up to anything. I looked into 529 plans, but decided against it.

Anyway, in lean years with a bad market, I'd rather not taking fancy vacations but paying my kids' tuition. Knowing that we are giving up our personal pleasures for their future helps them appreciate this a bit more, I hope.
 
Fund your retirement. I cannot even begin to tell you how comforting it is to know that my parents have their retirement squared away, and how worrisome it is that my MIL does not. We're relatively young, with young kids, and meeting our retirement funding challenges seems daunting enough without figuring out how to support a parent.
 
I see I'm showing up fashionably late to the party, but here's my 2 cents. Fund your retirement first. It sounds like you have around 2.67 years of college funded per kid (on average). The remainder could be made up by any combination of student loans, grants, part time work, formal work study, research grants, scholarships, cooperative employment, income from your retirement accounts, etc. Maintaining a little flexibility in the structure of your savings would allow you to change things up later in the game if one or more kid deviates from the college path at any point in the typical 4 yrs of college (ie by not going, graduating early in 3 years, dropping out/withdrawing, etc). Or they may get a full ride somewhere and you could give them the remainder of the money (in fair share with what you spent on your other kids) as startup money for adult expenses (operating costs for that first bit out of school, car purchase, house down payment, wedding, etc).

Your stated constraints make it sound like your only real question is how to structure your savings and which pot of money to prioritize first. If that is the case, go with retirement savings (I assume this would be in a taxable account?).

I think it is good to provide some or most of the funding for kids' college costs. It removes the requirement that they HAVE to work. They may be able to handle a full courseload and put in 20 hours a week at a job, but then again they may not. And having some financial flexibility and leeway may allow them to partake of experiences that may not pay much (ie volunteer positions with no pay or tiny stipends) or that actually cost something (ie study abroad).

For the record, I have 2 kids, one 13-14 years away from college and one 15 years away from college. We probably will not start 529's or any special college savings plans. Relatively small tax advantages, higher plan expenses, and lack of flexibility all factor into the decision. We will however try to pay for at least half of the total college expenses out of our portfolio (maybe just tuition plus books or something). It will also depend on how much money we have in 13-15 years, the costs of tuition, room and board, and what amount and type of outside funding (loans, work study, grants, scholarships) is available. In other words, give them a good head start on things, but give them a financial stake in the college cost venture so they can help with cost cutting and be motivated to do so.

We have set up UTMA accounts for the two kids where we put all of the birthday and christmas money (we always give them $100 at each occasion). This could eventually be used for college or "adult" expenses like a car down payment. It is partly intended to be a place where they can save long term money that pays more than a percent or two at the bank. And it is also intended to be a learning lesson at investing and risks (maybe we let them put some money into a CD and see how the mutual fund performs versus a CD), and it will instill them with the familiarity of investing and get it into their culture (or at least expose them to it).
 
Animorph said:
Rather than create separate accounts, I just invested for retirement and college in one portfolio. My retirement projections included college spending as part of the expenses. ........
So I mingled the two, but tried to keep in mind the near-term spending requirements.

.
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This is what I did also and it's working out pretty well. My kids are 2007, 2011 and 2013, so Im in the middle of disbursement. I rolled 401k funds into an IRA which permits penalty free withdrawals for education. One advantage is that retirement accounts bypass the FAFSA calculation for Expected Family Contribution, so having funds in the IRA bumps up the amount of loans and/or scholarships available. One drawback is the income hit from the withdrawals. One thing I would change if I could have a do-over is that I should have had a specific asset allocation for college (instead of just a dollar allocation) which would have increased my cash/bond percentage, keeping the near-term spending requirements in mind, as Animorph stated.

I sat my kids down and told them they were responsible for approximately 1/3 of thier college expenses AND they would have debt when they graduated. Thier scholarships count towards thier portion. Cost of Attendance at Public Colleges schools around here is 18k-25k.
 
Naive question: What happens to the college fund (tax/penalty wise) if the kids decide not to go to college? If you are going to be taxed an arm and a leg, I'd simply put it my taxable account, since you do not plan to RE until you are both FI and the kids educations are funded. That way, if they decide not to go to college...work or armed forces instead, then the money is still in your bucket, and could be used for either your retirement, their educations, or retiring your mortgage early. Since the college funds are probably a little more tilted to bonds than to equities, you could adjust your AA such that there was as much in your taxable in tax-free/advantaged bonds as you would have had in the college plans.

Just my two cents...oh, I already gave two, so make that four cents.

R
 
Thanks again to all who replied. I have read all of them, as well as the article that someone linked, and considered all of your suggestions and input.

I have decided what I am going to do for the time being. I have modestly increased the amount of savings towards retirement; now FI is at age 45.98, not considering today's market carnage. Any extra I am able to save above and beyond that will go towards child #2's accounts until his is funded to the same level as child #1. Then I'll work on child #3's accounts further until hers are funded to the same level as children #1 and #2. That will keep me busy for a while.

2Cor521
 
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