Kids' college or retirement -- your advice wanted

[target2019]

Quote:

Originally Posted by SecondCor521 The question is should I focus on saving further for my kids' college or for my retirement. ... What would you do were you in my shoes?

With the extra investing money, I would fund all three college funds to the same level.

[RoBo]

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!

[hakuna matata]

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!

[growing_older]

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.

[NW-Bound]

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?

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.

[Urchina]

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.

[FUEGO]

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).

[jazz4cash]

Quote:

Originally Posted by Animorph 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. .

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.

[Rambler]

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

[SecondCor521]

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

[kumquat]

Quote:

Originally Posted by SecondCor521 now FI is at age 45.98, 2Cor521

Perhaps you should try to refine your plan so that you know exactly when you will be FI. 45.98 is somewhat approximate, can't you get to five decimal places?

[MichaelB]

Quote:

Originally Posted by SecondCor521 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

Good luck. Does this 153 day improvement in FIRE readiness include the two days between original and closing post?

You sound like you're at the top of your game, but it always helps to remember Burns:

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The best laid schemes o' mice an' men/Gang aft agley

[deserat]

Quote:

Originally Posted by tiuxiu 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.

Not so much anymore!!!!! Everyone is in some form of the Army now with the deployments.

To answer the OP - sounds like you have done awesomely well - it also sounds like you've managed your childrens' and your expectations regarding future money flows for college/retirement. To me the key is will you truly retire early at that age? Based on your responses to the thread, I'd say no and so therefore, you could do both.

Now, for a philosophical discussion, you will (as you can see) get many different answers. I have stepchildren - my husband and I have college funds for them - enough to have them go to their local community college for two years and then transfer to a state college (to me the most economical way to go to college without a scholarship of some sort). The older son has pi$$ed it away and the younger son needs to graduate HS first.

My husband's story is he enlisted in the Air Force and got his degrees at night using grants, extra cash and credit cards - he's now been an officer for over ten years and will be retiring soon. He very much values his education and the opportunities he's had.

My story - my parents told me I was going to college from about age 2 on and said they didn't have the money, I could get a scholarship as I had demonstrated I was intelligent or go to a military academy like Dad. I ended up with a ROTC scholarship - Dad gave me some living money monthly and I worked 15-20 hours a week as well (summers full-time as well). For graduate school I entered another work-study program - so my education has been funded by others HOWEVER due to my willingness to work hard to demonstrate I was worthy of their gift. For ROTC I did 4 years active duty and 4 years Reserve (stayed on but that's another story). For the graduate degree my master's thesis had to be something of value to the hospital I worked for - I rummaged through projects they had or needed to be accomplished and then chose from those.

The decisions I made on my own and those accomplishments I earned are the ones I value the most - I don't mind helping someone a bit, but a full-ride without some expectation of return can lead to inappropriate expectations from both sides involved in the transaction.

As to fairness amongst the children - I had a man tell me once that the only societal unit in which communism works is the family (to each according to his needs). Every child is different and has different desires and aspirations - giving the skills and tools to reach those aspirations is important, not necessarily ensuring you were always 'fair.' Fair is too much of a subjective term.

Off soapbox!

[haha]

Quote:

Originally Posted by FUEGO 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.

I don't see why it is necessary for students to carry a full course load. My kids took forever to finish University, but all along they were working professional type jobs in their field. Both were working at full time professional jobs before they finished. Neither was ever tempted to assume that college was mainly for drinking or orgies, and neither ever had any conflict with me about any of it. My contribution was what they took within them when they went out on their own, and an occasional few hundred bucks to allow a treat when they had just made a big push toward some goal.

Ha

[FUEGO]

Quote:

Originally Posted by haha I don't see why it is necessary for students to carry a full course load. My kids took forever to finish University, but all along they were working professional type jobs in their field. Both were working at full time professional jobs before they finished. Neither was ever tempted to assume that college was mainly for drinking or orgies, and neither ever had any conflict with me about any of it. My contribution was what they took within them when they went out on their own, and an occasional few hundred bucks to allow a treat when they had just made a big push toward some goal.

I suppose it isn't necessary to carry a full course load. And as far as working during college, I can't encourage it enough as long as it is beneficial in some way other than paying $7 per hour. In hindsight, I wish I would have pursued more work experience during college instead of rushing through it. I did, however, work my way through increasingly professional positions to help pay for college (like your kids) ie intern -> research assistant -> course instructor -> research associate -> research engineer.

While good life experiences can be obtained by working for minimum wage washing dishes, selling books at the bookstore, or busing tables, I wouldn't want to force this on my kids as a means of survival during college. I would rather they have a little leeway to develop personally, intellectually and professionally. This may involve keg parties and boys... Maybe they can get professional jobs in their field, maybe not. I suppose it depends on their field, where they are located geographically, and their personality.

[haha]

Quote:

Originally Posted by FUEGO While good life experiences can be obtained by working for minimum wage washing dishes, selling books at the bookstore, or busing tables, I wouldn't want to force this on my kids as a means of survival during college.

Agree with this. "Just a job" is usually a mistake for an ambitious university student. You want to be learning something important, meeting people and making connections, etc

Ha

[Grep]

Preface:

I put myself through my undergraduate and graduate degree programs with essentially no help from anyone, including from financial aid. By working hard, I took on very little debt, and paid that off immediately.

This was VERY hard on me as an undergraduate, when it's hard for a kid to obtain a job paying more than minimum wage. It hurt me academically as well as extending the duration of my undergraduate degree. In retrospect, I would have been better off taking on more debt and finishing sooner. On the other hand, it sure did toughen me up. I've been independent and financially disciplined ever since.

Here are my opinions, including from seeing these issues come up as a Professor:

First of all, I see no problem with a student taking on debt. The student has their entire working lives in front of them, while their parents are often nearing retirement with paltry savings.

I'm appalled when I see parents, often late in their working lives, spend all of their savings sending their children to college, when these days financial aid, including string-free aid, subsidized student work and loans, will take care of that for them. I understand the pride the parents might feel in doing this, but they are severely hurting themselves at just the wrong time, while their children have a lifetime of human capital to draw upon. My advice to these good folks, which is rarely heeded, is to fund and protect their retirements first, and help their sons and daughters second.

(I'm not at all swayed by arguments that children are unfairly burdened with debt just by being born into our admittedly profligate country. This debt also represents vast investments in supportive and protective infrastructure that we, and future generations, benefit from. But this is really a different discussion.)

Now, on to your situation:

Anyone approaching a 4% SWR by mid to late 40's is in very good shape. As well, you have the larger portion of your children's education funded already. It appears that a rather modest additional investment, which I might speculate would not exceed half of a years labor, would fully fund their educations.* Whether they would fully appreciate it or not, this is a tremendous gift to them, and is something that would likely be a source of pride to you. And let's face it, try as you might to live forever and spend your last dime, they would probably get that money, and more, in inheritances one day anyway. Perhaps it's best to give it to them up-front when it means the most.

The down-side to supporting them, given your relatively good situation, is that the children may not learn financial discipline as well. Only you can judge the importance of this. As a Professor, however, I know that college-age kids are not quite mature adults. They can be forgiven for not taking on all the responsibilities of adults for a few more years.

Best of luck.

*My math may not be right, but I think you have that under control. I see your request for advice as perhaps more philosophic in direction.

[haha]

Quote:

Originally Posted by Grep First of all, I see no problem with a student taking on debt. The student has their entire working lives in front of them, while their parents are often nearing retirement with paltry savings.

So true. If the added money value of the education will not support the loans and then some, don't bother with that particular education. It's just like a young person who has been to trade school taking on debt to buy a set of tools. He doesn't think he is becoming well rounded, he thinks he is setting up an enterprise for himself and perhaps his future family. If this doesn't look like a high expectation bet, he doesn't take it.

Americans have been sold an absurd bill of goods by the educational establishment. They pay big$$ for an education that they should have achieved before leaving k-12, but because we all know that the real purpose of K-12 is social engineering they did not learn anything helpful in this long boring waste of young energy.

And if you want to study 19th century Russian poetry, do it on your own dime, but better understand that it will take a lot of luck for you to avoid a long period of penury.

Ha

[FUEGO]

Quote:

Originally Posted by haha And if you want to study 19th century Russian poetry, do it on your own dime, but better understand that it will take a lot of luck for you to avoid a long period of penury.

I agree wholeheartedly that there should be a purpose to higher education beyond mere intellectual enlightenment. Maybe that is my middle class background talking and it would be different were I from the aristocratic classes. If one seeks merely erudition and culture, a library card and a plane ticket for a summer in Europe seem to be the cheapest and best option for that.

I think I will address the "desire to study 19th century Russian poetry" by saying, sure you can study that, but get a real degree while you are at it. Take a Russian poetry class every semester if you want, even if it adds a semester or year to your curriculum. Just make sure you get a degree that is worth a dang when you graduate!

(this from a guy with a BA in Spanish Literature among others )

[Grep]

As a Professor at a prominent research University, I'm bound to defend those who wish to study what society deems impractical from a monetary standpoint. There's a place for artists, musicians, poets and dreamers, and the world would be a poorer place without them and institutions that will allow them to flower.

In contrast, students in "practical" fields may often find that a dreary, repetitive, soulless life awaits them. That's what we are all here on this web-site to escape, after all!

In my students, I see the ones who "wanna good job" as putting in the minimum effort. The dreamers are the ones with fire in their bellies, and who will save the world if anyone does.

Cheers.