Miguel and Michele Suarez

[FinanceDude]

I'm not sure if anyone has said so in quite this way, but my perspective on saving for retirement versus your kid's college education is:

"They don't give loans to finance your retirement."

Exactly...........

Oh wait.............there is one.............a REVERSE MORTGAGE............

 

[HelpMeRhonda]

I certainly hope I don't get flamed (too badly), but in defense of the poor FA. As I recall this family was burning negative monthly and that the #1 objective of the mother was funding college ed. for kids. And that both parents realized how bleak the retirement picture looked because of this objective.

I believe the FA was suggesting temporarily suspending RE funding to get negative burn under control. And choosing funding 529s over ER because of mom.

I believe we are all worked up because we are applying his advice to our common objective of ER. I'm certain the FA advice would be different of mom wanted ER as #1 objective.

 

[FinanceDude]

I certainly hope I don't get flamed (too badly), but in defense of the poor FA. As I recall this family was burning negative monthly and that the #1 objective of the mother was funding college ed. for kids. And that both parents realized how bleak the retirement picture looked because of this objective.

I believe the FA was suggesting temporarily suspending RE funding to get negative burn under control. And choosing funding 529s over ER because of mom.

I believe we are all worked up because we are applying his advice to our common objective of ER. I'm certain the FA advice would be different of mom wanted ER as #1 objective.

Agree..............but I haven't read the article. Did the FA suggest or plan a budget for them to meet all their goals?? Because "negative burn" is common in the US.......and unfortunately she will neither get to ER OR be able to pay for college for her kids if negative burn continues...........sounds to me like she needs to revisit spending habits and things.............but on a happier note, there's probably a big screen plasma in the house..............

 

[furpants]

I remember one young (early-mid 30s) couple in California that had a house worth $1MM, with maybe $500k-$700k in equity. The 'professional' recommendation? Take out a home equity line of credit/2nd mortgage and invest the money in the stock market.

MooreBonds, can you explain why this is bad advice? If the 2nd mortgage has a relatively low fixed rate and they can afford it, this seems like excellent advice to me.

 

[mathjak107]

Exactly...........

Oh wait.............there is one.............a REVERSE MORTGAGE............

they are financing your house not your retirement. try it without the asset of a house.

 

[azanon]

my son graduated law school in june and passed the new york state bar last week. my daughter graduates college in december and is going on to graduate school. we paid for college 100% but they are on their own for graduate school. we will help as much as we can but at this point its student loans for the bulk of it..

Grad school is free for anyone who can break 1000 on a GRE, and has a bit of proactive in them. That's easy to do, btw.

 

[azanon]

im a big believer in that you shouldnt even think about setting up college funding unless you are able to fund your retirement or are are at least on track funding it. the last thing you need to do is saddle your kids helping support you later on.

I'm a big believer in the fact that if one cant afford to do both, your in a serious financial crisis and one's budget needs a major overhaul.

 

[azanon]

I'm not sure if anyone has said so in quite this way, but my perspective on saving for retirement versus your kid's college education is:

"They don't give loans to finance your retirement."

You can (usually) delay retirement, but your kid has to do something after graduation. No one who's completely behind the success of their kid is going to have a money issue for their education. Certainly not anyone that hangs out here. Ive seen the net worth polls; dont make me dig them up.

 

[azanon]

Exactly...........

Oh wait.............there is one.............a REVERSE MORTGAGE............

Is that really a loan? I'd call that (slowly) selling the house you own to the bank for cash. To me, a loan is when someone gives you something for nothing in return, other than a promise to pay them back at a later date with interest.

Maybe i'm splitting hairs, but i just dont think of equity conversion as a loan.

 

[azanon]

I certainly hope I don't get flamed (too badly), but in defense of the poor FA. As I recall this family was burning negative monthly and that the #1 objective of the mother was funding college ed. for kids. And that both parents realized how bleak the retirement picture looked because of this objective.

I believe the FA was suggesting temporarily suspending RE funding to get negative burn under control. And choosing funding 529s over ER because of mom.

I believe we are all worked up because we are applying his advice to our common objective of ER. I'm certain the FA advice would be different of mom wanted ER as #1 objective.

I have no quarrel with solving the problem for the kid's education. I just think they're going about it the wrong way. There's more than one way to skin a cat, and surely a decent FA can find an alternative to cutting an already modest retirement contribution rate.

 

[MooreBonds]

"I remember one young (early-mid 30s) couple in California that had a house worth $1MM, with maybe $500k-$700k in equity. The 'professional' recommendation? Take out a home equity line of credit/2nd mortgage and invest the money in the stock market."

MooreBonds, can you explain why this is bad advice? If the 2nd mortgage has a relatively low fixed rate and they can afford it, this seems like excellent advice to me.

The net worth of the couple was lopsided by the home equity....IIRC, about 3/4 of their entire net worth was tied up in the house equity. If you take out a secondary loan against your house for $500k and take out 90% of your equity, you'd be left with $1MM in home with $900k in loans.

If When the California housing market subsides and their prices settle, they'd possibly get their home equity wiped out (or even be upside down on their house). Add in some volatility in their equity investments, and add in the interest they pay on their loan, and you could very easily be in a situation of having a zero (even possibly negative) net worth and paying interest on a $900k loan ($500k of that would likely be at 8%-9%+). Not quite the leveraged situation I'd want to be in, and I would (humbly) suggest that my understanding, knowledge and approach to the financial markets would be greater than the average Joe Schmoe that would go to a financial schiester adviser.

Gambling like that with $50k when your net worth is $1MM is one thing...a couple in their 30s with a good chunk of equity in their house in CA, subject to a decent decline, and probably not the greatest handle on financial markets, playing some dangerous odds with $500k (basically 80%+ of their net worth) is not what I would suggest.

 

[FinanceDude]

Grad school is free for anyone who can break 1000 on a GRE, and has a bit of proactive in them. That's easy to do, btw.

So I can go to University of Chicago for free? Send me the link, because my GRE score was way over that, and I didn't get in........

 

[mathjak107]

Is that really a loan? I'd call that (slowly) selling the house you own to the bank for cash. To me, a loan is when someone gives you something for nothing in return, other than a promise to pay them back at a later date with interest.

Maybe i'm splitting hairs, but i just dont think of equity conversion as a loan.

its a balloon payment loan thats due either when you die or sell the house

 

[azanon]

So I can go to University of Chicago for free? Send me the link, because my GRE score was way over that, and I didn't get in........

I didn't say any grad school, but you can get into grad school with that and get it paid for. I know breaking 1000* got me full tuition remission at Baylor University, and Baylor U is no slouch school. I got well over that too, but they made it clear that was the magic number.

* that score excludes the analytical score. I'm not sure if its customary to do that all across the US but it is where I live.

 

[azanon]

its a balloon payment loan thats due either when you die or sell the house

Fair enough, but my only point is that its one thing to have nothing and need a couple hundred thousand to pay for retirement, and quite another to actually own something worth a couple hundred thousand and simply convert/liquidate that asset to cash.

No one will just loan you 200K for nothing, but they will pay you 200K for a house; including a bank. I see a difference there.

 

[brewer12345]

Fair enough, but my only point is that its one thing to have nothing and need a couple hundred thousand to pay for retirement, and quite another to actually own something worth a couple hundred thousand and simply convert/liquidate that asset to cash.

No one will just loan you 200K for nothing, but they will pay you 200K for a house; including a bank. I see a difference there.

If you were selling the house, the buyer would be getting all of the upside on the deal as well as the downside. If you are borrowing aganst the deal, the lender gets none of the upside and much of the downside. See the difference?

 

[HelpMeRhonda]

I have no quarrel with solving the problem for the kid's education. I just think they're going about it the wrong way. There's more than one way to skin a cat, and surely a decent FA can find an alternative to cutting an already modest retirement contribution rate.

And I would bet this FA did suggest a number of alternatives. The million dollar issue is finding an alternative that is acceptable to a couple who need a serious attitude adjustment about spending, etc. And that will fit in a page and a half of text for a mag article.

I'm certain we can assume the advice given in one of these articles has been reviewed a number of times. An FA's living is his advice, thus putting it out for all to review and critic is major. Especially, this type of advice.

I'm a half full person. Thus, I choose to assume this FA has done his homework and is trying to resolve a serious budgeting issue here.

How long ago did you go to grad school ? Are you sure the >1000 GRE gets you in grad school still exists today ?

 

[brewer12345]

How long ago did you go to grad school ? Are you sure the >1000 GRE gets you in grad school still exists today ?

Sure it still exists. But only if you want to go to East Butt Plug Community University.

 

[HelpMeRhonda]

Sure it still exists. But only if you want to go to East Butt Plug Community University.

@#$% Brewer !!!, I just spit coffee all over my computer !!!

 

[FinanceDude]

I didn't say any grad school, but you can get into grad school with that and get it paid for. I know breaking 1000* got me full tuition remission at Baylor University, and Baylor U is no slouch school. I got well over that too, but they made it clear that was the magic number.

* that score excludes the analytical score. I'm not sure if its customary to do that all across the US but it is where I live.

What was your degree in? Baylor is a fine university...........

 

[brewer12345]

@#$% Brewer !!!, I just spit coffee all over my computer !!!

Send the bills to Az.

 

[HFWR]

Sure it still exists. But only if you want to go to East Butt Plug Community University.

I can hear our school song now... Theme from Deliverance!!

Sorta brings a tear to my eye...

 

[furpants]

The net worth of the couple was lopsided by the home equity....IIRC, about 3/4 of their entire net worth was tied up in the house equity.

This is exactly why they should consider converting some of this home equity into another asset class. Well, that and the fact that doing so will also improve their net worth by a lot.

If you take out a secondary loan against your house for $500k and take out 90% of your equity, you'd be left with $1MM in home with $900k in loans.

I agree with you -- that doesn't sound like a good idea. Did the advisor say to take out $500k of equity? (You didn't mention a dollar amount when you first told the story.) I would take out a lot less, say $200k.

Ok, so here's the situation...

Couple has a $1MM home with a mortgage of about $400k. This leaves equity of $600k, which is 3/4 of their total net worth of $800k.

If mortgage rates are favorable, say, in the 6% range or less, why not refinance and take out an extra $200k? Invest it in a stock index fund. Now they've got $400k home equity and $400k in other investments. Seems less risky than $600k/200k to me.

Plus, investing that money in a lump sum should give them an extra $1.6 million after 30 years.

Would you agree, MooreBonds?

 

[Hydroman]

So, you think I should advise people to dramatically decrease their retirement portfolio, when $30 billion plus a year in financial aid is not applied for?? Interesting...........

How much of that $30B in financial aid is available to a college student who's parents make $100K per year and have a net worth of $1M? Not talking academic scholarships or student loans.

 

[HelpMeRhonda]

How much of that $30B in financial aid is available to a college student who's parents make $100K per year and have a net worth of $1M? Not talking academic scholarships or student loans.

At some point we need to ask, "how should be available ?"