Almost 30, Need To Come Up With A Plan

[DavidFarrior]

I am almost 30 and could use some help in coming up with a long term plan that helps me meet my goals. I thought I would introduce myself in this forum and if anyone has any answers or input as a result, great. Otherwise, I will just have to break up my many questions into many posts as I try to figure things out.

First, a little about me:
As I mentioned, I am 29 years old and my wife is also 29. I have 4 kids ages 6 down to 6 months old. My wife stays at home raising our children.

Our financial situation is OK. We have no debt except our house (which is plenty). We have about $90k left on that scheduled to pay it off in 16 years or so.

We currently have about $35k in the company 401k plan, $25k in savings, and maybe $50k in equity in our house. I maxed out my Roth plan this year (2007) which is the first year I have done so.

I currently make about $50k a year and we don't have much left over after expenses. (it's hard making it on a single income these days) The $25k in savings is due to side jobs that I have done over the past two years. If it was not for that, we would pretty much only have what was in the 401k plan.

My first short term goal is to be able to send my kids to a private high school. So, that will be about 20k per child for the 4 years of school although they do offer some breaks if you have multiple children in school.

The next goal would be to assist with (not completely pay for) their college education.

Finally, I would like to retire around age 50 or 55. More importantly, I would like to have my house paid off much sooner than the 16 years we have left. Once that is done, I feel as though I can start saving more aggressively for the other goals, as well have a weight lifted off my shoulders. Nothing like the pressure of a monthly mortgage payment that has to be made considering today's job market.

So, my main questions so far are as follows:
1) What vehicle should I use to save for their high school education? Just regular savings or is there a tax advantaged method?

2) Considering I have other fairly short term goals, would it be wise to pay off the mortgage in 5 years or so when I should in theory, have the money to do so? Or, take most of that extra money and sock it away for high school/ college.

3) I currently contribute 13% to 401k. Is that wise or only do up to what is matched by employer? The difference in take home seems small which is why I have left it at such a big percentage.

4) I would like to start a automatic investment plan but need advice. I have my Roth at Vanguard so opening another account there would be OK with me. Which funds though?

5) I am a resident of WI. Which 529 plan should I use for saving for college? I do realize I do not have to take part in the WI plan just because I am a resident.

I know I could work my rear off and make quite a bit of money with my side jobs. (isn't America great) However, my time with my family is a higher priority than money or early retirement. So, I am trying to figure out a nice blend of planning for the future, while enjoying the present.

Sorry if this was too long or too many questions for the introduction part of the forums. I just wanted to get started somewhere.

Thanks.

 

[DblDoc]

Welcome David, you are starting to plan at an early age so that is a big plus.

It would help to know the terms of your mortgage to help with question 2. For #3 this is the usual recommendation for funding retirement accounts:

Investing Priority

1. 401k/403b up to the company match
2. Max out Roth
3. Max out 401k/403b
4. Taxable Investing

For # 4 you need a plan before deciding on funds. I would recommend the reading list from here or over at the Vanguard Diehards site: Investment Books . Vanguard is a great place to set up your plans as their costs are low and they offer good funds from which to choose.

Good luck and I'm sure others will pipe in on these and your other questions.

DD

 

[aaronc879]

Why do you feel it's neccesary to send your kids to a private high school? $80K seems like a lot to pay for a high school education especially on a $50K/yr income. I've lived in Wisconsin all my life and know that we have good quality public high schools in alomost all areas of the state. I would say invest in 401K up to company match then max out the ROTH then save $500/mo in a taxable account to use for kids college expenses. Anything left over should go towards increasing your 401K contributions. I'd just keep with the planned payment schedule for the mortgage. For the record, contributing enough to the 401K for the full match and maxing the ROTH should trump kids college savings if money is tight.

 

[Texas Proud]

Welcome to the forum and good luck to you...

But without putting pencil to paper... and just reading your post...

first blush... you can not do what you want... sorry...

Why?? Unless your income goes up a lot.... you just don't make enough to have private high school for 4, college for 4, normal living expenses AND save enough to retire at 50.... heck, I don't think you will make your education goals without more income....

But I could be wrong...

And as I said... good luck to you and welcome aboard...

 

[Keopele]

without seeing the numbers...there's also a chance they can do it. Living on 50k with 4 kids and being able to contribute that much to a 401k plan means they are living WELL below their means. Only if they maintain a very simple lifestyle will they be able to without seriously increasing their income and sending kids to public schools.

 

[aworkingrachel]

Welcome to the board!

When you're budgeting for the high school costs, are you taking into account that the tuition will go up significantly by the time your kids get to high school? If it's 5k a year right now, it may double by the time your 6-year-old is in high school and triple by the time your baby is a freshman (I'm pulling those numbers out of thin air; you'd want to check nationwide trends as well as any specific numbers you can find on past tuition at the schools you'd consider in your area). Same with college, only more so.

 

[travelover]

David, welcome to the forum. Good for you for starting to think seriously about finances at this early age.

I agree with the other posters that you will have a hard time meeting your goals on your current income. Sending children to private school and having a stay at home wife is truly a luxury now.

May I suggest that you play with some on line planners to get an idea of how much you would need to save monthly in order to meet your goals? For instance, you need to save about 25 times your annual living expenses, before tax, to retire early. So a million dollars in savings only gets you $40,000 pretax to live on.

Bankrate has a good collection of calculators to give you a rough idea.

Calculators for mortgages, savings, small business, credit cards and auto loans by Bankrate

 

[bubba]

Unless it is really important to you and your wife, please reconsider the private school decision. Search the data on the public schools in your area and see if anything there will work for the family. Does your area have "magnet schools"? That is a good way to go for some folks. I wanted more than anything to send our son to private school. I thought he would get a better education and would be safer in that setting. Tuition, transportation, etc etc - just couldn't do it so he went to public school and now as a junior in college he says he would not send his own children to private school based on what he knew about the kids in private in our smallish town. He's a pretty bright kid, so he was always in the Gifted & Talented program, AP in high school; we think he received a good education. That's where you step in - to make sure your kids are taking advantage of all opportunities offered by the school and that they are studying, trying their best, etc etc. Now, if you are determined to send your kids to Catholic (or another church affiliated school) I can understand why that's important to you. Personally, I'd rather see you help more with college rather than private school now. Keep in mind that your wife might never be able to go to work if she is driving kids back and forth to schools with no bus transportation (which was the case in our town). I dropped DS off in the mornings at public school on my way to work, and he stayed at After-Care until he was old enough to ride the bus home and stay there alone until we got home. Please note - this worked for us but won't work for all families. There was only one of him vs your four to get in trouble there without supervision in the afternoons. Sorry for the lengthy post, but unless you'll qualify for a nice company sponsored pension at retirement, at a $50K one-income family with four kids, I can't see how you'll retire by 50-55 even without private school. You guys are doing a great job to save the way you are with one income. Just things to ponder as you are making your decisions.

 

[militaryman]

Ok, I will throw in my two cents here because it appears we had similar situations.

It was a priority for my wife and I that she be home with the kids in the early years. We did send them to private school some and also home-schooled some as well as public.

My oldest is graduating HS next month and she is well adjusted and starting at a private college in the fall that is $700+ per credit hour. She plans to take 15credit/sem. and 6 credits in summers and have an Masters in Accounting before she is no longer our dependant by IRS standards.

Here is our "secret"

From the start we determined that my wife would be home with the kids --- and when not home with the kids she would be at school/college with the kids.

My wife was the "tuition savings plan"

Many private grade/high schools give free tuition to employees --- even the non-teaching employees ---

So when the kids got to the point where we wanted them to go to a private school, we found the one we liked (well in advance) and started to pursue a job --- (any job) for her.

Now in the kids early years my wife had gained her BA degree so getting a job was not too difficult as long as she did not shoot too high.

Right now she is an "office administator type" at the private college my daughter starts at in the fall. We started looking at colleges in my daughter's junior year and when she found "the one" we started looking for jobs at the college. about 8 months ago (halfway through senior year) my wife started fulltime at that college.

She makes only about $30k/yr but every year 100% of my daughters' tuition will be forgiven -- (about 25k this year) (although "only" 75% tuition remission for graduat work)

It would take us about $32k+ to make that $25k tuition forgiveness after taxes,

so I figure her REAL income is well over 60K

This has worked well for us --- we never saved a dime for their schooling/college .

One really cool thing is that now that she is at the college she and I can go to classes for free if we like (we only would have to pay fees and books)

 

[enfp]

Originally we thought we'd send the kids to private catholic school. But the thought of paying 6k for 1st grade killed me. And I realized that the structure of school is the same whether it's public or private, and I didn't like that either. So we decided to homeschool. It was a bigger deal before I made the decision. Now, after doing it a couple of years, it's a no brainer. Especially since DH retired this year at 40. It's not for everyone, but you might consider it. We had a goal of simple living and FI and private school didn't /doesn't fit in with it. College isn't our priority either. We live in GA where they can go to a state school for free with good grades. No one payed for either degree we got. And my expensive one wasn't worth the money or the debt.

DH's income grew substantially from 30-40. Your's can too.

 

[TromboneAl]

I think the OP is joking or trolling. If not, here's a rough analysis (all numbers inflation adjusted):

Needs:

Private High School: $20K * 4 = $80,000
College: $22K * 4 years * 4 kids = $1,408,000
Retirement Nest Egg: $1,500,000

Total Needs: $2,988,000

Current Savings: $110,000
Annual Savings: $10,000

With a 9% return, you could maybe save $733,000 (inflation adjusted) by age 50, but of course you'll need the high school and college money much earlier.

 

[figner]

I think the OP is joking or trolling. If not, here's a rough analysis (all numbers inflation adjusted):

Needs:

Private High School: $20K * 4 = $80,000
College: $22K * 4 years * 4 kids = $1,408,000
Retirement Nest Egg: $1,500,000

Total Needs: $2,988,000

Current Savings: $110,000
Annual Savings: $10,000

With a 9% return, you could maybe save $733,000 (inflation adjusted) by age 50, but of course you'll need the high school and college money much earlier.

How are you coming up with $1,408,000 in college expenses?
$22K * 4 yrs * 4 kids = $352,000

Still a pretty big challenge given the OP's listed income and assets. David, since you didn't mention any pensions in the works or other sources of retirement income, I assume you're planning to fund your whole retirement from your own savings? Would your wife consider working either full or part time once the kids are older?

 

[DblDoc]

I didn't get TAl's number but from the article he posted and factoring in 5% inflation of 22k until his kids are old enough my ballpark # is $620k.

DD

 

[jIMOh]

I would prioritize the goals. I would look at goal details and then re-prioritize.

Paying down house is a goal, as is the kids education. These 2 goals are opposite ends of the spectrum, IMO.

If you tie up money in your house, you will lose valuable compounding for the retirement or education goals.

You could consider your wife working as a way to fund kids education. This way you can currently focus on saving for retirement.

The money you save or invest now is more important than the money saved or invested in 10 years. Concentrate on boosting retirement savings now (at expense of not paying down mortgage, not funding education goals and similar).

If you think this is too extreme, consider a strategy like this:

1 Invest 401k to match
2 Invest in Roth to max
3 take money to pay down mortgage and invest it in a taxable account (aligned with asset allocation to Roth and 401k)
4 Invest 401k to max
5 add more money to taxable account

At some point 3) will exceed the mortgage balance. At that point you have choices.
In addition 5) could be considered a generic fund to pay for kids education, fund early retirement, or pay off house.

I have two kids (19 days old). The current plan is to use the "mortgage paydown fund" in #3 to also be the preliminary college fund. Meaning instead of creating 3-5 accounts for various reasons:

a) taxable investment account for retirement
b) college education fund for twin A
c) college education fund for twin B
d) new roof fund for house (new hot water heater for house, fund for general long term house expenses...)
e) new car fund

I am creating one account for all this to be put together.

reasons:
1) All 5 are intermediate term goals with a time horizon of no more than 18 years with exception of early retirement, which might be 15 or might be 25 years.
2) The budget needs to reflect the needed expenses (cars, house) even though it is highly variable when those expenses will occur
3) the family and house take priority over kids education and ER. But if one thing does not happen (house repairs) it will be a good idea to use that towards kid education.

 

[TromboneAl]

How are you coming up with $1,408,000 in college expenses?
$22K * 4 yrs * 4 kids = $352,000

Right, sorry, guess I multiplied by four too many times. Good thing we only had one kid.

 

[FUEGO]

I just did a quick run-through of your plan, and it doesn't sound like you will be very successful with trying to retire by 50 unless you significantly increase your current earnings and/or your wife works.

Assuming you get a 7% match, and you contribute 13% to your 401k each year for the next 21 years until you are 50, increase your annual salary by 4% each year, and you get 10% annual returns (that's a bit optimistic, IMHO), you will have a $787,000 portfolio in today's dollars (inflation = 3%).

$787,000 will provide $31,500 per year at a 4% withdrawal rate. I suppose a simple family with a payed off house could get by on that, but not sure how health insurance costs would impact that. $31,500 is in the ball park of what I think I will need exclusive of health insurance and with a paid off house and minimal traveling/entertainment expenses (ie - barebones budget).

You will also have to come up with a nominal $554,000 or so to pay for HS and college assuming 4% inflation on private HS and 6% inflation on college costs. That is equal to $348,000 in today's dollars using a 3% discount rate. It isn't really clear where this $348,000 is going to come from in your current budget if things are stretched as-is. If private HS and college are more important than ER, then I would devote funds to attain the more important goal.

If your budget is tight as-is, I doubt things will get any less tight as kids grow up and require more expensive stuff (car insurance, cars, gas, etc). At least that is what I'm expecting as a parent of children your age.

If you are serious about pursuing ER and funding HS/college for 4 kids, make a plan, build a spreadsheet and figure out how to make it work. And stick around here for good advice/critiquing! Best of luck!

 

[Maurice]

Right, sorry, guess I multiplied by four too many times. Good thing we only had one kid.

Yeah, he's lucky you didn't send him to college four times.

 

[maldini]

David,

Welcome to the board and congrats on thinking about this! Implementing a good plan is a great start!

I have done a ton of retirement planning and I can tell you that your hope to retire at 50-55 based on your first post is going to take a small miracle.

Granted no one has a crystal ball so your investments may all grow at an incredible rate and/or your salary may sky rocket and you could get there.

You also may have a large inheritance coming your way that you did not mention.

Outside of these, I fear that you are setting an unrealistic goal for yourself. I think you need to keep working and saving the best you can.

I am certainly not going to tell you where to send your kids to school, but I will be honest enough to tell you the numbers are unrealistic IMO. I think you need to be looking at a normal retirement date (62-65) based on the information you provided.

Maldini

 

[Texas Proud]

I am voting troll....

Only one post 4 days ago and nothing else....

And anybody who knows numbers know with what he put down it will not happen unless he wins the lottery... (I am putting all the 'stuff' in winning the lottery)...

Because he would have said something about any of the other options....