College Costs While ER'd

[TromboneAl]

Anyone else solved the college-fund asset-allocation strategy problem?

Well, here's my solution. The guiding principle "It's all one bucket." That is, it doesn't matter that some money is earmarked for education, some for emergency funds, some for retirement, etc. As far as asset allocation is concerned, it's just one bucket.

So, you decide on your allocation (e.g. 60/30/10) and adjust to that for your portfolio as a whole.

Now, if there is some money that has to be spent, say, on education, such as UTMA money, and will be needed soon, then use that for your cash portion of your allocation. When you write the check to the University, you rebalance.

 

[TromboneAl]

We've also told her that there will be profit sharing of every scholarship that she manages to pull down...

Have you figured out exactly how you will structure this?

We tried this by saying "We'll pay a certain amount, and if you get more scholarships than needed to cover the rest, you get to use the excess to reduce your loans or your personal contribution."

But that didn't really work, because the cost of the college was so high that the scholarships didn't come close to paying the difference between our planned contribution and the full cost.

 

[samclem]

Anyone else solved the college-fund asset-allocation strategy problem?

I plan to do prety much what Al suggested. We don't have any 429 or UGMA accounts set up, so we`plan to rebalance our investments each year and sell overweighted assets to pay for school.
- Two issues I know we'll face:
- Should we sell and pay capital gains on an asset, or take the money out of the Roth IRA and pay nothing? My gut tells me that we should sell up approx the next income bracket, then take out of the Roth. I'l have to crunch numbers on this.
- I-Bonds: We bought these when they were still a really good deal (approx 3.5% plus inflation). I bought them intending to sell them to pay for DD's college, but I can't get that rate anywhere else today. I really hate to sell 'em, even though I can avoid all taxes if the $$ goes to pay for school. Nords, I see you've got 'em too, are you planing to sell them for college costs?

 

[shorttimer]

I just worked six years and put all of my money towards state college education while DH paid the family bills. After the six years was up I put all my money towards savings for the past four. We have the best of both worlds, 2 kids with little college debt and money in the bank. we'll still retire by 55.

I have no regrets. My kids also contributed, and graduated in four years with professional degrees and make more than me.

Was it a sacrifice? Yes. Was it worth it? Yes.

I would do it again. My feeling was part of having kids was giving them everything I could that was within my means that would help them. That did not include fancy shoes, cars, spring break trips etc. Education was the number one priority in our house. Besides, isn't financial aid for those who cannot afford it? You wouldn't expect someone to give you a car , you might drive a cheaper car or walk if you couldn't pay for one yourself.

I know I will get lots of negative comments for my opinion but too bad. Of course, I am not talking about people who cannot work due to disability, or get laid off and are making the best of their situation. I live in the USA, the greatest country on earth in my opinion. My life is better than most people on the planet. Most of the posters here are pretty well off from what I have read. I have more material possessions, more money in the bank and a bright future. I gave my kids a bright future too.

 

[Nords]

"Anyone else solved the college-fund asset-allocation strategy problem? "
A few months ago I moved my son's main UGTMA fund from a pretty mutual fund into the local credit union. Although I probably lost some growth I cannot take the chance of the fund tanking. Also it makes it easyier to spend down now on current school related expenses. My son's high school band just spend spring break on a trip to China. There went $1.5K, but I think it was money well spent.

I guess we're going to have to do that in another year or two, but I wish I could figure out how much to set aside. The kid is infatuated with Eckerd College in St. Pete ($35K/year) but UH freshman tuition will only be about $8K. I guess the prudent thing to do would be to have about $15K in a CD by 2007 (for 2010) and another $15K in a 2011 CD. Then we could sell bonds or stocks to make up the difference.

I figured someone would notice that. That $100/month allowance was for everything except food (at home) and things required at school. That is, she paid for her own clothing, entertainment, any food outside the home, gifts, shampoo, etc.

OK, we've been doing $50/month for her clothing/toiletries budget. Her allowance has been $3/week for seven years and I could see bumping it up to $10/week gas money when she's driving.

Well, here's my solution. The guiding principle "It's all one bucket." That is, it doesn't matter that some money is earmarked for education, some for emergency funds, some for retirement, etc. As far as asset allocation is concerned, it's just one bucket.
So, you decide on your allocation (e.g. 60/30/10) and adjust to that for your portfolio as a whole.
Now, if there is some money that has to be spent, say, on education, such as UTMA money, and will be needed soon, then use that for your cash portion of your allocation. When you write the check to the University, you rebalance.

Her UTMA holds Tweedy, Browne. We parents hold EE bonds (from 1992-96) and a small I bond (last year) which we'll cash in tax-free for educational expenses. The I bond is last year's college savings amount set aside when I realized it'd probably be better to be in a bond/CD than to be buying TBGVX at $25/share.

We parents are also holding some Berkshire Hathaway in reserve but 35% of that is already cap gains. I'm not particularly interested in cashing that in, but I like your idea of taking something else out of the ER portfolio and putting it into a shorter-term bond/CD investment. We can take the long-term cap gains and maybe even balance a cap loss. Again the "how much" answer depends on the college tuition.

Have you figured out exactly how you will structure this?

Nah, we thought of the idea but we're still pretty clueless on the implementation. Our first thought was a 50/50 split but then she'd just get a USNA appointment and expect us to pay her about $150K at graduation. (Yeah, she's show us!!) So that's probably a bad idea.

But I think we'd have to give her some sort of cash incentive. Maybe one-third for her, two-thirds for us parents. Or a smaller amount plus a promise to max out her W-2 contribution to her Roth IRA. As you say, profit-sharing would make a difference at UH but not much of one at Eckerd. But she's been practicing her foul shots and her fade-away jumper, too, so she's doing her share...

Nords, I see you've got 'em too, are you planing to sell them for college costs?

Yep, bonds don't have any place in our portfolio other than paying for college. We'll sell off those education bonds as soon as tuition's due, flatten her UGMA next, and we'll sell off stocks/CDs after that. Then, after she graduates, we'll sort it all out and figure out where our AA needs to be.

By that time she'll have her own Roth to use for her down payment on her first house...