Kids' college or retirement -- your advice wanted

[SecondCor521]

Hi all,

The question is should I focus on saving further for my kids' college or for my retirement.

I have a full time job. I have adequate life insurance. I have a fully funded emergency fund. I own my home (well, about 30% of it, anyway.) I have no high interest debt.

I have excess income that I wish to allocate either to my kids' college or my retirement.

I am 39.9 years old today and project reaching 4% FI at age 46.4 on October 18, 2015 based on my current data and assumptions. That age varies, but not significantly; it's been between 46.5 and 47 for the past two years.

I have three children who will nominally start college in the fall of 2013, 2018, and 2020. They each have college funds already.

The first one, Mr. 2013, is fully funded at the moment.

The second one, Mr. 2018, is fully funded for freshman and sophomore years, but requires an additional lump sum of approximately $12K invested today to take care of his third and fourth years.

The third one, Ms. 2020, is fully funded for freshman and sophomore years, but requires an additional lump sum of approximately $19K invested today to take care of her third and fourth years.

Assume for the purposes of this question that:

• I am comfortable with my data and assumptions.
• I am comfortable with my target amounts for retirement
• I am comfortable with my target amounts for kids' college
• I know which funds and investment vehicles to invest in once the retirement vs. college decision is made.
• I am familiar with the general arguments on this subject (they can get loans for college, I can't get loans for retirement)

What would you do were you in my shoes?

Thanks,

2Cor521

 

[freebird5825]

First off, I have no children.

Secondly...I will use my own personal story as an example.
My mom was a waitress and therefore college tuition wasn't even possible. However, her words to me for as long as I remember were "Study hard, so you can maybe get a NY Regents scholarship, and then you can go to college."
Once I realized it was entirely up to me, it made all the difference in terms of self-starting and working toward a goal. All my friends were goofing off and I was cracking the books toward that goal. I finished 3rd in my class in HS. I got the scholarship, full tuition for 4 years.
I also took part-time and summer jobs that paid the best and saved up as much as I could. Mom banked the money for me.
Mom helped with loaning me her older car and 1/2 the car insurance, some spending money here and there, but not very much. She simply couldn't afford to.
All I can say is knowing that I was responsible for my future at age 16 was a life lesson that has stayed with me to this day.
It is the gift that keeps on giving. Thanks, Mom.

 

[jdw_fire]

Assume for the purposes of this question that:

• I am comfortable with my data and assumptions.
• I am comfortable with my target amounts for retirement
• I am comfortable with my target amounts for kids' college
• I know which funds and investment vehicles to invest in once the retirement vs. college decision is made.
• I am familiar with the general arguments on this subject (they can get loans for college, I can't get loans for retirement)

What would you do were you in my shoes?

Thanks,

2Cor521

save for retirement

 

[bbbamI]

Normally I would say save for retirement. But since Mr. 2013 is fully funded, wouldn't it be worth it to fund the other two now? You then can move on with your retirement plans and not have to worry about a child feeling "left out".

 

[REWahoo]

What would you do were you in my shoes?

Absolutely, positively, without a doubt - save for your retirement. Why?

1.

They each have college funds already.

One of the best educations you can give them is learning they have to pay their own way -even in college. Help them, yes, but making then responsible for footing part of the bill teaches there is no free lunch and strengthens them for life in the "real" world.

2. The last thing you want to burden your children with is helping supplement your living expenses when you are 80.

 

[Alan]

I say Retirement savings first, college savings second. However, you seem to be well on plan to being 4% FI in 6 years in your mid-fifties so have you considered doing both? Looks like you can afford it.

We were in a similar position when the first of our 2 children was 13. RE plans were well on track etc. We split the extra income between saving for college and retirement funds.

Funding children's education is a very personal choice and depends on many factors but part of their education is to become financially savvy and you will know how well they are doing in that respect.

 

[Moemg]

It depends are they funded for state schools or private colleges . If it is private colleges I'd bring it down a notch to state schools . I paid for four years of college for my children .They paid for post graduate school . They did have reasonable loans . I've seen too many graduate with tremendous loans that take them forever to pay . I do agree that the kids need to know that this is serious money we are talking about . I told my kids if they partied and flunked out they could party on their own money . They also had to have summer jobs and they would not even think of mentioning spring break to me . Sure this slowed down my retirement but I never planned to retire before late 50"s anyway and giving my kids a head start was worth it to me .

 

[LOL!]

Save for retirement.

If you want to pay for children's education, there no problem with that... you can use your retirement income if you like.

Once you reach financial independence, you could pay for college out of current cashflow instead of quitting your job. My guess is that you will have some other ideas when you reach that stage.

My daughter will enter college in 2010. Daughter has some 529 money, but my spouse also likes to work. We could simply use all my spouse's salary to pay for college if needed. That's the beauty of being financially independent: you don't need your job to pay the mundane daily living expenses.

So truly become financially independent by saving for retirement. It's not like you can't use that money for college anyways. But if it is in the retirement pot, then there is less chance of having it all confiscated by the financial aid folks.

 

[calmloki]

I say Retirement savings first, college savings second. However, you seem to be well on plan to being 4% FI in 6 years in your mid-fifties so have you considered doing both? Looks like you can afford it.
.....

Slight correction - per OP, mid forties in 2015. I say travel & bankroll some experiences with the kids even if it means retiring at, oh, say 48 years of age.

 

[tryan]

Your students can borrow for college ... you can not borrow for retirement.

Save for retirement.

 

[Rustic23]

Save for retirement!

Tell your kids to go to school on college loans you approve of. If the graduate you will help them pay them off. If they do not they are 100% theirs. This gives you more time to save, and you can decide how much of their bill you are willing to pay when the time comes. i.e. you may say 'you pay any interest, and I'll pay the principle'

 

[Amethyst]

As usual, my situation matches no one's...

My parents had little money and I was a late life child. They never planned to send me to college - and so I escaped the upper-middle-class kid's ritual agony of "where am I going to be accepted?" (I have no sympathy whatsoever for that sort of angst!) When I graduated HS at age 16, I wasn't ready for a full time job. Finally the decision was made for me to live at home and attend a nearby community college at my parents' expense.

Well, I loved the community college - it was like getting to do HS all over, only this time, I was popular I worked during summers, and got straight A's. I went on to the local state 4-year university, still living with parents, which had its down side (they were very old fashioned parents).

I graduated in the top 5% of my class, no student loans, and got a job with the Feds. It was hard times financially for some years, yet today I have a better paying job than some of my same-age cousins, whose parents sprang for 4 years at private colleges. I also know some folks at work whose life was harder than mine, and who have done very well indeed. All of us took advantage of Uncle Sam paying for grad school in a work-related major.

Oh, and I have a grown stepdaughter, whose 4 costly years at a private college were paid 1/2 by us, and who was thus enabled to study nothing of any use whatsoever, and today has a darned good job. So I do know something about paying for kids' college

Actually I am not sure what I would do in your case. I'd probably do both - FI and kids' college - because it seems you can afford to, because you have taught your kids to expect college funding, and most of all, because you should treat your children equally (not fund the oldest and give the younger ones less).

Good luck!

 

[JonnyM]

First and foremost Freebird couldn't have stated it any better. When we work for something we gain a real appreciation for it. When it's just handed to us, especially with tons of advance notice and much expectation to the point of it being a normal ordinary thing, not so much.

We are responsible for the welfare of our children including their education until they are adults which in our society occurs at age 18, admittedly that is older than in some cultures even older than in American culture a Century ago. It is our job to increase responsibility and teach insights in the years before they reach the age of majority so that they are properly prepared for the rights and responsibilities of adulthood.

I could never be "in your shoes". There must be incidents in your past that cause you to need to provide the so called free ride to your offspring. You are shaped by your childhood and your upbringing. Why would you want to second guess yourself now? If you have already told your children of your plans for their education would you now yank it all back? Would you place conditions? Would you give No. 1 the full boat scholarship but tell 2 and 3 there is only enough money for them to get through the first two years because many years back Daddy decided he wanted a fuller richer retirement down the road? I really question your question? I think you've already made your decision. I don't agree with it, but it's yours to make, your money, your family, your kids that will be just a little bit more spoiled and feeling the world owes them a rich and happy life than I'd like to see (maybe a bit of a stretch on that point, it could be that you've made up for that in a myriad other ways I can't ever know about), you are clearly in too deep, IF you've already raised them with the expectation. If you haven't ever discussed this, back out now and go the Freebird route even though you don't really have to, be there to back them up in a pinch, you'll be easily able to help them out when you see a genuine need, but don't if you see them not worthy of it, and let them earn their place, they will thank you for it, or not.

My honest assessment is you would never considered backing out of full financial support and were just interested in seeing the responses.

 

[haha]

Oh, and I have a grown stepdaughter, whose 4 costly years at a private college were paid 1/2 by us, and who was thus enabled to study nothing of any use whatsoever, and today has a darned good job.

This appears to have worked out well. But overall, the discipline of a young person knowing that s/he will have to pay, or borrow and eventually repay, works wonders when it comes time to choose a major. If Mom and Dad try to force their kid to choose a job oriented field rather than drama or dance, Mom and Dad are spoilers of a young life. Funny how quickly things change when it's the kiddies' dime at stake.

Ha

 

[Alan]

wow, tough crowd.

Thanks for the correction Calmloki - OP is very well set for RE.

OP didn't say he wasn't giving his kids a free ride, although that may be case - if "fully funded" means all living expenses as well as tuition. In our case we gave our kids a hand-up, not a hand-out. College is really expensive and we wanted to give our kids the best chance to get a degree without running up huge loans. They both attended public schools so we hadn't been paying the tuition fees up the point they went to college. We promised to pay reasonable fees for a 4 year degree. DD worked part time throughout college to pay for accommodation etc. DS won plenty of scholarships, and when he floundered towards the end and lost his scholarsip, he took out a student loan ($6K).

 

[SecondCor521]

Thanks to all so far for the responses.

To clarify a few things:

1. The reason the oldest is funded fully and the second and third are not fully funded yet is simply because he is the oldest and so putting money in his account has been the priority. Whatever "deal" I end up offering to my children will be identical for all three of them. The accounts are set up such that I can shift money amongst the three children as necessary.

2. My current savings target for each kid is 4 years of average tuition/books/room/board at a 4-year public university, which according to the College Board is $14,333 per year x 4 = $57,332 per kid in 2008 dollars.

3. My children know that they have some college funds set aside for them. They know that the deal will be the same for all three. They also know that there are and will be reasonable conditions placed on those funds -- they can party on their own dime, for example (to borrow a phrase from Moemg).

2Cor521

 

[Amethyst]

Arrr! We sure have some hard-noses here Nothing wrong with that.
Forgot to mention that my parents didn't lay out their own $$ to educate me. My room, board, and minimal tuition were paid, while I lived at home, by Social Security (supplement paid to retirees who support a full-time student under 22 years old). I left home shortly after graduation and never returned except to visit. From what I hear from my contemporaries, grown kids are coming home in droves to live with their parents.

 

[SecondCor521]

Why would you want to second guess yourself now? If you have already told your children of your plans for their education would you now yank it all back? Would you place conditions? Would you give No. 1 the full boat scholarship but tell 2 and 3 there is only enough money for them to get through the first two years because many years back Daddy decided he wanted a fuller richer retirement down the road?

I'm not second guessing myself; I'm soliciting input from folks I generally consider to be pretty darn smart.

I've told my kids in general of my plans to help ensure they can get a college degree. I'm not yanking anything back; the question I originally asked was whether or not to put additional discretionary income towards their college educations (in particular Mr. 2018 and Ms. 2020) or towards my retirement.

I have already and will be placing reasonable conditions; all three of my kids know that already and they know what those conditions are.

To answer your last question, no, I wouldn't. The deal will be the same for all three. Also, by the way, I resent the form of the question. My 4% FI annual spending amount will be in the neighborhood of $27,500 per year in 2015 dollars.

My honest assessment is you would never considered backing out of full financial support and were just interested in seeing the responses.

I am certainly interested in seeing the responses, because, as I said above, I consider the people of this board to be some of the smartest people I know. If I didn't want the responses I wouldn't have posted the question.

I think you misread my question. See in particular the following bullet points in my OP:

• I am comfortable with my target amounts for retirement
• I am comfortable with my target amounts for kids' college

The question was how to allocate extra income towards two goals that are already partially funded and I expect will be fully funded at some point in the near future, not to what degree I should fund my children's college educations.

2Cor521

 

[freebird5825]

Arrr! We sure have some hard-noses here Nothing wrong with that.
...From what I hear from my contemporaries, grown kids are coming home in droves to live with their parents.

Moi? A hardnose? You betcha .
My Mom was a tough lady who graduated from the school of hard knocks in the NYC area. Yeah! It's in the DNA.

And don't even get me started about adult (over 18) kids sponging off their parents. Stop whining and get a job!
End of rant.

PS This post has nothing to do with original poster's situation. This is a generic commentary on adult children using their parents for room and board.

 

[Amethyst]

If I didn't want the responses I wouldn't have posted the question.

What he said

 

[bbbamI]

IMO, if parents are able to put money in their children's college fund...I think it's wonderful. I applaud you.

The question was how to allocate extra income towards two goals that are already partially funded and I expect will be fully funded at some point in the near future, not to what degree I should fund my children's college educations.

2Cor521

Seems to me you are doing just fine now.

 

[Moemg]

. They also know that there are and will be reasonable conditions placed on those funds -- they can party on their own dime, for example (to borrow a phrase from Moemg).

2Cor521

If you would like a copy of that speech send a stamped self addressed envelope and because you are a forum member I'll include rules for dating & my posted driving rules .

 

[LOL!]

http://www.nytimes.com/2009/04/19/education/edlife/finaid-pappano-t.html

is a short article about inside a financial aid office which hints at some strategies that may work for your savings.

 

[Brat]

Since you live in ID you may have relatives who live in WA. Have them set up an account for each of your children in WA "GET" college savings program where you buy college credit units on a current basis payable at the credit cost when they attend college. Ask all of your relatives to buy the kids college credits and a modest gift instead of expensive gifts for birthdays and the like, you do the same.

Use your own money to save for retirement.

 

[kumquat]

Why designate any funds for any purpose, just save. In today's markets you may be 'rich' or a pauper in a few years, who knows.

As for those who advocate an "I did it, why can't they" attitude, I agree to some extent. It took me 8 years to graduate from the local University because I also supported my widowed mother and younger siblings during this time. Before I martyr myself, I did this by running the family farm and getting an education on the side. My younger siblings were expected to (and did) help as far as they could.

My kids got tuition and room & board. They worked, paid for books and beer. As a side benefit, DW & I bought a condo for them to live in, in another city where they went to school. Even with (Cdn) prices falling, when we sell it, the net gain will cover the costs we've paid.

It's your money, your decision and the consequences of that decision are yours to live with. Enjoy.