Questions re: college costs, life insurance

[TuckerKatt]

Hi all -

Lurker becoming a poster. First of all, must point out the obvious -- what a great resource this is. Thanks to everyone for all the great posts!

Two questions that I would love some help with:

1. College education: not asking for anyone to break out their crystal ball, but what sort of projections are people using to estimate the cost of private college in approx. 20 years?

2. Life insurance: my wife and I have none at the moment. I feel we have gone long enough without but I don't know where to start, what to look for, etc. We are early 30s if that helps.
3. DH and DW: I know H & W are husband/wife, what is the D for??

Thanks!

 

[REWahoo]

Hi all -

3. DH and DW: I know H & W are husband/wife, what is the D for??

Thanks!

I'll start with the easy question...

http://www.early-retirement.org/for...slang-frequently-used-on-the-forum-19058.html

...and others will be along shortly to respond to the others.

BTW, welcome to the forum.

 

[Sam]

Welcome,

1. College education: not asking for anyone to break out their crystal ball, but what sort of projections are people using to estimate the cost of private college in approx. 20 years?

3. DH and DW: I know H & W are husband/wife, what is the D for??

1. I'm glad I don't have to do projections any more. Will the past help? In 1997, I paid 12K for one prepaid 4-years college plan in Texas. This September (10 years later) it will pay for the first year at UT Austin, 9K. The next three years will also be paid by the same plan.

3. Let me know what it stands for. I asked the question too, and never got a definite answer.

 

[TuckerKatt]

Darling, of course. Thanks.

To me, DW = Daywife, and I am certainly not planning on supporting my Daywife in retirement!

 

[lifeisgood]

Here's a shot at predicting private college costs. Crudely speaking, the price of "everything" rises at the rate of inflation. Some things in the basket of goods that make up the measure of inflation go up faster than the average; the price of others go up more slowly or even fall. The ones that rise more slowly, or that fall, tend to be things that benefit from productivity increases, like computers.

Private education, almost by definition, has no productivity increase; after all, you want a low student/teacher ratio. Therefore, education costs rise faster than general inflation. They rise at the rate of nominal wage increases, which is, again crudely speaking:

Inflation rate plus long-term rate of productivity growth, or about 2% faster than inflation.

I haven't bothered to check this against any data, but it's what I use as a trustee at a private school when we have to set tuition each year.

(Schools that raise big endowments could use endowment income to keep tuition increases lower than wage increases.)

 

[yakers]

D=dear, now that is what it denotes but it is meant to be a play on words as others substitute things like damn, dippy, dysfunctional or whatever. Its not supposed to be fully explained except it always means dear when referring to my wife.
As to school costs, its hard to predict. I was saving in an Education Roth & stopped and just added to my portfolio. Several years back my so was at the top of his very good school in math & science, I thought this kid was going to end up at Stanford or CALTECH. Over the last few years he has regressed to the mean and will be in a California state college this fall. So I just add that to the budget and can get on with retiring. If he made the top schools I would have kept working. Rather than budget I would just set aside some money in a good tax saving plan and just cover the rest from your own account. And you never know whether said child/ren will get scholarships, jobs, enlist or end up in junior college. So I just wouldn't focus too much on college savings.

 

[donheff]

No help on school costs. The "D" generally stands for "dear." As to insurance, many (all?) of us would recommend term. The general purpose is to get the surviving spouse through the drop in income until he or she can normalize things, cover college expenses for the kids, etc. DW and I took a somewhat different approach - we figured that the death of the other would be so traumatic that the survivor would deserve ER. So we wanted to carry enough that the survivor could quit work if he/she chose to. We set that at $1.2M (I would definitely work until eligible for a pension and DW would get at least some survivor annuity if I kicked while working). When we became fully FI we dropped insurance.

 

[brewer12345]

I will let others opine on college costs. Still figuring that one out myself.

On life insurance:

Make sure you actually need it before you go buy some. If one of you croaked, would the other be in financial difficulty? If not, then you don't need life insurance. If you don't have kids or other dependents, and you don't have a mortgage or other obligations that one spouse would not be able to handle on their own, this describes you.

If you have a large mortgage or kids, then you need to spend some time contemplating how much money your survivors would need to make it if your income disappeared. If you have a large mortgage, then you might want a policy that would kill of the mortagge if one of you croaked. If you have kids, then you probably want a policy large enough to get your survivors close to or at a portfolio large enough to sustain them if you are no longer around. Since coverage is pretty cheap, err on the high side when you estimate your needs.

As to what to buy, if you are relatively healthy, oshop for a term policy. I think a 20 year term policy with a conversion option is a good mix of safety and economy. Do not be suckered into buying whole life, variable life, universal life, or return of premium term. They are far more expensive than a simple term policy and if you actually needed one of these policies, your advisors or attorneys would have told you so by now. What? You don't have advisors or attorneys? Then you don't need more than a term policy.

If you need a policy, shop carefully. Pay attention to the credit of the issuer, and stick to companies with a credit rating of Aa3/AA- minimum. If possible, go with a mutual company rather than an investor-owned insurer. I would start looking at policies offered by TIAA-CREF, USAA, Ameritas Direct, and maybe Protective Life/West Coast Life. All of these companies will sell direct to you and tend to be pretty competitive on price. I have no qualms about the credit quality of any of these companies, and the first three are mutuals.

 

[FinanceDude]

As far as college:

You can get a summary of tuition costs and their increases by contacting the school you'll be sending your child to (if you know). If you do not, it's a little dicier.

Right now, the best private school around is $30,000 a year, and the best oublic is $17,500. I took a 5% average increase and a 6% average increase and put it on a spreadsheet. I think college costs rise 2-3% faster than inflation.

My first year of school was $1,800. My friend's daughter is going to the same school, and her price is $11,000 for the first year, albeit it's been 20 years!!

 

[TuckerKatt]

Thanks all for the answers.

The higher private colleges are currently around $40K for tuition plus room & board. Granted this is the high end (Ivy and similar), but I'd rather plan for the most expensive scenario and be pleasantly surprised rather than the opposite. It is mindboggling to think that even at $30K/yr increasing by 5%/yr means per year costs in 20 years will be $80K, or $320K for a 4-year degree. Ouch. Can these increases continue for another 20 years? Hope not. Scholarships and grants will always be out there but you can't plan on those things.

 

[FinanceDude]

Thanks all for the answers.

The higher private colleges are currently around $40K for tuition plus room & board. Granted this is the high end (Ivy and similar), but I'd rather plan for the most expensive scenario and be pleasantly surprised rather than the opposite. It is mindboggling to think that even at $30K/yr increasing by 5%/yr means per year costs in 20 years will be $80K, or $320K for a 4-year degree. Ouch. Can these increases continue for another 20 years? Hope not. Scholarships and grants will always be out there but you can't plan on those things.

There's a LOT of pressure on universities to hold the line on costs. Remember what Harvard always says: "We will not turn away a student who can't afford Harvard if they are accepted".............

 

[TuckerKatt]

Yes...it is hard for me to believe that the system will support another 20 years of 5%-10% annual increases, but as other posters have noted ($1,800 to $11,000 in 20 years, ~9.5% annual increase) it's happened before so why not again.