College Funds

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tphp99
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Joined: Sun Jan 03, 2010 7:47 pm

College Funds

Post by tphp99 »

We are trying to figure out how much to earmark for our children's education.

We would be willing to foot the entire bill for both kids, ages 12 and 4. Ideally, we would like them to go to a state college for undergrad, and finish (hopefully) an advanced degree. The advanced degree is where we are having a problem trying to decide how much is enough. My tuition was $22K/yr 15 yrs ago, but it is now $60K/yr - is that normal?

So... how much should we set aside for each child, and how should that money be invested? We have 529 accounts for them now at 50/50 allocation.

I have/had a financial guy, but all he wanted was to sell me insurance and annuities. The fee only guy was so vague, I got more confused talking with him. So I've been trying to do our finances myself, but I'm always concerned I've missed something.

Thank you in advance for your help.
livesoft
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Re: College Funds

Post by livesoft »

When they graduate from college, how old will you be and will you still be working? What will your income be?

For now a 529 plan with 50/50 allocation is as good as any plan.

There are a number of threads on college funds. Here is just one of them: http://www.bogleheads.org/forum/viewtop ... 0&t=146595

And another one with several pages of posts: http://www.bogleheads.org/forum/viewtop ... 2&t=116526
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Grt2bOutdoors
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Re: College Funds

Post by Grt2bOutdoors »

Fund college in the 529 plan.
You may wish for them to attend graduate school, they may not want to or need to attend graduate school if the opportunities available do not make it a necessary requirement. Therefore, if you want to save for graduate school but lessen the potential penalties assuming that pot of money will not be needed in the future, save for graduate school using Total Stock Market Index, Total International Index and your choice of bond fund - either Intermediate Tax Exempt or Total Bond Market. You are still saving but the buckets used will be different.
60K is not uncommon, will it be 120K in 10-12 years?, maybe but then again if incomes do not justify the expenditure I don't expect many people will be willing or able to incur such debt. Let's say grad school costs 80K and you want to fund 4 years - that's 320K, I vote assuming you have the ability to do so to save 1/3 to 1/2 of the cost and hope the market returns the rest. The other thing is the child(ren) may choose to attend a cheaper grad school or perhaps their future employer will pay for it - there are too many unknowns.
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FreemanB
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Re: College Funds

Post by FreemanB »

Personally, I'm saving what I expect to need to cover the cost of a public undergrad degree. I will likely also pay for a graduate degree for my daughter if and when she decides to pursue it, but I'm not allocating money for that. There are too many variables that could affect the cost and time frame to make it worthwhile to me. If she goes to work after her undergrad, then her employer may pay for tuition.(Or at least a large chunk of it) She may not go for a graduate program for a long time after undergrad. She may also want to go straight into law or med school. I can't realistically allocate funds for all of those scenarios, so I'm just sticking with undergrad. Everything else will go into my own savings, and I can use them when and if they are needed for her later education.
Topic Author
tphp99
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Re: College Funds

Post by tphp99 »

livesoft,
This is why I want to get a good estimate. I want to retire soon, and want to know how much I should set aside for them. This money will be independent of my income at the time they go to college.
FreemanB,
I think our goals are not too different. I figure the 529 should cover undergrad. Money set aside outside the 529 will go towards grad school.
Grt2bOutdoors,
I absolutely agree that they may not need/want grad schools. I'm in the planning phase and want to cover all possible options.

If they don't use the 529s - that can be given to someone in the family that can use it. They don't use graduate funds, we could use it and splurge on goofy stuff.

So far, we have about $250K in 529s for both. Would that cover Florida in-state undergrad starting years 2020 and 2028?

At 4 and 12 now, how much should I have allocated for grad school?

How should I even go about calculating this?

I'm sorry if I sound so ignorant on this matter. Prior coming to this site, I would get so confused about calculating my retirement nest egg. Luckily, I think we have enough to retire (in our forties - assuming a 2.5% withdraw rate) and I wanted to make sure I save enough for them also. Up until a year ago, I figured I would work until I croak, but we are considering retiring, traveling before we get too old and weak (my parents did this).

Thank you.
FreemanB
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Re: College Funds

Post by FreemanB »

tphp99 wrote:So far, we have about $250K in 529s for both. Would that cover Florida in-state undergrad starting years 2020 and 2028?

At 4 and 12 now, how much should I have allocated for grad school?

How should I even go about calculating this?

I'm sorry if I sound so ignorant on this matter. Prior coming to this site, I would get so confused about calculating my retirement nest egg. Luckily, I think we have enough to retire (in our forties - assuming a 2.5% withdraw rate) and I wanted to make sure I save enough for them also. Up until a year ago, I figured I would work until I croak, but we are considering retiring, traveling before we get too old and weak (my parents did this).

Thank you.
Is that $250k in a 529 for each, or a total of $250k for both? If it is for each, then I think you have more than enough for both kids already. If it is divided, then it is closer, but still probably enough given 6-14 years of growth at a reasonable rate.

As for how much to allocate to grad school, I think the only real answer is whatever you feel comfortable with. Even today, graduate schools have such a wide range in prices that you can't pin it down to a single figure to cover any case. After what my employer paid, my MS degree cost me around $75 + coffee expenses. My wife's post-grad schools cost somewhere in the neighborhood of $65k(Maybe more), both within the last 5 years. Trying to predict what will happen 12-18(Or more) years from now for two kids is pointless, since you won't be able to rely on whatever numbers you come up with for anything. My advice is the same: Allocate money now to cover undergrad. Put any additional funds into your general savings, and use it for education or whatever later. If you plan on retiring in your 40s, your retirement nest egg should have more than enough cushion to cover grad school expenses if needed.(If you don't have that much cushion, you probably aren't ready for retirement yet) Pick a number that, if it won't cover 100%, will at least soften the blow enough to not impact your retirement. It really doesn't matter how accurate it turns out to be in the long run, as long as it lets you sleep at night now.
livesoft
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Re: College Funds

Post by livesoft »

If you are going to retire in your 40's and only withdraw 2.5% annually at that time, you will have plenty of assets to pay for any of your children's education without any problems. I just don't think it is something to worry about.
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bloom2708
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Re: College Funds

Post by bloom2708 »

Our goal is to have $30k in a 529 for each kid and $30k in conservative taxable index funds. $60k total for each.

I know $15k/year won't cover everything. We plan to cash flow the remainder. We could get each kid a smaller student loan to teach them about debt and how bad it sucks your soul. :shock:

We need to see how our teaching them about money progresses and how they do as students.

I don't know for sure that each kid will attend college. If kid 01 attends a 2 year school, either the 529 or taxable could trickle down to the next kid.

What if a kid gets a scholarship? What if one doesn't attend at all?

I guess our goal was to not over save in the 529s.
livesoft
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Re: College Funds

Post by livesoft »

What if the kid starts school, goes 2 years, drops out, goes vagabonding, decides to go back to school, travels some more, and back to school, and ….? :)
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Topic Author
tphp99
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Re: College Funds

Post by tphp99 »

livesoft wrote:What if the kid starts school, goes 2 years, drops out, goes vagabonding, decides to go back to school, travels some more, and back to school, and ….? :)
Well, I do have a plan for that :oops:

I hear what you're saying, but with my OCD...ha ha.
I'm glad I don't work in engineering anymore, because I would spend my free time calculating (fill-in-the-blank) just for fun. Taking those habits to finance has been quite frustrating. Everything is an unknown, assumption ect.
Topic Author
tphp99
Posts: 374
Joined: Sun Jan 03, 2010 7:47 pm

Re: College Funds

Post by tphp99 »

livesoft wrote:If you are going to retire in your 40's and only withdraw 2.5% annually at that time, you will have plenty of assets to pay for any of your children's education without any problems. I just don't think it is something to worry about.
I have to keep telling myself this: "2.5% is very safe already." Thanks for the encouragement.
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22twain
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Re: College Funds

Post by 22twain »

FreemanB wrote:Even today, graduate schools have such a wide range in prices that you can't pin it down to a single figure to cover any case. After what my employer paid, my MS degree cost me around $75 + coffee expenses. My wife's post-grad schools cost somewhere in the neighborhood of $65k(Maybe more), both within the last 5 years.
A lot depends on which field and which degree. Ph.D. students in many fields normally also work as teaching or research assistants and receive a stipend that covers their living expenses. I spent seven years in grad school (STEM field) after my bachelor's, and didn't pay a cent for it out of pocket. I even ended up with a couple thousand or so in the bank, in addition to the Ph.D., back in the early 1980s.
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jackholloway
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Re: College Funds

Post by jackholloway »

bloom2708 wrote:Our goal is to have $30k in a 529 for each kid and $30k in conservative taxable index funds. $60k total for each.

I know $15k/year won't cover everything. We plan to cash flow the remainder. We could get each kid a smaller student loan to teach them about debt and how bad it sucks your soul. :shock:

We need to see how our teaching them about money progresses and how they do as students.

I don't know for sure that each kid will attend college. If kid 01 attends a 2 year school, either the 529 or taxable could trickle down to the next kid.

What if a kid gets a scholarship? What if one doesn't attend at all?

I guess our goal was to not over save in the 529s.
For what it is worth, I see no benefit in burdening my offspring with debt. That does not mean I would sign any check, just that I would never plan on debt as plan A. I would also note that today, Berkeley is estimated at $128k all in for in state, and top rank schools are, as noted above, $250k. If you are ok with paying the remainder of those numbers, then go with your plan. If paying the remainder out of cash flow would give you pause, then plan differently.

In my case, I am putting a Berkeley-sized 529 together, and trying to put an elite-sized Roth together if fortune smiles on me. The happy path is very happy, the sad path covers a solid state school, and the very sad path just costs me taxes plus 10% on earnings. This is also you worst case for if they get a scholarship or do not go at all.

With a 2.5% SWR, you have a conservative plan, so cash flow may well be the best plan. You may have enough taxable for this to be quite reasonable. Beware of anchoring, though - you do not want to double count your taxable as both plan A for college and plan A for retirement.
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goodenyou
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Re: College Funds

Post by goodenyou »

I have 3 kids and I put the same amount each month for the same child, but a decreasing amount with decreasing age of the children. My hope is to cash flow the first (depends on state vs private school plus the possibility of academic merit scholarship) and allow the money to roll down to the next. If I can cash flow the second or even the third, then the money will continue to accumulate for graduate school. My priority is no debt for the kids, since the encumbrance of debt may force the direction of a career path that is not genuine but desperate. I want them to learn to be debt adverse. I was not able to be education debt-free, and the chance for my kids to be education debt-free will be a generational improvement.
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