Pull back on retirement saving to increase savings for kids' college?

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Stick5vw
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Pull back on retirement saving to increase savings for kids' college?

Post by Stick5vw » Sun Jan 21, 2018 12:41 am

Hi all - with a growing family (we have a 10 month old baby right now, and expect to have another child within the next few years), I would be grateful for the forum's thoughts on what is the "right" balance between retirement savings and college savings?

In our particular case, we currently have about $950k across a couple accounts that I would consider "retirement". I am saving/investing about $4800/month here. There's also an emergency fund with about $50k, and an account for a down payment whenever we buy a home (about $1700/month goes here - currently about $125k).

Opened a 529 late last year following birth of child #1, which now has $6400 in it. Contributing about $1160 per month to this account. Would open a 2nd 529 whenever #2 is born and probably contribute around the same amount. So let's say $2320/month total going there.

It's obviously impossible to know right now where kids would go to school, but for argument's sake let's just assume they will both go to 4-year private college like my wife, myself, and most members of our families have. I'm thinking we would need probably need at least $400k apiece given how crazy college costs are and since we're still 18-20 years away with plenty of time for them to increase even more! I'd hope to work until the kids are out of school, so let's say I'd still have 20 years to save for retirement as well.

Therefore given these crazy costs, my gut tells me that we ought to dial back some of the funds being channelled to retirement and direct them towards future education instead - though I'm not sure what that exact number ought to be, given there would hopefully be some market growth during this period as well. (ie saving the full amount wouldn't be required since the market could do some of the lifting for us).

Thinking about $500-600 more (and even more when child #2 comes) could be re-allocated per month - let's say $3k total per month instead of $2320. This ensures we still are putting something away for retirement (which at $950k seems in good shape) but also growing the education funds.

In case you're wondering, yes, we hope to pay for the entire cost of college for our kids.

What are everyone's views on this topic? Appreciate the wisdom from others with older kids and/or those that went through this already when saving for their children's college education.
Last edited by Stick5vw on Mon Jan 22, 2018 10:13 am, edited 2 times in total.

letsgobobby
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by letsgobobby » Sun Jan 21, 2018 12:52 am

If you plan to save $1000 per child per month the money will have to come from somewhere.

I think $400k is too low, since top private schools currently cost $260,000. A meager 4% per year growth rate takes you to $520k in 18 years.

Nate79
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by Nate79 » Sun Jan 21, 2018 1:07 am

Is your current retirement savings rate what you need to hit your retirement goals? If so, have you considered perhaps you and your child can not afford the private colleges you are considering? It's a red flag to sacrifice needed retirment savings for a very expensive private college education.

blueman457
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by blueman457 » Sun Jan 21, 2018 1:11 am

Nate79 wrote:
Sun Jan 21, 2018 1:07 am
Is your current retirement savings rate what you need to hit your retirement goals? If so, have you considered perhaps you and your child can not afford the private colleges you are considering? It's a red flag to sacrifice needed retirment savings for a very expensive private college education.
Agreed. There aren’t enough details in your post, but if you have to cut back on retirement savings to save for college that usually isn’t a good sign. Again you can take out loans for college, you can’t take out loans for retirement.

Blue man

CurlyDave
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by CurlyDave » Sun Jan 21, 2018 1:12 am

If push comes to shove, it is always possible to borrow money to go to college.

It is almost never possible to borrow money to enhance your retirement.

Keep putting money into retirement accounts.

mega317
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by mega317 » Sun Jan 21, 2018 1:20 am

My own plan for now is opposite. I'm saving everything I can in retirement accounts and taxable. I won't think about college until retirement is secured. Maybe that means cash flow college, or even taking out loans while I save in retirement accounts, paying off the loans when retirement "number" is hit. I'd hate to commit a bunch of money to college and then be out of work for some reason before I have enough to comfortably retire.

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willthrill81
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by willthrill81 » Sun Jan 21, 2018 1:31 am

mega317 wrote:
Sun Jan 21, 2018 1:20 am
My own plan for now is opposite. I'm saving everything I can in retirement accounts and taxable. I won't think about college until retirement is secured. Maybe that means cash flow college, or even taking out loans while I save in retirement accounts, paying off the loans when retirement "number" is hit. I'd hate to commit a bunch of money to college and then be out of work for some reason before I have enough to comfortably retire.
This is where we are as well. We should be able to either cash flow college (assuming I'm not retired yet) or pay it off as needed from tax-deferred accounts (assuming I am retired).

There are just too many options for me to currently justify putting money away in a 529 for college, especially since we only have one child, and if she decides to not go to college, the money would be far better off elsewhere.

Now if we're talking about 529 money for primary education, due to the changes in the tax law, that's a different matter altogether.
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Slacker
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by Slacker » Sun Jan 21, 2018 1:39 am

OP - Is your target number still $5 million?

msk
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by msk » Sun Jan 21, 2018 1:53 am

Stuff your savings into 100% stocks ETFs in the most tax-advantaged accounts you have available. I put aside $200k when my 2 youngest kids were in grade school. They are now in college but I can continue giving each a stipend equal to Minimum Wage for the rest of their lives. From the same initial investment. The stock market is a great miracle, as long as you do not try to second guess it. Fifty-year history check, 1966 to 2016 with all the messy crises and wars in-between: SP500 compounded at 6.6% p.a., paid 3.1% dividends p.a. and inflation compounded at 4% p.a. Save and invest 30% of after-tax income and do not bother with bonds (you already have enough of a buffer). Or market timing.

livesoft
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by livesoft » Sun Jan 21, 2018 3:01 am

This is a first world problem. You have investable assets of 7-figures now and as you wrote 18-20 years away from spending money on college. If your portfolio isn't going up by more than $400K a year in 20 years, then something really bad happened along the way. Basically, it doesn't matter what you do, there will be plenty of money for college. Sure, use 529 plans for some of it. You can always put more money in later, too.

How's your term life insurance?
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Stick5vw
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by Stick5vw » Sun Jan 21, 2018 6:13 am

Thanks everyone for the responses! A couple points of clarification / follow up.

1) Nate79 / blueman457: sorry if not enough info was included to respond properly. I'm 38, so hopefully still have a lot of time ahead to work/save. Yes, we would be cutting back on retirement, but doing so would hopefully not be putting retirement in jeopardy (even if we save "only" $2500 or $3000/month instead of $4800, at c. $1mn right now hopefully are in decent shape ). We're just trying to divvy things up given the pursuit of multiple financial objectives.

2) Let'sgobobby: the monthly savings would be more than $1000. If we add around $500-600 to the amount currently being saved, we'd have about $1700 per month going towards college savings (and perhaps could save more). (Point taken that costs may be even higher than we think, but that is the key point driving this entire thought process.) Perhaps $3k could go here a month or $1500 for each kid.

3) Slacker: $5mn was a number I threw out in a prior post. I confess there was no science behind this; it was / is a nice round number and almost certainly would be enough to live on when we are older. As such you could say it is aspirational figure, but I think we would probably still be fine even if we came in a fair bit lower than that.

4) MSK: Interesting point that 529s may not actually be the way to do this (given off chance the kids don't go to college or we need to the use the funds for something else and wouldn't want them to be tied up) and will consider that further.

5) Livesoft: we did the physicals about 2.5 weeks ago for the term insurance application, and are still waiting for the final price quotes for the amount of insurance that we are considering.....

I realize life is full of curve balls, college may be even more expensive than we expect, and we may need to adjust somewhere along the way. However we are in the fortunate position to be able to save right now for the future and want to take advantage of it and do it in the most sensible way. More questions/suggestions are welcome!
Last edited by Stick5vw on Sun Jan 21, 2018 10:04 am, edited 1 time in total.

dogagility
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by dogagility » Sun Jan 21, 2018 8:31 am

Stick5vw wrote:
Sun Jan 21, 2018 12:41 am
It's obviously impossible to know right now where kids would go to school, but for argument's sake let's just assume they will both go to 4-year private college like my wife, myself, and most members of our families have. I'm thinking we would need probably need at least $400k apiece given how crazy college costs are and since we're still 18-20 years away with plenty of time for them to increase even more!

In case you're wondering, yes, we hope to pay for the entire cost of college for our kids.
Long-winded post here... sorry.

My wife and I went through this thought process for the last 20 years with our two spawns who are now in college. Here's my two cents, FWIW.

First, I think your college cost number is way too low as pointed out by an earlier poster. Here's a calculator: https://www.bankrate.com/calculators/sa ... lator.aspx. The unknown in this calculation is the inflation rate. The default setting is 4.8%, which I think is pretty accurate. Top-rated private colleges (e.g. Tufts) now run about $65k/year. Plugging this into the calculator gives a cost of $650k for a newborn child. However, for mid-tier private colleges (e.g. Rollins), the cost shown is really a sticker price that most kids don't pay because merit aid is "easy" to receive.

There are several variables you need to consider (which are really unknowable at this point).

Will your kids receive merit aid? This is dependent upon test scores and GPA... almost exclusively. Merit aid is a tool used by colleges to attract top students, and the GPA/test score criteria are unique to each college. Plug some numbers (maybe your own numbers) into college net price calculators at various colleges to get an estimate.

Will your kids even attend college? Likely given you and your wife's background.

Is a public college is in the cards? If so, you would likely pay the full amount of the cost because fewer people receive merit aid from public universities and what is received is typically quite low. Putting a current 4 year flagship pubic university cost of $25k/year into the calculator, this gives a number of $250k... quite a bit less than $650k!

Other posters suggested focusing on retirement savings. I agree. However, I wouldn't want to pay for college using loans. Your children are unlikely to receive federally subsidized student loans, given your financial resources. Current parent loan rates for education expenses have about a 7% interest rate... not something I would want to pay!

Here's what my wife and I did. We didn't want our kids to have student loans after graduation, and we didn't want to pay for college via parent loans. We had a lower boundary target amount for college costs, which equaled the cost of a flagship university. As our kids entered high school, we had a feel for their scholastic aptitude (i.e. GPA and test scores), but it was still unknown what type of college they would attend. However, we knew college was in the cards. By 10th grade, you can begin to plan better where your kids will attend.

In the end, we ramped up our college savings portion of our budget when our kids were in high school and now college. Essentially bankrolling college from current savings. However, we couldn't have met college expenses without saving significantly when they were younger to meet our lower limit target of a public flagship.

We had sufficient funds to bankroll either the full cost of a 4 year public college or a private college with significant merit aid (with ramping up savings a bit). Our kiddos didn't have the grades/test scores for significant merit aid at tippy-top privates (e.g. Swarthmore-type privates). This meant our kids couldn't think about attending these tippy-top privates, even if they were able to be admitted.

For additional perspectives, I highly recommend spending some time on the financial aid forum of collegeconfidential.

Soon2BXProgrammer
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by Soon2BXProgrammer » Sun Jan 21, 2018 8:52 am

prioritize retirement savings now.

when they are in college, assuming your working and have high income, save the absolute minimum to get any matches.
use any college savings you where able to do..
cash flow the rest of college
save for retirement anything left over

.........

on the other hand.. if you planning early retirement and your retirement is basically funded. then yes, of course sock money away specially for college...

i have 80%ish of in state public tuition saved for my 7 and 5 year old... there is a 90% chance i won't be working when they are in college. whatever these accounts are, when they go to school, is what they get... no more, no less. (my wife accuses me of being a hard ***, maybe i am).

3funder
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by 3funder » Sun Jan 21, 2018 9:13 am

My wife and I prioritize retirement savings over college savings. We just plowed $60,000 into our kitchen, so I'll need a couple of months to convince her to ramp up 529 contributions. We currently contribute $500/month; I'd like to double it. Our son will turn three in March. For all intents and purposes, we plan on covering the entire cost of his post-secondary education.

bltn
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by bltn » Sun Jan 21, 2018 1:31 pm

I am speaking from the experience of having two children that both went to high cost private universities and then went to medical school. The eqivalent of four high level private undergraduate tuitions. And yes, current college costs at high level private schools are 65,000 a year.
It seems to me a truism that nobody saves the total amount to cover college costs by the time the kids are ready to go off to school. You are doing a great job by getting an early start.

I agree that retiremnt savings should take priority over college savings. I think your current allocations are ok. When college arrives, with a significant amount saved in 529 s, you could cash flow the rest.

Definitely look at scholarship possibilities. In our region, if your child has good high school grades and test scores, it is possible to attend state universities tuition free or with large partial scholarships. I have friends and family who have made good use of these scholarships. In retrospect, even though there is always the advantage networking mentioned, I m not convinced that the extreme expense of “name” private colleges is worth the cost to us families of relatvely limited resources. A hard working student will excel in school and life regardless of where they go to college. A 3.9 gpa at a good public university will be the equivalent of a 3.4 gpa at a good private school to many recruiters and graduate schools.

Finally, if your chidren incur a small amount of student loan to go to the high level school of their choice rather than a less expensive school, I think that is ok. Your retirement nest egg should take priority over education expenses, particularly at that stage of your life.

Continue your current course . I personally don t think any adjustment is needed now. Good luck.

Pdxnative
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by Pdxnative » Sun Jan 21, 2018 2:11 pm

What jumped out at me was saving for a house. If that is a near term possibility, I’d prioritize doing it when the kids are young and in a neighborhood with schools you like. If you can’t really settle down for professional reasons then that’s less important.

Otherwise I don’t really see which pot that $500 saving goes in making a huge difference right now unless you’re giving up tax benefits. You’re probably going to pay for college from a combination of college savings, general savings, and current income. Maybe set yourself a rough mental goal of what percent comes from each, and let that guide your current thinking. You can reevaluate yearly.

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Garco
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by Garco » Sun Jan 21, 2018 2:13 pm

My 2 cents.

We got two kids through elite (non-Ivy) private colleges in 1996-2003. The total costs for each were about $125-$130K including room and board. We managed via savings plus some contributions by our own parents. Kid 1 then went on to a very good career, now earning 5-10 times per year what I did when I was still working. Kid 2 chose to go to graduate school (MBA+). This wasn't in our original financial plan, and it drew out time to financial independence. Federal loans for the MBA (plus an MS) were at usurious rates; we partly subsided the costs but couldn't cover them all because we hadn't planned for them. But the advanced degrees for the one child cost more than her undergraduate degree. For professional degrees (not PhD's), there is generally little direct financial aid (scholarships, fellowships) available. But loans are easy to get.

Based on this experience, I suggest you err on the higher side in anticipating the costs of college. Not just b/c the costs of attendance are likely to be upward of $500k per child. I assume you would, like us, try to help your children financially until they become financially independent. And you, like us, don't want them to be saddled with college loans if this is avoidable. Imagine the cost of a medical degree or law degree.

We were a one-income family (now we have no income from work). We did not pull back on core retirement savings because there was no way to do it! My employer double-matched my 5% so that we put a net 15% into my tax deferred account for ~40 years. In later years, especially after we'd spent out our savings to get the kids through college, we began to contribute to supplemental retirement accounts of various kinds, as well as to a taxable investment account. The latter was augmented by bequests. But our contribution was limited until we got both kids completely through their college and graduate educations. That was our highest priority.
Last edited by Garco on Sun Jan 21, 2018 9:14 pm, edited 1 time in total.

KATNYC
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by KATNYC » Sun Jan 21, 2018 2:32 pm

blueman457 wrote:
Sun Jan 21, 2018 1:11 am
Nate79 wrote:
Sun Jan 21, 2018 1:07 am
Is your current retirement savings rate what you need to hit your retirement goals? If so, have you considered perhaps you and your child can not afford the private colleges you are considering? It's a red flag to sacrifice needed retirment savings for a very expensive private college education.
you can take out loans for college, you can’t take out loans for retirement.

Blue man
+1
I told someone the same thing this weekend who mentioned starting a savings account for a 1-year-old although they are not maxing out for retirement savings. It's like they say on airplanes, put on your life mask first before helping others.

BanquetBeer
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by BanquetBeer » Sun Jan 21, 2018 2:42 pm

Up to you if you want to cover costs 100%; your guess is as good as any to the price tag. We put away about 2 years of current public university expense by age 4 and let the market decide how far that will go. Going back a few generations in our family I cant find anyone covering college expenses of their kids and they all turned out fairly successful. Up to you if you think private university is 'worth it' - I have worked with plenty of people from private universities (MIT, Yale, Standford, Rice, etc..) but we all had the same job at similar pay. I am sure some people benefit from it but if I had the option of (lets use todays costs) $250k + state degree vs private university degree - I think I would get along better with the extra cash in the long term.

Say you have a good salary (150k) and IVY gets you a 20% bump in pay - assume raises and stock gains are equal.. still going to take you 10 years to break even and those are some rosy assumptions.

Private school sounds nice. Also cool to drive a BMW in your 30s. But I bet only a small % of each group is making the right choice from a strictly financial perspective.

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Re: Pull back on retirement saving to increase savings for kids' college?

Post by runner540 » Sun Jan 21, 2018 2:42 pm

I don't think there is a "wrong" choice here, unless you are giving up tax advantaged space. Your 2016 post said you make $250-300k/year. That puts you squarely in the top 5% of households. Think about this: if someone in your position cannot pay for college, who CAN?? I apply this thought process to housing, college, healthcare, etc.: all categories that have grown faster than overall inflation. All we can do is prudently save, and not stress about inflation rates we can't control. If those categories continue to grow above inflation indefinitely, virtually everyone will get priced out, and something will have to change.

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Re: Pull back on retirement saving to increase savings for kids' college?

Post by delamer » Sun Jan 21, 2018 9:10 pm

Unless I missed it, you did not give any indication of your income. Your ability to save and meet basic expenses is constrained by that. Make sure you know where all your money is going currently. If you don’t track expenses, start.

Only you and your spouse can decide what you are comfortable with for ongoing retirement savings (given your current balances) and what your other priorities are, and then save accordingly. This means you also need a realistic assessment of your long-term job security (or securities) and your coverage in case of disability or premature death.

For us, after having a nice house in a good school district and getting our full match on our 401(k)’s, funding college for our two kids was our next priority. We had secure jobs, life insurance, and decent employer-provideddisability insurance.

Others might disagree with priorities or decisions, but they don’t live with the consequences so that’s OK.

EDIT: You also want to take into account the tax benefits of maxing out 401(k)’s, before making any decisions that would take you below the max.

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Re: Pull back on retirement saving to increase savings for kids' college?

Post by aristotelian » Sun Jan 21, 2018 9:34 pm

CurlyDave wrote:
Sun Jan 21, 2018 1:12 am
If push comes to shove, it is always possible to borrow money to go to college.

It is almost never possible to borrow money to enhance your retirement.

Keep putting money into retirement accounts.
He already has $1M for retirement. That plus SS, he is all set as far as taking care of an above-average middle class lifestyle. If he just let's that $1M compound for another 20 years, he will be even better off.

Normally I would say to save for yourself first, but it appears OP has already done that. Totally fine if he wants a more luxurious retirement, but time to focus on the kids.

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Re: Pull back on retirement saving to increase savings for kids' college?

Post by Stick5vw » Sun Jan 21, 2018 10:29 pm

Delamer: currently our income is about $250-300k per year; all of the figures I've quoted here are based upon the salary component of our income (which is about $200k), and not the bonus (which is usually between $50-100K a year...although of course not guaranteed).

We live overseas, in a very HCOL area albeit we pay US federal tax only (ie no state or city taxes). So the post-tax take home is still decent. I err on the side of caution and exclude the bonus in the calculations as it is somewhat variable, although it does provide a generous tailwind when received as a big chunk of it goes directly to savings - and increasingly to whatever the kid(s) need.

Thank you everyone for your thoughts

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Re: Pull back on retirement saving to increase savings for kids' college?

Post by KlangFool » Sun Jan 21, 2018 11:00 pm

Stick5vw wrote:
Sun Jan 21, 2018 10:29 pm
Delamer: currently our income is about $250-300k per year; all of the figures I've quoted here are based upon the salary component of our income (which is about $200k), and not the bonus (which is usually between $50-100K a year...although of course not guaranteed).

We live overseas, in a very HCOL area albeit we pay US federal tax only (ie no state or city taxes). So the post-tax take home is still decent. I err on the side of caution and exclude the bonus in the calculations as it is somewhat variable, although it does provide a generous tailwind when received as a big chunk of it goes directly to savings - and increasingly to whatever the kid(s) need.

Thank you everyone for your thoughts
Stick5vw,

What if in 10 to 20 years, the best University in the world is overseas where you are. Or, somewhere else aka not in the USA. Then, what would you do with the money tied up in the 529?

KlangFool

WL2034
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by WL2034 » Sun Jan 21, 2018 11:14 pm

We are in a fairly similar situation to OP. Opened a 529 for first child and funded to get maximum state income tax break, ~$5k/year. Will probably do equal amount for future child(ren), although I think the state income tax break is only ~$5k total for MFJ, no matter how many different 529s one opens.

I'm not sure if we should put more in the 529, just seemed like a good amount to start and then cash flow or pay the rest out of taxable to have increased flexibility. Although, if we knew the exact amount needed, 529 definitely makes more sense because of tax efficiency.

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randomizer
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by randomizer » Mon Jan 22, 2018 12:20 am

People say that you can borrow money for education, but not for retirement. So tread with caution. I myself invested in 529s because I felt I had enough headroom for it, and knew I could get out (albeit with a penalty) if my calculations turned out to be wrong.
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by itstoomuch » Mon Jan 22, 2018 12:55 am

You do, what you gotta do :mrgreen: :annoyed :oops:

We front loaded. Used UGMA (529 not around then). Had the goal almost in our grasp but 9/11, dotcom, and a job loss occurred as the Only was matriculating. We eventually had to take massive loans of which $40k remains after 11 years.

{I had a page written out for you but lost it in a timed-out. I guess it was too detailed and does not really apply to anything resembling today's issues.}
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by TentativeScot » Mon Jan 22, 2018 1:02 am

KlangFool wrote:
Sun Jan 21, 2018 11:00 pm
Stick5vw wrote:
Sun Jan 21, 2018 10:29 pm
Delamer: currently our income is about $250-300k per year; all of the figures I've quoted here are based upon the salary component of our income (which is about $200k), and not the bonus (which is usually between $50-100K a year...although of course not guaranteed).

We live overseas, in a very HCOL area albeit we pay US federal tax only (ie no state or city taxes). So the post-tax take home is still decent. I err on the side of caution and exclude the bonus in the calculations as it is somewhat variable, although it does provide a generous tailwind when received as a big chunk of it goes directly to savings - and increasingly to whatever the kid(s) need.

Thank you everyone for your thoughts
Stick5vw,

What if in 10 to 20 years, the best University in the world is overseas where you are. Or, somewhere else aka not in the USA. Then, what would you do with the money tied up in the 529?

KlangFool
529 funds can be used at a wide range of Universities not in the USA

http://www.savingforcollege.com/eligible_institutions/

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wander
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by wander » Mon Jan 22, 2018 8:47 am

I wouldn't be worried too much on saving for kid's college. With your current saving amount and contribution, in 20 years, you will have more than enough money to pay for your kid's education whichever school they go.

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CyclingDuo
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by CyclingDuo » Mon Jan 22, 2018 9:46 am

Stick5vw wrote:
Sun Jan 21, 2018 12:41 am
Hi all - with a growing family (we have a 10 month old baby right now, and expect to have another child within the next few years), I would be grateful for the forum's thoughts on what is the "right" balance between retirement savings and college savings?

Opened a 529 late last year following birth of child #1, which now has $6400 in it. Contributing about $1160 per month to this account. Would open a 2nd 529 whenever #2 is born and probably contribute around the same amount. So let's say $2320/month total going there.

It's obviously impossible to know right now where kids would go to school, but for argument's sake let's just assume they will both go to 4-year private college like my wife, myself, and most members of our families have. I'm thinking we would need probably need at least $400k apiece given how crazy college costs are and since we're still 18-20 years away with plenty of time for them to increase even more! I'd hope to work until the kids are out of school, so let's say I'd still have 20 years to save for retirement as well.
We front loaded our accounts for our two kids back in 1993 (1st) and 1995 (2nd) by stuffing in what we could on our meager salaries at the time to jump start them, then added what we could along the way (more in the early years). By the way, we lived overseas during their childhood years as well. The first account is now 25 years old and has paid for an undergraduate degree and is now paying for a graduate degree (one more year remaining of that) and has plenty left over which has been turned over to the child. The second account is now 23 years old and paid for an undergraduate degree including one year of study abroad. The remainder was turned over to the child about a year ago. Both accounts did what they were intended to do - pay all costs, fees, supplies, housing, food, transportation, tuition, and any travel trips, Summer programs related to their college educations. The bonus, that we didn't expect, was there was enough leftover to turn over to them and start them off on their own investing careers. College education was never a question in our household, it was expected. So our parenting made sure that was the end result.

Your savings rate of $1160 per month and an account designed to grow and last for at least 22 years, even at an average annual return of 5%, should end up over $400K at freshman year, and continue to grow for the 4 years in college with the unused funds. That should pretty much cover projected costs of a 4 year private (could be $500K 18 years from now for a degree - depending on 5%, 6%, or 7% average annual tuition/costs hike). If you average a higher rate of return with your investments than 5% - even better. I just used a more conservative figure of 5%. I don't think you need to bump up the amount given the time frame and amount you are investing with child number one right now. 22 years is a long time frame, and you'll have plenty of time to tweak your contributions. Not to mention, the option of cash flowing some of the expenses when the time comes if need be will always be an option.

In our case, we were a bit younger than you when our children were born, so we are now in our second half of our 50's, empty nesters and taking advantage of being able to super-save for ourselves in our final years of our careers. You will be in your 60's when your kids graduate, so I wouldn't cut what you are setting aside for your retirement right now to boost what you are contributing to your child's 529. Your current amount looks to be on track. The option to tweak what goes in the education account, or your retirement account can always be juggled from time to time as you see how things are developing along the way.

Our vote: don't boost what you are already saving for child number one. It appears to be an appropriate amount. Stay on track with your saving for a house, and for your retirement.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

Stick5vw
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by Stick5vw » Mon Jan 22, 2018 10:22 pm

Thank you all - on further consideration, I think we'll continue with $1160 per month into the 529 (and same amount if a second one is opened up whenever child #2 is born).

This way we contribute just under the $14k limit per year for the 529, while continuing to plow the bulk of our savings into our retirement, down payment, and other misc kid/family expenses.

bigred77
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Re: Pull back on retirement saving to increase savings for kids' college?

Post by bigred77 » Mon Jan 22, 2018 10:38 pm

If your going to use 529s (and I would encourage you to do so. They are of the most benefit to families with financial situations like yours) I would suggest front loading the contributions and “super funding” their accounts. If you have 200k+ in taxable brokerage accounts I would put 100k for each kid into 529s now and rebuild taxable balances through future savings. That gives you the most growth inside the 529 wrapper and maximizes the tax benefit.

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