College Savings or Retirement Savings Reduction

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Haysnooze
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College Savings or Retirement Savings Reduction

Post by Haysnooze »

We are in a high cost of living area, HHI of 180K. Two kids in high school and have 180K saved between the two, with the oldest entering college in two years. We have about $600K in retirement savings, about 20 years away from retirement and will have a government pension of about $70K in today dollars with COLA adjustments for the future. We are saving about $20K per year for retirement and $4k per child ($8K per year) for college. Teenage years seem to be way more expensive than anything in the past with travel sports, activities, car costs, etc and feel we need to decrease either retirement or college savings to balance our budget. Kid 1 will most likely attend in state public college, Kid 2 would also probably attend public college, but may attend an elite college $$$. I feel like with the pension and retirement savings, we are ahead of the game for our lifestyle so am thinking of cutting that back to shore up our budget until college is paid for and then increase it back up. The other option would be to decrease college savings. Thoughts?
KlangFool
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Re: College Savings or Retirement Savings Reduction

Post by KlangFool »

OP,

1) Unless you enjoy paying taxes, why would you cut your contribution to the tax-advantaged accounts?

2) Why does it makes any sense for you to do an after-tax contribution to the college account?

3) Is your government pension vested?

4) Can you afford to pay for the college education?

5) Are you paying down or paying off your mortgage in order to take a more expensive student loan?

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FiveK
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Re: College Savings or Retirement Savings Reduction

Post by FiveK »

Currently a student may borrow a total of $27K over 4 years of undergraduate study. Financial need is not required to qualify for unsubsidized loans. See
Subsidized and Unsubsidized Loans | Federal Student Aid.

Each family's situation is different, so what worked for us might not work for you. Having said that, we expected our kids to take the maximum in unsubsidized loans, giving them "skin in the game."

There is also the phrase "you can borrow for college but not for retirement".
Topic Author
Haysnooze
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Re: College Savings or Retirement Savings Reduction

Post by Haysnooze »

KlangFool wrote: Fri Aug 05, 2022 9:08 pm OP,

1) Unless you enjoy paying taxes, why would you cut your contribution to the tax-advantaged accounts?

2) Why does it makes any sense for you to do an after-tax contribution to the college account?

3) Is your government pension vested?

4) Can you afford to pay for the college education?

5) Are you paying down or paying off your mortgage in order to take a more expensive student loan?

KlangFool
1) Sure, I'd love to have infinite money, but I don't. I feel my retirement savings is in better position than my college savings, so that is my thought.

2) See number 1. Not sure what you are getting at if it is not related to number 1.

3) Yes

4) Not sure what you are getting at here. I think I'm in good shape for retirement and have $180K saved for college between the two kids.

5) We are in year 2 of a 30 year mortgage. Have a 2.75% loan and not making extra payments. Again, not sure what you are getting at.
Topic Author
Haysnooze
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Re: College Savings or Retirement Savings Reduction

Post by Haysnooze »

FiveK wrote: Fri Aug 05, 2022 9:18 pm Currently a student may borrow a total of $27K over 4 years of undergraduate study. Financial need is not required to qualify for unsubsidized loans. See
Subsidized and Unsubsidized Loans | Federal Student Aid.

Each family's situation is different, so what worked for us might not work for you. Having said that, we expected our kids to take the maximum in unsubsidized loans, giving them "skin in the game."

There is also the phrase "you can borrow for college but not for retirement".
My parents paid for my college and I graduated successfully. I plan on doing the same for my kids. I'm willing to do the cost of public college in our state (which can be very pricey depending on their major and in-state college), but if they have a really good reason, I'd entertain paying for the college they really want to go to.

I know that phrase, but feel we are in good shape for retirement. I'll also have max social security (of course in 20-25 years the whole system could change) that I forgot to mention. By max social security I mean 35 years at their max income level (unless they up it to over my current salary in the future). But I am posting on here in case I am missing something.
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FiveK
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Re: College Savings or Retirement Savings Reduction

Post by FiveK »

Haysnooze wrote: Fri Aug 05, 2022 9:27 pm My parents paid for my college and I...plan on doing the same for my kids.
As noted, family situation differ. ;) You asked for thoughts....

Best wishes for success, both for your retirement and your kids!
Topic Author
Haysnooze
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Re: College Savings or Retirement Savings Reduction

Post by Haysnooze »

FiveK wrote: Fri Aug 05, 2022 10:30 pm
Haysnooze wrote: Fri Aug 05, 2022 9:27 pm My parents paid for my college and I...plan on doing the same for my kids.
As noted, family situation differ. ;) You asked for thoughts....

Best wishes for success, both for your retirement and your kids!
I appreciate thoughts, but doesn't mean I will agree with them. I do appreciate them though, so thank you :)
MathWizard
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Re: College Savings or Retirement Savings Reduction

Post by MathWizard »

I think your plan is reasonable.
Any time you want.
Remember that you can withdraw Roth contributions any time you want without penalty or taxes.
If you under the income limits and are not saving in a Roth, that may be a better approach, since if you don't use the money for college, it is in your tax advantaged account, or if you do, the earnings which need to stay in the Roth are for your retirement.

I had to make choices with less than you have, and reducing retirement savings while building up ready funds for kids college was the way we went . We put in enough in tax deferred to get the match, and maxed Roths.

We were in the 15% federal bracket at the time, not paying 25% or more.

We stopped Roth contributions when the first started college, and had about $20K in taxable and $2500 in a 529 and beyond that just cashflowed college through 2 kids . As income rose, we even were able to max Roth's again and max out tax deferred with over 50 catch-ups before the last one graduated.
Golf maniac
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Re: College Savings or Retirement Savings Reduction

Post by Golf maniac »

Klang is just providing his opinion. That’s what you asked for right? Some people on the forum believe you should never sacrifice your retirement savings to save or pay for college for kids. Many believe you save as much as possible as soon as possible in retirement and taxable accounts to FIRE as soon as possible. You do this to give you the most flexibility as you get older. Issues relating to health and personal circumstances can change over the next twenty years. Personally, I always chose retirement savings over college savings for my kids. But only you know your circumstances and your personal preferences. The main point to recognize is there are always risks to a financial decision. As long as you are aware of the risks then you make the decision that you want.
MDivision
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Re: College Savings or Retirement Savings Reduction

Post by MDivision »

Decreasing other parts of your lifestyle may be best for preserving your financial contributions, but it doesn't sound like you want to do that. In that case reducing college contributions may be preferable. You keep saying you feel you are ahead of the game with regard to retirement but without an understanding of what you need for retirement it is hard to comment.

I may be out on a limb here but on an income of 180k, 20k towards retirement seems low.
snowday2022
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Re: College Savings or Retirement Savings Reduction

Post by snowday2022 »

Run your numbers through a college affordability calculator at some of the private colleges. You have done a great job saving but without significant financial aid, or a massive increase in your savings, at a private college it will be tight. You are doing well given HCOL but private college without significant financial aid can cost over 300K per child right now, and that will go up.
Iporante
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Re: College Savings or Retirement Savings Reduction

Post by Iporante »

My eldest is entering college this month and will attend our state's flagship public. We saved a similar amount as you for both kids in our state's 529, which came with a tax benefit. In our case, scholarships will mean that the eldest will use less than half of her 529 by graduation, leaving a substantial chunk for grad school. Even at full freight, it would have been more than enough to cover all costs for in-state public universities.

We started talking about college costs and debt the summer before junior year, and the kid took it to heart and wasn't even interested in applying to schools we couldn't afford to pay outright with saved $$ or were likely to offer scholarships.

I’m not sure of the cost of the public schools in your state, but if you can convince both kids to go to in-state public universities, you may already have enough. Conversely, given the high cost of the elite privates and your savings to date, you might be unable to reduce your annual combined retirement/college savings, pay for your eldest, and pay full freight for an elite private for your youngest. In your shoes I'd keep saving for retirement and stop the 529s, and build the expectation that the kids will have to take scholarships, savings, costs into account when choosing a school.
Last edited by Iporante on Sat Aug 06, 2022 10:31 am, edited 1 time in total.
Mainlandjones
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Re: College Savings or Retirement Savings Reduction

Post by Mainlandjones »

snowday2022 wrote: Sat Aug 06, 2022 7:40 am Run your numbers through a college affordability calculator at some of the private colleges. You have done a great job saving but without significant financial aid, or a massive increase in your savings, at a private college it will be tight. You are doing well given HCOL but private college without significant financial aid can cost over 300K per child right now, and that will go up.
This ☝🏼. I would run the calculators at some of your potential “elite” private colleges. And reduce your assets in the calculator by how much you’ll have paid for child #1 when child #2 applies. If the calcs show #2 would be eligible for aid at “elite” school, consider that future contributions to 529 would reduce aid (~5%) while contributions to retirement accounts would not. Also I’m pretty sure you can withdrawal from Roth IRA without penalty for school costs, and if done in later years of schooling it won’t impact aid. In summary… more potential reasons to contribute to retirement accounts.
Topic Author
Haysnooze
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Re: College Savings or Retirement Savings Reduction

Post by Haysnooze »

Thanks all for the replies so far.

Saving some in a ROTH is something I'll have to look into. That would allow us to take out the money if we need it for college, but if we don't, we could keep it in retirement savings.

We do have some areas that we could cut back in and we have started to do that. We eat a lot of carryout/fast food, so we have cut back on that a lot. I fear it is kind of like dieting though, you start off strong and sometimes people can stick with it, but it is easy to go back into your own ways. Easier now with school out, but once our hectic lives come into play when school starts, will be more difficult. We are also cutting back on vacations. Kids activities is another big area of spending, but don't want to cut that back.

The vast majority of our income comes from me, so when I say $20K, I've been maxing out my retirement contribution. In addition to that, I get a 5% match. People seem concerned that I am not ahead of the game for retirement, so I am trying to understand that. Most people don't have a pension. Mine will be $70K and if things stay the same with social security (big if, but I'm guessing benefits wouldn't go to zero), I'd be eligible at 67 for about $3.3k per month, and my spouse could get half that, so that would be about $5k per month, $60k per year. So just between those, we would be at $130K per year. A rule of thumb is 80% of your preretirement income, which would be $144K. So my retirement savings would only need to cover $14K per year. Having a few years where with a reduced retirement savings rate (at least the company match of 5%) and then increasing it back up doesn't seem like it would hurt me too bad when I'm currently at $600K.

My oldest will most likely go to college instate and my youngest will also likely go instate (but not 100%). Our state varies a lot on how much in state colleges cost. The typical state college costs around $25K per year, but our flagship charges different prices for different majors and can be up to $45K per year (cost of attendance). I feel I am in great shape if both go to an average in state college and could cut down on college savings in that situation. If one goes to an average in state and one goes to the highest in state, I need to keep up my current savings rates. If either go to something more expensive, I'll likely need loans. I've used the Vanguard college savings calculator, which I really like.
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vineviz
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Re: College Savings or Retirement Savings Reduction

Post by vineviz »

Haysnooze wrote: Fri Aug 05, 2022 8:55 pm I feel like with the pension and retirement savings, we are ahead of the game for our lifestyle so am thinking of cutting that back to shore up our budget until college is paid for and then increase it back up. The other option would be to decrease college savings. Thoughts?
I haven't done a full analysis on your situation, obviously, but if this is true (i.e. you really are " ahead of the game for our lifestyle") then it certainly seems reasonable to me to balance out these two financial goals of retirement vs college savings in a way that works better for you.

The Roth IRA recommendations you received are good ones, and pushing a couple of years of savings into taxable accounts might help as well.

Be aware of the possible impact of taxable savings on need-based financial aid, but my guess is that with your HHI significant amounts of such aid is probably not going to be forthcoming either way.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
PersonalFinanceJam
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Re: College Savings or Retirement Savings Reduction

Post by PersonalFinanceJam »

Haysnooze wrote: Sat Aug 06, 2022 8:39 am ...

The vast majority of our income comes from me, so when I say $20K, I've been maxing out my retirement contribution. In addition to that, I get a 5% match. People seem concerned that I am not ahead of the game for retirement, so I am trying to understand that. Most people don't have a pension. Mine will be $70K and if things stay the same with social security (big if, but I'm guessing benefits wouldn't go to zero), I'd be eligible at 67 for about $3.3k per month, and my spouse could get half that, so that would be about $5k per month, $60k per year. So just between those, we would be at $130K per year. A rule of thumb is 80% of your preretirement income, which would be $144K. So my retirement savings would only need to cover $14K per year. Having a few years where with a reduced retirement savings rate (at least the company match of 5%) and then increasing it back up doesn't seem like it would hurt me too bad when I'm currently at $600K.

My oldest will most likely go to college instate and my youngest will also likely go instate (but not 100%). Our state varies a lot on how much in state colleges cost. The typical state college costs around $25K per year, but our flagship charges different prices for different majors and can be up to $45K per year (cost of attendance). I feel I am in great shape if both go to an average in state college and could cut down on college savings in that situation. If one goes to an average in state and one goes to the highest in state, I need to keep up my current savings rates. If either go to something more expensive, I'll likely need loans. I've used the Vanguard college savings calculator, which I really like.
When projecting things 20+ years into the future (retirement) it's hard to know how things will play out. Presumably, those figures you gave for social security and a pension are what they would be in todays dollars IF you keep working until retirement. Then you have to try to figure if your wages will keep up with your cost of living. What will your cost of living actually be in retirement? What happens with your pension should you pre-decease your spouse? Are there possible benefit cuts? I didn't see where you said what kind of govt job you had. Will your benefits keep up with your cost of living once your are in retirement? A COLA pension and SS are powerful things but they aren't always created equal and don't mean that they will keep up with either reported inflation or the inflation in your own personal cost of living.

All that said you ARE doing very well. I wouldn't say ahead of the game but playing very well. Given your numbers I can't see why you would want to cut contributions to retirement right now. Sounds like you have done well in all of your savings goals with a couple of years to go before your first enters college. Presumably, at that time you could have 15K or more per year to help cash flow college expenses. The 8K you currently save for college plus some if you pull back retirement savings.

For what it's worth my spouse and I grapple with this but in a different way. We have done very well at overall savings, but due to meeting later in life and the magic of IVF, we are only just now expecting our first child. By the time he is old enough to enter college I will be 60. Hopefully retired many years before then.
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Haysnooze
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Re: College Savings or Retirement Savings Reduction

Post by Haysnooze »

Good point about Roth IRA possibly affecting aid. Although I won't get financial aid at any of the in-state colleges I'm sure, maybe some at an expensive meet needs school. So odds are I won't be affected, but something to think about a little more.

For those that don't think I'm ahead of the game for retirement, just on track, what metric are you using? From what I read online, people should have 2 to 3X their income when they hit 40 in a retirement savings account. I hit the 3X mark at 40. So I would say I was right on track for doing well; however, these numbers are for people without pensions. Adding my pension, I'm curious what else I would need to be considered ahead of the game?

If I were to die tomorrow, spouse would get about $17K per year starting now and continue health benefits. I forget how much exactly, but kids would get a decent amount per year until they are 18 (so only a couple years). There would be a one-time payment of $100K and I have life insurance in the amount of around $2 million. Don't forget the $600K in retirement savings and $180K in college savings. I'm sure kids would go to a public college in that case. So I think the family will be ok.
snowday2022
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Re: College Savings or Retirement Savings Reduction

Post by snowday2022 »

Haysnooze wrote: Sat Aug 06, 2022 5:22 pm Good point about Roth IRA possibly affecting aid. Although I won't get financial aid at any of the in-state colleges I'm sure, maybe some at an expensive meet needs school. So odds are I won't be affected, but something to think about a little more.

For those that don't think I'm ahead of the game for retirement, just on track, what metric are you using? From what I read online, people should have 2 to 3X their income when they hit 40 in a retirement savings account. I hit the 3X mark at 40. So I would say I was right on track for doing well; however, these numbers are for people without pensions. Adding my pension, I'm curious what else I would need to be considered ahead of the game?

If I were to die tomorrow, spouse would get about $17K per year starting now and continue health benefits. I forget how much exactly, but kids would get a decent amount per year until they are 18 (so only a couple years). There would be a one-time payment of $100K and I have life insurance in the amount of around $2 million. Don't forget the $600K in retirement savings and $180K in college savings. I'm sure kids would go to a public college in that case. So I think the family will be ok.
You are doing fine IMO. People here have unrealistic savings expectations. If you keep it up for 20 years, you will have a very comfortable retirement.
PersonalFinanceJam
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Re: College Savings or Retirement Savings Reduction

Post by PersonalFinanceJam »

Haysnooze wrote: Sat Aug 06, 2022 5:22 pm ...
For those that don't think I'm ahead of the game for retirement, just on track, what metric are you using? From what I read online, people should have 2 to 3X their income when they hit 40 in a retirement savings account. I hit the 3X mark at 40. So I would say I was right on track for doing well; however, these numbers are for people without pensions. Adding my pension, I'm curious what else I would need to be considered ahead of the game?
...
I'll attempt to answer based on my previous post. I don't think you will find much love for the "have X% of salary saved by some age" here. You will find more guidance about meeting expenses, which quite frankly are basically unknowable if the start of retirement is 20 years away. That said you are doing great on and most likely on the way to very comfortable retirement, and possible early retirement should you want it.

You wanted to know if you should pull back on retirement savings now when child 1 is going to go to college in 2 years. I personally would rather keep the retirement contributions up for the next 2 years, maybe using a Roth IRA for some to help hedge some bets, and then pulling back when the kid(s) enter school to help cash flow some of it if needed. The retirement accounts will get another couple of decades of growth. It seems like the college savings is mostly cast at this point.
Nate7out
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Re: College Savings or Retirement Savings Reduction

Post by Nate7out »

Based on my read of your situation here are my thoughts. It seems like your budget crunch is based on kid related expenses like travel sports and other activities, also reading between the lines, it sounds like you are paying for their car expenses. As you noted, you don't have infinite money.

Given all that, I would cut college savings and maintain retirement savings. I would explain to my kids the trade-off being made and accept there is a cap on funding available for college (which will still be a very generous amount).

One fact that can counter balance this is that your kids are older. You will have your late 40's and all of your 50's as an empty nest household to catch up on retirement savings.

See: https://www.kitces.com/blog/empty-nest- ... etirement/
Dottie57
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Re: College Savings or Retirement Savings Reduction

Post by Dottie57 »

I really would keep up the retirement savings. Any tax savings can go directly to finding college.

If you are in a 401k plan, you maybe able to borrow for college from the plan.

Loans can be a good deal - better than cutting out retirement savings in tax deferred plans. Any loans loans taken out by your kids can be paid for by kids and parents.
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Haysnooze
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Re: College Savings or Retirement Savings Reduction

Post by Haysnooze »

I appreciate everyone who has read through this post and given me their advice on what to do. I enjoyed looking at the empty nest article and that is basically my thought: if I temporarily decrease my retirement savings during these peak expense years, I can do catchup contributions for a decade plus once we are empty nesters to make up for that.

But I do have questions for those that think I should reduce my college savings instead of my retirement:

1. Is there any amount of retirement savings I could currently have where you would tell me I could decrease the amount I save per year for retirement? 1 million? 2 million? 5 million? If so, what are you basing that on (and does that factor in having a pension)? Or no matter what, you will always say don't decrease your retirement savings?

2. If I came on here and said I currently have $600K in retirement savings, will have a $70K pension in retirement, plus maximum amount of social security in retirement, and am currently saving 5% plus have a 5% company match on a HHI of $180K (so $18K per year between company match and our contributions) and saving $4k per year per child ($8K per year) with $180K in a 529, which I think at my current savings rate would meet expected college amount, but there is a possibility it might either be too much or maybe too little, would you tell me to decrease my college savings and I should increase my retirement savings?
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Tyrael314
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Re: College Savings or Retirement Savings Reduction

Post by Tyrael314 »

Nate7out wrote: Sun Aug 07, 2022 7:45 am Based on my read of your situation here are my thoughts. It seems like your budget crunch is based on kid related expenses like travel sports and other activities, also reading between the lines, it sounds like you are paying for their car expenses. As you noted, you don't have infinite money.

Given all that, I would cut college savings and maintain retirement savings. I would explain to my kids the trade-off being made and accept there is a cap on funding available for college (which will still be a very generous amount).

One fact that can counter balance this is that your kids are older. You will have your late 40's and all of your 50's as an empty nest household to catch up on retirement savings.

See: https://www.kitces.com/blog/empty-nest- ... etirement/
To add onto this...

Why can't the kids help with some expenses by working?

My wife and I don 't want our son burdened with the SL debt the she experienced. That said we have a set amount we contribute montly to a 529 and add to that amount as we get raises etc. As our son gets older we will explain to him the cost of college etc. and if what we have is enough to cover it great. If not he will need to have plans in place to cover the difference.

I am grateful for the life experiences I gained as a teenager working.
RetiredMommy
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Re: College Savings or Retirement Savings Reduction

Post by RetiredMommy »

I'm sending my oldest off to college in just a few days... I think if you need to reduce somewhere, reduce the college funding. You're not that far off from what will be needed in college for a normal cost college experience. If needed, while in college, you could just cash pay the rest. In regards to retirement savings, I would continue saving as best you can for that. Do you have a number you feel you should have to set yourself up? I don't want to know it but dh and I have a number and he knows we are continuing the savings each year until we get there (because he would rather spend)

And, honestly, it's time to talk to kids about college costs and trying to not overpay for a super expensive college. My kid knew what we were prepared to pay over 4 years; if he wanted way more it would be on him to figure out how. He's happy with his school choice and the idea of no huge debt hanging over his head upon graduation (and we've stated grad school would be on him if he chooses it)
bearwithbear
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Re: College Savings or Retirement Savings Reduction

Post by bearwithbear »

Haysnooze,

Borrowing the money needed for college that is over and above the $180,000 currently saved doesn't say anything about who pays it back.
You think you have enough for retirement. I agree. Keep the tax advantages of saving for retirement and use student loans if necessary.
State schools may cost more or not. Once the kids are "launched" paying the student loans shouldn't be a burden for you.

You have a good foundation for both retirement and paying for college.

Best,
Bear
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Haysnooze
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Re: College Savings or Retirement Savings Reduction

Post by Haysnooze »

bearwithbear wrote: Sun Aug 07, 2022 10:18 am Haysnooze,

Borrowing the money needed for college that is over and above the $180,000 currently saved doesn't say anything about who pays it back.
You think you have enough for retirement. I agree. Keep the tax advantages of saving for retirement and use student loans if necessary.
State schools may cost more or not. Once the kids are "launched" paying the student loans shouldn't be a burden for you.

You have a good foundation for both retirement and paying for college.

Best,
Bear
The tax benefits of saving for retirement is what I am hearing a lot. But that money will be taxed eventually. If I save too much in retirement, my income might be even higher than it is now, so I might be paying a higher tax rate. Plus, does no one else think that 20 - 30 years from now taxes will have to be higher than it is now with how large our deficit and national debt is? I guess there is always the strong possibility that politicians keep not caring about this, but I think eventually someone will have to raise taxes. I don't want to derail my own thread, but I have to pay taxes eventually right? The tax savings might be now, but eventually when I withdraw the money (possibly due to RMDs), taxes will be due.

If kid 2 does go to an expensive meets need school, maybe the retirement contributions would be beneficial in reducing our AGI. We are also right on the border of the Hope credits (I think called AOTC now). Am I correct that retirement contributions (not ROTHs) is favorable to both meet needs calculations and Hope credits?
VoiceOfReason
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Re: College Savings or Retirement Savings Reduction

Post by VoiceOfReason »

What are the expected costs of in state public colleges they are considering? Usually this comes out to ~$20-25k or less. You already have this amount covered for both kids. I don’t understand your concern.

Even if you are set on paying for their college, I would not reduce retirement contributions, I would continue on your current path. You have 20 years until retirement, use the existing savings, take out loans when the time comes (in the last year or two if necessary) and then pay them off before you retire 20 years from now.

You are in fine shape to do all of this. If anything I think you are behind in retirement savings.
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Haysnooze
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Re: College Savings or Retirement Savings Reduction

Post by Haysnooze »

VoiceOfReason wrote: Sun Aug 07, 2022 10:45 am What are the expected costs of in state public colleges they are considering? Usually this comes out to ~$20-25k or less. You already have this amount covered for both kids. I don’t understand your concern.

Even if you are set on paying for their college, I would not reduce retirement contributions, I would continue on your current path. You have 20 years until retirement, use the existing savings, take out loans when the time comes (in the last year or two if necessary) and then pay them off before you retire 20 years from now.

You are in fine shape to do all of this. If anything I think you are behind in retirement savings.
LOL. If I am behind, where should I be at? Please factor in 60K social security and a 70K pension (in today's dollars). I'd love to see your analysis.

If you are a STEM major at UVA, it is over $45K per year in state.

https://sfs.virginia.edu/financial-aid- ... attendance
Last edited by Haysnooze on Sun Aug 07, 2022 12:00 pm, edited 1 time in total.
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Haysnooze
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Re: College Savings or Retirement Savings Reduction

Post by Haysnooze »

RetiredMommy wrote: Sun Aug 07, 2022 10:00 am I'm sending my oldest off to college in just a few days... I think if you need to reduce somewhere, reduce the college funding. You're not that far off from what will be needed in college for a normal cost college experience. If needed, while in college, you could just cash pay the rest. In regards to retirement savings, I would continue saving as best you can for that. Do you have a number you feel you should have to set yourself up? I don't want to know it but dh and I have a number and he knows we are continuing the savings each year until we get there (because he would rather spend)

And, honestly, it's time to talk to kids about college costs and trying to not overpay for a super expensive college. My kid knew what we were prepared to pay over 4 years; if he wanted way more it would be on him to figure out how. He's happy with his school choice and the idea of no huge debt hanging over his head upon graduation (and we've stated grad school would be on him if he chooses it)
I'm thinking with a current HHI of $180K, $150K would be more than enough in retirement. That is basically the $180K minus what we are paying into social security and current retirement savings per year. So $150K minus $70K pension and $60K social security would leave about $20K we would need. Being conservative and going with a 3% rule we would need 666K in retirement savings. There would probably be 4 or 5 years between when we retire and claim social security, so lets do 5 years times $60K for $300K. Add the 666K with the 300K so I am looking at about a million in savings (in today's dollars) when I retire. So I am 60% there.
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SB1234
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Re: College Savings or Retirement Savings Reduction

Post by SB1234 »

Hello OP,
In my opinion, you are in really good shape for retirement. For one thing I don't know if you'll need to have an income of 150k every year to support your current lifestyle. So your pension and ss will cover your expenses completely I think.
But I also think that you have saved up a lot for college already. And depending on where your kids go to college you may already have more then enough.
Also I don't know if any new 529 contributions will be very useful, because capital gains over the next few years may not be that big.
Having said that I think you need a plan on how you will fill the possible college shortfall. E.g you could cash flow the difference or get a HELOC etc.
I think because you will have a lot of income from pension and ss, you may have a similar tax rate on distributions from your retirement plans as you currently have. So you could certainly reduce your contributions as you cash flow the shortfall for college expenses. Also some current expenses which you will not have when kids go to college will offset the shortfall.
So I don't think you need to change anything right now.
anecdotes are not data
bearwithbear
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Re: College Savings or Retirement Savings Reduction

Post by bearwithbear »

Haysnooze,

Those 4 or 5 years from retirement to collecting social security are when taxes are lower on your retirement savings withdrawals.

Bear
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