Advice re underfunded college savings & well funded retirement

[Anonymous]

Anonymous wrote:Here is what I would do.

Sit down with a financial advisor to see where your savings are vs. retirement needs. The numbers sound high - but given disability and medical expenses there might be long term concerns.

After you have a better sense of your true retirement needs and any gaps you may have, you will have a better sense for options for funding college.

I believe you can withdraw from retirement funds early without penalty if you have a disability - but you need to confirm this. My assumption is that for child #2 - the $ you pay now for private school tuition will be re-allocated to college so the gap is smaller.

I would also include your children in the financial awareness plan. They should be aware of the situation and the choices you are making.

OP didn't say they are paying for private school for child #2.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Any chance those medical bills will be any lower in the future? Or is that pretty much guaranteed? That's where all of your money is going.

Unfortunately it doesn’t look that way; just got another poor prognosis yesterday which perhaps motivated me to write this post.

Kid does not understand reality; will reach out to school college counselor.

OP, can you elaborate on this? What conversation(s) have you had with your kid about paying for college?

The school college counselor cannot help with your family finances and your discussions with your kid about realistic limitations. Only you can convey that message. You need to be kind, but firm. I am quite sure that your kid is not the only one in his school whose parents cannot pay full-freight at elite schools.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:PP here. Also, keep your fingers crossed that your kid doesn’t get in to one of those reach colleges. There is absolutely no need to pay that much money for college, especially in your financial condition. It’s a crazy decision.

I know! Believe me I am doing that!

Hope is not a plan.

There is no reason to give your kid reason to believe that you can spend $80K/year (and it will be $80K) on his undergraduate education. And when kid #2 is applying, will you do the same? Because that is totally insane.

Tell your kid what the budget is and stick to it. Permit him to take out reasonable loans (if he wants) up to the federal limit. You will not take out loans for him, no Parent Plus, no home equity, no co-signing. It is completely reasonable to impose your budget.

Is it pleasant to say no? Of course not. Is it necessary? Yes.

My very high-performer got into a highly-ranked school this year and is not able to attend because they didn't get any of the handful of merit scholarships given out there. When the acceptance came in with no money attached, they knew it was off the table. They are going to a lower-ranked school with a large merit scholarship and all will be fine.

Set the standard and stick to it.

This. Your kid can apply wherever he wants, I suppose, but he should know going in what you can afford and what you are willing and able to do vis-a-vis loans. You have significant medical expenses; you should not drain your savings or skimp on your retirement so your kid can go to a particular college, when there are other options that you can afford.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:You would seriously sell your primary residence to cover your child’s private college costs? Or take out loans for you to repay after you retire in 12 years? Or use home equity? I would like to believe this post isn’t real. What would happen if you lose your job and can’t repay those loans? Or what if you be become disabled too? Your financial security in retirement is more important than the name brand of the college your kids graduate from. I suppose you do have some wiggle room, but considering your current income and your spouse’s early retirement and disability, I wouldn’t overextend myself for a dream college.

Because they bought close to a million dollar house and cannot afford it. Its not just the house, but taxes and maintenance.

Kids will need to be realistic about college.

They lived selfishly for years and now they are paying the price.

OP. We did not buy a million dollar house - they have both appreciated. The killer for us has been high medical bills over decades plus having to help support our elderly parents (both sides). You may have read we gave very generously to both colleges (as well as many charities) before issues with disability and SN kid.

Being generous has nothing to do with anything. If the houses appreciated, you still bought way more house than you can afford BUT, your numbers don't even add up as there is right now no way you can live off your income and all the other stuff. We have a similar income, have a SN child with lots of therapies and help a family member and I also have serious health issues/cannot work but our expenses are no where near yours so we can save a bit.

Your kids are going to have to go to your state school or get lots of finical aid.

[Anonymous]

Anonymous wrote:I think we are in an unusual situation. Would appreciate any advice, even referrals to professional advisors.
We can fund $30 - $35k year from current income and savings. Issue is if kid is accepted to reaches with no merit aid, w/ annual all-in fees of @ $70 - $80k, leaving a gap of @ $45k per annum over the $25k - $35k we’d pay for in-state or schools w/ merit awards. We are steering kid to in-state and colleges with merit aid but kid is applying to our prestigious alma maters that do not award merit aid. We went through as first gens who worked & self-paid plus received generous financial aid, loans, and scholarships. We are part of the small % of Pell Grant recipients who made it into the upper middle class.

Issue: lack of immediate access to funds for class of ‘20 and class of ‘25 freshmen, low cash flow, but solid long-term assets

Ages/Work/Retirement: 58 ($160k annual income & 56-year-old on disability)

Retirement savings: $2M in 401ks, TSP, and IRAs; plan to retire a few years after kids finish college, about age 70

Home equity: $500k, $300k mortgage (refinanced due to issues with disabled spouse)

Other assets:
1) rental property with $250k mortgage, $600k equity (rental income pays all house expense, mortgage, maintenance, etc. plus @ $5k profit)
2) other savings/ stocks $40k

529 Funds: $6k

Major expenses: @$70k yearly for high medical bills - @ $30k is deductible on taxes, other out of pocket; special schooling and therapies for kid - $35k year

Options considering:
1. Sell primary residence, move to a rental and use proceeds for additional college expenses at private;
2. Rent primary, move to rental home and working spouse rents room near work M- Thursday — this would decrease monthly expenses as rental is in lower cost stars, would also decrease tax liability
3. Borrow against TSP (but these funds are limited to $50k, also question ability to repay funds while kids are in college)
4. Withdrawal from 401k / IRAs of 56-year-old spouse but funds in IRAs (@$80k) would only cover @ two years of extra fees at private school; there are also taxes on earnings withdrawn
5. Take short term loan that would be repaid after retirement when we can access retirement funds in 401ks - do commercial options exist? Might be able to borrow from friends / family who have offered in the past but we have never accepted
6. Consult with FA office at alma matters before applying regarding a private loan similar to #5, one that would be paid back in our retirement years when we will earn more than we do now. We included colleges in our wills years ago, colleges do not know amount, they will receive a % of our estates ; we also donated in the five figures years ago before disability.
7. Apply and then consult if DC accepted
8. Take home equity line (have one in place)
9. Any other creative options - could we pre-sell home and rent back?

Thank you.

You went o a "prestigious " school and this is now your financial predicament? Maybe steer your kids harder to public schools. They can't afford it, you can't afford it and CLEARLY as you've illustrated in your life, the ROI is not there.

[Anonymous]

Anonymous wrote:

Anonymous wrote:So you have about 16 months before your first starts school and five years before the second? Stop all retirement saving now and pad that 529 while you can. You may actually get some aid considering your spouse's high medical needs. Then do a cash out refinance or home equity loan to cover the gap.

Thanks. We are already just contributing the min to get max match, but maybe better to stop completely as you suggest. We will not get any aid, period - the rental kills that possibility. Yes, I’ve tried to get agreement to sell it for many years — spouse disagrees. Also tried to fund 529s - spouse disagreed, wanted to max retirement since we can’t borrow for retirement.

Guess it should be up to your spouse to tell your kid they didn’t want to save for college. Is this the disabled spouse? Sorry, your rental property sucks. 600k in the stock market would have made 120k a few years ago. Even in a mediocre year it would destroy your rental in returns. 5k a year is god awful. Unless you meant 5k a month??

Sorry op, actually I think funding 30-35k a year is really generous.

[Anonymous]

I think it's important to have your kids face reality of costs. 30-35K a year is a generous contribution--they have to work within that. Full stop. Just because you went somewhere doesn't mean you owe it to your kids to go there. The cost and aid landscape has changed. Your assets don't seem to be SO ample that raiding them in your mid/late 50s when one spouse is disabled is a smart financial move.

[Anonymous]

Kid gets to apply to prestigious alma mater institutions because lightning may strike and the money may turn up. If it doesn't, this is as good a time as any to learn to handle disappointment with grace.

Why in the world are you hoping that the college, by rejecting your kid, will do this job for you?

[Anonymous]

Anonymous wrote:PP here. Also, keep your fingers crossed that your kid doesn’t get in to one of those reach colleges. There is absolutely no need to pay that much money for college, especially in your financial condition. It’s a crazy decision.

I agree. You might need your savings.

[Anonymous]

Anonymous wrote:Kid gets to apply to prestigious alma mater institutions because lightning may strike and the money may turn up. If it doesn't, this is as good a time as any to learn to handle disappointment with grace.

Why in the world are you hoping that the college, by rejecting your kid, will do this job for you?

I agree. Before you make a schools list, run the net price calculator for each of the schools. If you cannot afford to pay for a given school, then cross it off the list.

There is no reason for him to apply to schools you cannot afford. None whatsoever.

[Anonymous]

Anonymous wrote:Kid gets to apply to prestigious alma mater institutions because lightning may strike and the money may turn up. If it doesn't, this is as good a time as any to learn to handle disappointment with grace.

Why in the world are you hoping that the college, by rejecting your kid, will do this job for you?

Because despite the prestigious education she got she doesn't have the fortitude to teach her kids that there are choices in life and these days a prestigious education is a luxury and rarely pays more returns than a good public university. These kids have clearly been sheltered from the reality of their very decent, but middle class life and have been lead to believe they live a UMC lifestyle where one can flush money down their toilet on nonsense.

[Anonymous]

Anonymous wrote:

Anonymous wrote:So you have about 16 months before your first starts school and five years before the second? Stop all retirement saving now and pad that 529 while you can. You may actually get some aid considering your spouse's high medical needs. Then do a cash out refinance or home equity loan to cover the gap.

OP is 58. This is terrible, terrible advice.

+1 OP should absolutely not stop saving for retirement. With a disabled spouse and sky high medical bills (that will not go down) they need MORE for retirement.

OP, I understand you say you can afford ~25k per year. But with your situation, you need to be considering community college only for the first two years and a state school for the last two. If your child can gather the scholarships/aid to attend a different school at the same cost as CC/State school then great.

You need to have a serious conversation with your children about what you can afford. And they need to be more aware of what is going on in your family. It seems they don’t have a clue about how ill/costly the treatments are for the disabled spouse.

[Anonymous]

This makes no sense - you are spending $70K in medical for spouse, $35K on child which is $105K a month not including mortgage, utilities, cars, car insurance, food, clothing, etc... that isn't possible on $170-taxes.

[Anonymous]

Tell your kid they are getting $xxxx for college. It will pay 4 years instate, or 1 year at a private, and it's up to them to come up with the rest of the money--loans/scholarships/work/etc.

OP, I was your kid. I got into tippy top schools, but the money my parents had saved diligently only covered 1/4 of what tuition would have been. I cried and mourned the lost dreams, but went to a state school and turned out just fine in the end. I graduated debt free and was able to buy a house in NoVA at 25 thanks to smart choices. Your child will be fine at a less than top 10 school.

[Anonymous]

OP, I have a toddler with more in his 529 than your rising senior. I say this only because we have a much higher HHI than you, we are saving diligently every month, yet we still may not be able to afford 4 years of private or ivy in 16 years. College isn't what it was 40 years ago when you attended, and the cost has become ridiculously over-inflated. Don't risk your family's future with this fiscally irresponsible path.