Retirement/College Expense Planning

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Topic Author
avidelta
Posts: 34
Joined: Tue Aug 16, 2022 10:02 am

Retirement/College Expense Planning

Post by avidelta »

In search of a little financial planning guidance before I seek a fiduciary. Wife and I are currently both 50. I have a state pension that, by my calculations, will provide 80% of my salary if I start drawing on it when I’m 58 (currently a 27 year employee that’s pretty highly paid (200K/yr in LCOL area) for a public servant and I also pay into SS). My plan would be to draw my pension and go back to work either part time or full time until I draw SS so I have no plans to fully retire any time soon. Wife taught public school for 10 years but has spent the last 15 as a SAHM. She recently started a tutoring business that generates a little income but is considering getting back into teaching or school administration in the next year or two just to keep her busy. Here are our assets:

• No debt other than home loan (85K@3% left on a house worth 600K that we purchased for 300K). $1500 monthly payment.
• ~350K in Roth IRAs (Vanguard) that we fully fund. Roth’s are a combination of target retirement date funds and various other total market/bond indexes.
• 125K in brokerage account (total market indexes).
• 240K in HYSA. I know this is way too much and this is where I need some advice.
• We currently have 3 kids (14, 16, 19). The oldest is a sophomore in college that we have been able to almost fully fund just based on my salary each month without dipping into savings. Our middle child starts college in 2 years so there will be some overlap although she might do the first 2 years at CC so it would be much cheaper than my oldest. Youngest will likely do a 4 year university. We’d like to fund the majority of undgrad school for all the kids if we can.

The 240K savings was intended to be there for kids college but I’m not sure how much we’ll need it since we’ve been able to cash flow college costs thus far. One option would be to pay off the house which would still leave us with 160K in savings and an additional $1500 each month. However, I’m struggling with pulling the trigger on this as college costs are just so expensive and I (irrationally) feel like I need to hold onto the savings just in case we need help covering them with multiple kids in college. I'd be comfortable keeping ~100K for an emergency fund, a little more for contingency college costs if needed but I’m not sure what to do with the rest. I do have concerns about inflation impacting my pension value and wonder whether I should focus more on investment for retirement.
Parkinglotracer
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Joined: Fri Dec 20, 2019 2:49 am
Location: Upstate NY

Re: Retirement/College Expense Plan

Post by Parkinglotracer »

Welcome to the forum. I think most here would tell you to plan for your and your wife’s retirement first then help your kids pay for college second.

I’d start with what you expect your annual living expenses will be before taxes in retirement at age X.

Then I’d subtract your pension (is it cola adjusted?)

Then I’d subtract what you and your wife will get from SS.

The remainder is what you will need from your retirement funds to sustain your life and not be a burden to your kids.

Let’s say that remainder is 50K a year. Using a 4% withdrawal rate that would mean you will need to save 2.0M in retirement.

I wouldn’t count on working for that remainder money in retirement because many times people are forced to stop working due to health or reasons out of their control.

Once you come up with a definite plan for your retirement needs then after that i’d come up with a plan to help as I can with paying for the kids college.

You might review your investments and spending needs to make sure you have money you won’t need in say 5 years invested according to your risk asset allocation AA. In my case it’s 65% equities (all in VTI / VXUS) and 35% in a 1-3 year treasury bond ladder. You may have too much in your HYSA - but I can tell that without estimating each year what you need to save for retirement then figure what you can afford to spend on kids college.

A spread sheet or piece of palpate with a column fir each year for you from age 50-70 would do the trick estimating income and major expenses like college / retirement needs.

If I came up short with funds I’d look for alternatives for the kids to share the burden by taking out loans or working or finding help paying for college. I got the military to pay for my bachelors and masters degree.

All I wrote above May seem obvious but from what you wrote it was hard to tell if you have planned specifically for retirement including what your needs for income will be then. Congrats on your great pension.

To answer your original question I’d likely pay off my house with the money in my HYSA to save the 3% interest on my mortgage if I didn’t have any other higher interest debt. I liked going into retirement with my house paid off. If I needed to save the former $1500 mortgage payment for retirement I’d save it according to my AA.

If your kids have to pay for some of their college or attend CC I’d plan for that now and I’d tell them and set their expectations.

Good luck.
delamer
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Re: Retirement/College Expense Planning

Post by delamer »

Liquidity is your friend when you have 11 years of college expenses coming up.

You could buy some iBonds or TIPS or a CD ladder to get some more yield out of the cash.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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22twain
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Re: Retirement/College Expense Planning

Post by 22twain »

Parkinglotracer wrote: Tue Aug 16, 2022 8:42 pm Let’s say that remainder is 50K a year. Using a 4% withdrawal rate that would mean you will need to save 2.0M in retirement.
Check your math. I get 1.25M.
Meet my pet, Peeve, who loves to convert non-acronyms into acronyms: FED, ROTH, CASH, IVY, ...
Parkinglotracer
Posts: 3944
Joined: Fri Dec 20, 2019 2:49 am
Location: Upstate NY

Re: Retirement/College Expense Planning

Post by Parkinglotracer »

22twain wrote: Wed Aug 17, 2022 2:39 am
Parkinglotracer wrote: Tue Aug 16, 2022 8:42 pm Let’s say that remainder is 50K a year. Using a 4% withdrawal rate that would mean you will need to save 2.0M in retirement.
Check your math. I get 1.25M.
Thank you … x by 25 = 1.25M

Public math is a terrible thing!
Topic Author
avidelta
Posts: 34
Joined: Tue Aug 16, 2022 10:02 am

Re: Retirement/College Expense Plan

Post by avidelta »

Parkinglotracer wrote: Tue Aug 16, 2022 8:42 pm Welcome to the forum. I think most here would tell you to plan for your and your wife’s retirement first then help your kids pay for college second.

I’d start with what you expect your annual living expenses will be before taxes in retirement at age X.

Then I’d subtract your pension (is it cola adjusted?)

Then I’d subtract what you and your wife will get from SS.

The remainder is what you will need from your retirement funds to sustain your life and not be a burden to your kids.

Let’s say that remainder is 50K a year. Using a 4% withdrawal rate that would mean you will need to save 2.0M in retirement.

I wouldn’t count on working for that remainder money in retirement because many times people are forced to stop working due to health or reasons out of their control.

Once you come up with a definite plan for your retirement needs then after that i’d come up with a plan to help as I can with paying for the kids college.

You might review your investments and spending needs to make sure you have money you won’t need in say 5 years invested according to your risk asset allocation AA. In my case it’s 65% equities (all in VTI / VXUS) and 35% in a 1-3 year treasury bond ladder. You may have too much in your HYSA - but I can tell that without estimating each year what you need to save for retirement then figure what you can afford to spend on kids college.

A spread sheet or piece of palpate with a column fir each year for you from age 50-70 would do the trick estimating income and major expenses like college / retirement needs.
Thanks for the response!

I did generate a spreadsheet similar to what you described showing my pension payout and estimated expenses. Based on that, in 10 years when all three kids are done with college, I see no reason why we'd need anything beyond what my pension will provide (at that point 80% of my top 5 salaries with some limited COLA through the years). At that point, we'd have no kid expenses, a paid-off house regardless of what we do now, no additional debt, and we don't live lavishly. We likely wouldn't need to draw SS and Roth distributions any time soon as that money would just be a bonus. So, I don't think we need to use our excess liquidity as an additional retirement vehicle. Sometimes, I really struggle with the realization that my pension will cover us. It's really a bad deal for short-term employees early in their careers but really a good deal for lifetime employees like me.

However, since I'm concerned about giving up a chunk of liquid savings with so much college ahead, you did motivate me to add a column to my spreadsheet to see what the impact is. Using the 80K+ to pay down the house now (saving around 7K in interest), we'd still have enough savings left to cover the years when we have 2 in college at the same time and would likely not be able to cover those costs simply through my monthly salary. Plus, we'd have the extra $1500 per month to use if needed. That excess money could also be used to replenish our savings as well.
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Retirement/College Expense Plan

Post by delamer »

avidelta wrote: Wed Aug 17, 2022 10:31 am
Parkinglotracer wrote: Tue Aug 16, 2022 8:42 pm Welcome to the forum. I think most here would tell you to plan for your and your wife’s retirement first then help your kids pay for college second.

I’d start with what you expect your annual living expenses will be before taxes in retirement at age X.

Then I’d subtract your pension (is it cola adjusted?)

Then I’d subtract what you and your wife will get from SS.

The remainder is what you will need from your retirement funds to sustain your life and not be a burden to your kids.

Let’s say that remainder is 50K a year. Using a 4% withdrawal rate that would mean you will need to save 2.0M in retirement.

A spread sheet or piece of palpate with a column fir each year for you from age 50-70 would do the trick estimating income and major expenses like college / retirement needs.
Thanks for the response!

I did generate a spreadsheet similar to what you described showing my pension payout and estimated expenses. Based on that, in 10 years when all three kids are done with college, I see no reason why we'd need anything beyond what my pension will provide (at that point 80% of my top 5 salaries with some limited COLA through the years). At that point, we'd have no kid expenses, a paid-off house regardless of what we do now, no additional debt, and we don't live lavishly. We likely wouldn't need to draw SS and Roth distributions any time soon as that money would just be a bonus. So, I don't think we need to use our excess liquidity as an additional retirement vehicle.
What survivor benefit from your pension will your wife receive if you predecease her?

How will her expenses change in that scenario?

Unfortunately, I know too many seemingly healthy people who developed an illness/condition that killed them in their mid-50’s through their early 70’s to ignore that possibility in our financial planning.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
avidelta
Posts: 34
Joined: Tue Aug 16, 2022 10:02 am

Re: Retirement/College Expense Plan

Post by avidelta »

delamer wrote: Wed Aug 17, 2022 11:25 am
avidelta wrote: Wed Aug 17, 2022 10:31 am
Parkinglotracer wrote: Tue Aug 16, 2022 8:42 pm Welcome to the forum. I think most here would tell you to plan for your and your wife’s retirement first then help your kids pay for college second.

I’d start with what you expect your annual living expenses will be before taxes in retirement at age X.

Then I’d subtract your pension (is it cola adjusted?)

Then I’d subtract what you and your wife will get from SS.

The remainder is what you will need from your retirement funds to sustain your life and not be a burden to your kids.

Let’s say that remainder is 50K a year. Using a 4% withdrawal rate that would mean you will need to save 2.0M in retirement.

A spread sheet or piece of palpate with a column fir each year for you from age 50-70 would do the trick estimating income and major expenses like college / retirement needs.
Thanks for the response!

I did generate a spreadsheet similar to what you described showing my pension payout and estimated expenses. Based on that, in 10 years when all three kids are done with college, I see no reason why we'd need anything beyond what my pension will provide (at that point 80% of my top 5 salaries with some limited COLA through the years). At that point, we'd have no kid expenses, a paid-off house regardless of what we do now, no additional debt, and we don't live lavishly. We likely wouldn't need to draw SS and Roth distributions any time soon as that money would just be a bonus. So, I don't think we need to use our excess liquidity as an additional retirement vehicle.
What survivor benefit from your pension will your wife receive if you predecease her?

How will her expenses change in that scenario?

Unfortunately, I know too many seemingly healthy people who developed an illness/condition that killed them in their mid-50’s through their early 70’s to ignore that possibility in our financial planning.
Good questions.

At retirement, I can select from a number pension options. Included in my calculation above is that once I start drawing on it, my wife would receive 50% of my monthly pension for life upon my passing for a reduced benefit. 75% is also an option. The negative is if I die before I start drawing in which case she would only get the balance of my contributions/6% employer-match and my life insurance (5x my salary). If that occurs, she would likely be setup enough to live decently--albeit at a slightly lower standard. Additionally, it would be while we're still relatively young (younger than 60), so she'd likely go back to work or remarry as well. This nuance is the reason why I'd want to start drawing on my pension sooner rather than later once it makes sense to do so.
invest4
Posts: 1905
Joined: Wed Apr 24, 2019 2:19 am

Re: Retirement/College Expense Planning

Post by invest4 »

avidelta wrote: Tue Aug 16, 2022 10:07 am However, I’m struggling with pulling the trigger on this as college costs are just so expensive...
Costs are often a choice which aligns with your expectations about what is an acceptable education for your children. For example, some people think it is important their children have the "college experience" and live on campus...which may indeed be very expensive.

What we are doing:

* 2 years community college

* 2 years state university

* Living at home the entire time

I believe you can readily afford this setup if you chose to do so.


Some additional thoughts:

* You seem to value having liquidity...so why would you bother with giving up the benefit of your relatively small mortgage with low interest rate? Of course, you can wipe it out and use freed up cash as you suggested...just depends on how you want to manage it.

* Does your state provide any tax benefits for investing in a 529 account? You may want to consider whether or not it could be worthwhile for the 2nd and / or 3rd kid.

avidelta wrote: Tue Aug 16, 2022 10:07 am I do have concerns about inflation impacting my pension value and wonder whether I should focus more on investment for retirement.
* The information you provided about your overall portfolio is somewhat limited, but by appearances seemed to be on a good track. For example, I assumed some reasonable COLA for your pension. However, your comment is a reminder that we do not have a full picture.

Best wishes.
Topic Author
avidelta
Posts: 34
Joined: Tue Aug 16, 2022 10:02 am

Re: Retirement/College Expense Planning

Post by avidelta »

invest4 wrote: Wed Aug 17, 2022 12:04 pm
avidelta wrote: Tue Aug 16, 2022 10:07 am However, I’m struggling with pulling the trigger on this as college costs are just so expensive...
Costs are often a choice which aligns with your expectations about what is an acceptable education for your children. For example, some people think it is important their children have the "college experience" and live on campus...which may indeed be very expensive.

What we are doing:

* 2 years community college

* 2 years state university

* Living at home the entire time

I believe you can readily afford this setup if you chose to do so.


Some additional thoughts:

* You seem to value having liquidity...so why would you bother with giving up the benefit of your relatively small mortgage with low interest rate? Of course, you can wipe it out and use freed up cash as you suggested...just depends on how you want to manage it.

* Does your state provide any tax benefits for investing in a 529 account? You may want to consider whether or not it could be worthwhile for the 2nd and / or 3rd kid.

avidelta wrote: Tue Aug 16, 2022 10:07 am I do have concerns about inflation impacting my pension value and wonder whether I should focus more on investment for retirement.
* The information you provided about your overall portfolio is somewhat limited, but by appearances seemed to be on a good track. For example, I assumed some reasonable COLA for your pension. However, your comment is a reminder that we do not have a full picture.

Best wishes.
For us, college is unique for each one of our kids. #1 has a relatively specialized major and is attending 4 years of an out-of-town university. She has some merit and scholarships that help but it's still a load. We think she's the most expensive. #2 will likely attend CC and live at home for 2 years and then transfer to a 4 year university (probably out of town). The jury is still out on #3 but she will likely have lots of options because of her academics.

The 529 is something I hadn't really thought about recently as my kids are older but I guess it's not too late to take advantage of tax free gains, particularly for the youngest who still has 5 years left.
Parkinglotracer
Posts: 3944
Joined: Fri Dec 20, 2019 2:49 am
Location: Upstate NY

Re: Retirement/College Expense Planning

Post by Parkinglotracer »

avidelta wrote: Wed Aug 17, 2022 12:56 pm
invest4 wrote: Wed Aug 17, 2022 12:04 pm
avidelta wrote: Tue Aug 16, 2022 10:07 am However, I’m struggling with pulling the trigger on this as college costs are just so expensive...
Costs are often a choice which aligns with your expectations about what is an acceptable education for your children. For example, some people think it is important their children have the "college experience" and live on campus...which may indeed be very expensive.

What we are doing:

* 2 years community college

* 2 years state university

* Living at home the entire time

I believe you can readily afford this setup if you chose to do so.


Some additional thoughts:

* You seem to value having liquidity...so why would you bother with giving up the benefit of your relatively small mortgage with low interest rate? Of course, you can wipe it out and use freed up cash as you suggested...just depends on how you want to manage it.

* Does your state provide any tax benefits for investing in a 529 account? You may want to consider whether or not it could be worthwhile for the 2nd and / or 3rd kid.

avidelta wrote: Tue Aug 16, 2022 10:07 am I do have concerns about inflation impacting my pension value and wonder whether I should focus more on investment for retirement.
* The information you provided about your overall portfolio is somewhat limited, but by appearances seemed to be on a good track. For example, I assumed some reasonable COLA for your pension. However, your comment is a reminder that we do not have a full picture.

Best wishes.
For us, college is unique for each one of our kids. #1 has a relatively specialized major and is attending 4 years of an out-of-town university. She has some merit and scholarships that help but it's still a load. We think she's the most expensive. #2 will likely attend CC and live at home for 2 years and then transfer to a 4 year university (probably out of town). The jury is still out on #3 but she will likely have lots of options because of her academics.

The 529 is something I hadn't really thought about recently as my kids are older but I guess it's not too late to take advantage of tax free gains, particularly for the youngest who still has 5 years left.

In NY they give you a credit off your state income tax for contributions (10K i think a year) to 529 plans. $ Only has to be in there 1 day to get the credit if I remember right. Other states may do similar deals.

I attended a service academy (got paid to do it) and got an engineering degree and learned to fly for a career. If there is an inclination to serve many ROTC / National guard units will pay for schooling in exchange for college tuition. I realize This is not for everyone but it beat working for a living.
Topic Author
avidelta
Posts: 34
Joined: Tue Aug 16, 2022 10:02 am

Re: Retirement/College Expense Planning

Post by avidelta »

Parkinglotracer wrote: Wed Aug 17, 2022 3:41 pm
avidelta wrote: Wed Aug 17, 2022 12:56 pm
invest4 wrote: Wed Aug 17, 2022 12:04 pm
avidelta wrote: Tue Aug 16, 2022 10:07 am However, I’m struggling with pulling the trigger on this as college costs are just so expensive...
Costs are often a choice which aligns with your expectations about what is an acceptable education for your children. For example, some people think it is important their children have the "college experience" and live on campus...which may indeed be very expensive.

What we are doing:

* 2 years community college

* 2 years state university

* Living at home the entire time

I believe you can readily afford this setup if you chose to do so.


Some additional thoughts:

* You seem to value having liquidity...so why would you bother with giving up the benefit of your relatively small mortgage with low interest rate? Of course, you can wipe it out and use freed up cash as you suggested...just depends on how you want to manage it.

* Does your state provide any tax benefits for investing in a 529 account? You may want to consider whether or not it could be worthwhile for the 2nd and / or 3rd kid.

avidelta wrote: Tue Aug 16, 2022 10:07 am I do have concerns about inflation impacting my pension value and wonder whether I should focus more on investment for retirement.
* The information you provided about your overall portfolio is somewhat limited, but by appearances seemed to be on a good track. For example, I assumed some reasonable COLA for your pension. However, your comment is a reminder that we do not have a full picture.

Best wishes.
For us, college is unique for each one of our kids. #1 has a relatively specialized major and is attending 4 years of an out-of-town university. She has some merit and scholarships that help but it's still a load. We think she's the most expensive. #2 will likely attend CC and live at home for 2 years and then transfer to a 4 year university (probably out of town). The jury is still out on #3 but she will likely have lots of options because of her academics.

The 529 is something I hadn't really thought about recently as my kids are older but I guess it's not too late to take advantage of tax free gains, particularly for the youngest who still has 5 years left.

In NY they give you a credit off your state income tax for contributions (10K i think a year) to 529 plans. $ Only has to be in there 1 day to get the credit if I remember right. Other states may do similar deals.

I attended a service academy (got paid to do it) and got an engineering degree and learned to fly for a career. If there is an inclination to serve many ROTC / National guard units will pay for schooling in exchange for college tuition. I realize This is not for everyone but it beat working for a living.
I'm in TX so we don't have state income tax. Also, my original concern about inflation impacting my pension in future years is just based on uncertainty. The state does COLA adjustments for the pension plan but they have to be approved by politicians and I doubt they align with actual inflation.
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