<p>There is another option, NYMomof2, that involves reducing SS payouts to track receipts. I'm guessing that they will continue to push up the age at which payments start, increase the penalties for starting early and eventually reduce or eliminate payments to anyone who has been able to save some money on their own.</p>
<p>Yes, BassDad, I imagine that a means test is in the cards, and they've already increased retirement age for current retirees. Those are not unreasonable changes if SS is viewed as an insurance policy against destitution in old age, or for families of workers who die prematurely.
It's hard to imagine the burden for current government overspending dumped entirely on the shoulders of younger workers.</p>
<p>"average rate of return on stocks over the last hundred or so years has been 8 - 10 %"</p>
<p>For the last 2 or 3 thousand years, the risk-free, after inflation rate of return has been about 2.75-3%. If you are getting more than that in a given year, you were cyclicly lucky, took risks, or were smarter than the market. Don't count on that continuing.</p>
<p>But, note that this appoach to calculation has inflation protection built-in. Just withdraw 3% (oh, go for it -- 4%) of the current balance each year (but better would be to use a multi-year smoothed balance). Forever.</p>
<p>Of course, if we are talking about retirement income, forever is not the goal, just life expectancy (plus a little margin for worrywarts and those whose grandmothers lived to 100). So, compute the annuity amount that will deplete principal over the years.</p>
<p>The quotation that you are responding to is obviously based on putting money at risk, i.e., in the stock market. But of course as you well understand, that long-run average is no guarantee at all. And so people need to understand the risk and also engage in some worst-case planning. </p>
<p>Given my age, my "worst" case would leave me only with Social Security which, however, is likely to be COL adjusted though perhaps to an index that is less favorable in future than it is now. As for the rest of my retirement fund (from which I would draw several times more money in retirement than from Social Security), I haven't yet decided how I will handle it -- whether in an inflation-adjusted annuity, real estate, stocks, or something else (no doubt a combination of these). For now, I'm "rolling the dice" with 60% of it in stocks. But I realize it's a gamble, and as I approach retirement age I am shifting funds in a more conservative direction which, however, limits both the upside and the downside potential for growth.</p>
<p>Well, if you are getting 8-10% per year, you can withdraw 4% and have your principal increase, thus providing inflation protection and income forever.</p>
<p>If you withdraw at 4% while earning 3%, your withdrawals will slowly decrease as your principal drains. Your money will still last far longer than you do, but you will be getting a double hit each year: smaller withdrawals and higher cost of living.</p>
<p>If instead, you withdraw 4% the first year while earning 3% and allowing yourself an annual 3% cost of living increase (year one = 4% withdrawal, year two = 3% more dollars out than year one, year three = 3% more dollars out than year two, etc...), your will run out of money in a little over 26 years. That may be good enough and then again it may not.</p>
<p>But as the ads sometimes say, "your results may be different." It's entirely plausible that your stock funds may decline 10+% per year for several years in a row, while inflation jumps to 6-8%. And so people need to think in terms of various scenarios and also not be entirely exposed to U.S. stock funds but instead balance them in various ways to reduce the downside risk.</p>
<p>Nothing comes without sacrifice. We currently have two daughters, one year apart, each attending a highly ranked east coast college. We live in CA which probably has one of the highest cost of living rates in the nation. We also have highly ranked state universities. Our daughters were told at a young age that if they worked hard then we would find a way to send them to the colleges of their choice. Good news is they worked hard. Bad news is, we have to pay. Both husband and I work, but make less than 160K, we also own a home with quite a bit of equity due to the crazy real estate market here in CA. First year, first daughter our EFC was 32000.00. so we went to the equity line. Thought the second year would be better with two in college but we were wrong EFC is 52000.00 for the two of them. Back to the equity well and I suppose we will continue to draw on our equity for the next 3 years. Yes, we are quite anxious about it but we feel we made a deal and now we must live with it. Yes, it would have been nice if they chose the colleges that offered "HUGE" merit money to them or UCSD which was on the top of one of our daughters list but we feel blessed that they worked hard and got accepted to the schools of their choice. Yes, it is a sacrifice, but seeing them so happy and transforming themselves into intelligent, confident, and well educated women is worth it to us.</p>
<p>Just filed FAFSA for 2006/07 and EFC is $27,400 based on a $79 AGI. This is 36%! We are first time college parents and as promised by so many, we are in shock! I guess we should have purchased all of our "wish list" items over the past 20 years of marriage instead of being prudent savers. I have researched some info on the "professional judgement" authority that college financial aid officers have following the FAFSA application process. Is anyone familiar with the cost of private tuition for siblings as a qualifying event AND/OR the purchase of a computer (up to $1500?). And, would $3000 in private school tuition plus a $1500 computer expense do anything to reduce a $27,400 EFC anyway? As a new college parent, I don't want to miss out on any possible opportunities that may reduce our EFC. Additionally, our reported savings include Hurricane Katrina insurance payments which we are required to use to pay for remaining house repairs, not college!</p>
<p>If I interpret your second sentence correctly, you were prudent savers, and thus (apart from the Hurricane insurance) you set aside money to pay for college and this money is part of the assets that are being counted in figuring your EFC. What's so unusual about that? I know you may be in shock -- college is so expensive -- but nobody said your EFC should be based only on your AGI. While certainly you'd like to increase the financial aid from the colleges, isn't it true that you have saved for this eventuality? (Did you save in your name or the kids' names?)</p>
<p>Most of the savings are in our name, but over the years, she has accumulated $8,300 in her name from her grandparents. I now realize that if grandparents wish to contribute to college expenses, they should contribute to their student loan repayment after college graduation instead of putting money in their name prior to and during their college years. Is this logical thinking as it pertains to FAFSA?</p>
<p>Actually, the most efficient way for the grandparents to contribute is for them to pay the tuition checks directly while your daughter is in college. Second most would be for them to pay off loans after college. If they want to give money directly prior to college, however, it's better (with respect to EFC) for them to give it to you (and tell you it's for your kids) than for them to give it to the kids.</p>
<p>That makes a lot of sense. As for the next step following FAFSA completion, do I wait to hear from the colleges regarding the financial aid package or is it wise to contact the financial aid office of her top choice now to let them know of her interest? It is a private university at a cost of $35,000 per year including room and board. She will most likely receive $14,000 in merit scholarship and possibly another thousand or so for a department-specific scholarship. It would be nice to know now if her top choice is reasonably attainable so that if not, she can start seriously considering state school options.</p>
<p>I think if you have some special circumstance with regard to Hurricane Katrina it would be wise to let the financial aid office(s) know as soon as you get the official FAFSA EFC estimate.</p>
<p>SouthernStar, I would most definitely contact the top choice university now. The Katrina payment should not count, and even if they have to count it now, it shouldn't count for next year after the repairs are done. Do you have any idea when your repairs will be completed? Perhaps they will let you amend your FA reward after that.
By the way, you are lucky that you have gotten your money - a lot of people haven't.</p>
<p>Yes, we are fortunate to have received the insurance payment as many friends and family members still haven't. I will explain our situation to the FAO to see what impact it may have on the FAFSA.</p>
<p>Is 35,000 the cost of attendance (COA) or just tuition,fees room and board?</p>
<p>$35,000 is their published tuition, fees, room and board. I'm not sure what they consider in their COA. Also, has anyone found an online EFC calculator that is fairly accurate, meaning that you compared the actual EFC to the calculated one and it was close? If so, can you please share the website? I tried collegeboard.com and finaid.org and one showed an EFC of $8,000 less than my actual EFC, and the other showed an EFC of $11,000 less than my actual EFC! One site says that the figure should be within $500, in general. Can the college FAO double check our FAFSA form to make sure there wasn't an error? Wishful thinking ;o)</p>
<p>SouthernStar</p>
<p>The CollegeBoard FAFSA EFC was exactly the same as our SAR EFC.</p>
<p>Are you sure there wasn't an error? $8K - $11K is a BIG difference! You can download your FAFSA/SAR and doublecheck the numbers...</p>