<p>Now that the application cycle is ending, I need to figure out how much should I fund the education for my youngest son. My wife and I were thinking about contributing 2-3% of our total saving including the retirement fund for each of the next four years. What is your opinion and advice? And, what would you do for your only son or daughter assuming that you are still working? Also, please assume that there is no need for the student to get a graduate degree.</p>
<p>My opinion is that your dollar contribution should have been decided BEFORE the application cycle. Contributing ANY of your retirement funds is foolish unless you are grossly overfunded in your retirement accounts–which most people are no where near that. Our kids had a dollar figure of what we would pay. They had to figure out the rest—and did.</p>
<p>My advice is to save specifically for college over a long period of time. That way, when the child is ready to start college there is a certain amount of money that is separate and earmarked for college. 2 - 3% of an unknown amount is an unknown amount, so I cannot comment on your plan, and I guess it is too late for you to implement my plan.</p>
<p>Steve is 100% correct. If you did not run numbers prior to the application cycle, then your son may not have an academic AND financial safety on his list. This is the number one problem on these boards come May. We see headlines all the time that say, “My kid got into his Ivy Dream School but we can’t afford it.” They are heartbreaking threads to read and the person that is hurt the most is the student that who felt that since you blessed the application, you therefore blessed the cost of the tuition. So at this point you should ask yourself, “What are we going to have to pay to keep that disaster from happening” followed by “Can we even do that?” Savings for retirement, vacations, what ever you want to save for, should always be seperate from college savings. Your son should 100% have been notified of that number, and should have applied accordingly.</p>
<p><strong>Cross posted with NJ</strong></p>
<p>^^exactly-our son applied to a lottery dream school. He knows full well that unless they come up with a surprising amount of aid he can’t go there. He had 9 other schools that come in at or below our target price that he is fine attending though.</p>
<p>I figure my children will apply for financial aid and I will pay the EFC. My estimate of what that should be was within about $1000. Of course, we have not gotten the actual individual school statements, but I think that is a good measure.</p>
<p>BTW, for the record, I have seen some wealthy people just throw money at their children with no expectations for those kids. Those are often kids who do not have much success. I think kids (who are generally actually adults when they go to college) should take some sort of accountability for paying for college.</p>
<p>I did make an exception. I said if the children were heavily involved in ECs and/or volunteer work, then I would try to chip in more.</p>
<p>Agree with others that the cost constraints should have been discussed before the application list was made, since what schools get put on or taken off the application list depends on their affordability.</p>
<p>“Apply and pray [for financial aid and scholarships]” can result in a bunch of acceptances in April which are all unaffordable. Then the student has to go to the default safety of community college and transfer to a four year school as a junior. (This is not necessarily a bad option, but can be a big let-down for a student who has to back into it, instead of planning all along to have it as the safety option.)</p>
<p>So, if you had a million dollars ($1,000,000) in the bank, 2-3% would mean putting $5000 to $7500 per year towards your child’s college education. I think if that was my situation, I would definitely use a larger percentage. But I am me and you are you.</p>
<p>LBowie–you might want to try that math again…:D. He said each year–so that could be 20,000-30,000/year</p>
<p>Whoops, you are right. That is a better amount! 
I thought he meant 2-3% total.</p>
<p>Our kids know very early how much we will pay per year because it’s in their 529s. They would also be full pay wherever they went. S1 and D1 earned merit scholarships to cover the difference. All spending money must be earned by them.</p>
<p>They are very grateful to graduate with no debt.</p>
<p>I also agree that you should not take money out of retirement funds to put toward education.</p>
<p>I don’t think you should take anything from your retirement to pay for college. </p>
<p>So far, we’ve been able to pay for our older daughter as she goes through our cheapest in-state university and we receive no financial aid. We were able to do that by living well below our means and cutting back on any extras–no vacations, hardly ever eating out, no pro sporting events, no Starbucks, no theater events, etc. All things we can live without for several years (we have two kids so we’ll have 7 years of living frugally).</p>
<p>Our younger daughter is a HS senior and my husband worked for Hostess which closed in November so we are going to have difficulty with college costs next year since our kids will both be in college. Our younger daughter is applying for scholarships (and is in at her safety with a great merit scholarship) so the FA from the schools she’s accepted to will determine which school she attends. She knows that she cannot attend the expensive schools unless the FA make them affordable so while she might be a little sad, she understands the financial reality of paying for college.</p>
<p>I would/will pay only what we can afford. No scaling back on retirement…that honestly only helps our kids down the road. The next 10 years will be our highest earning potential, so we can’t scrimp on that. Husband is a civil servant and will have mandatory retirement at that time!</p>
<p>I thought that the EFC was a crazy number, but guess what? when push came to shove, we did it, and had money left over for next year. Coupons, cutting back on lots of extras, the kids working to pay for their extras, all help. We will continue to pay the EFC so that both girls graduate debt free before the 3rd one starts!</p>
<p>I think the girls helping out has made them more responsible and grateful for their education.</p>
<p>
You will see this advice many times … it will likely be close to the consensus … and I do not necessarily agree. I agree your retirement funds at retirement should not be compromised but that does not necessarily mean none should be taken out now. I have a master financial planning spreadsheet which I used to determine how much we could but away for college in advance and while the kids were in school. To me the goal is not to not touch the retirement funds now but instead … to see how much can be siphoned off for college and Mom3ToGo and I will be fine at the earliest time we’re likely to retire. For us we found we could divert a lot of money that would have gone to our retirement account to pay for college … because after our kids clear college with no mortgage and no college payments (after 24 years of college savings) we will be in position to make serious progress on our retirement plans. It’s true if something bad happens we could have to work longer … but it’s also true there is only one time frame for us to fund college … and for us everything was in play in the short-term as long as the long-term outcome looked OK.</p>
<p>Well, as a financial advisor who mostly works with clients near retirement (so, after kids are through college), I see the after-effects of various plans for paying for college. My advice is to maximize retirement savings in tax-deffered or tax-free accounts in preference to college savings if you can’t properly fund both as the kids are growing up. This puts compounding returns on your side over a long time-frame for retirement. Saving for retirement after age 50 doesn’t work - it doesn’t allow compounding to do enough AND it reduces your ability to invest more aggressively because your time frame is shorter.</p>
<p>IMO retirement for most can only be funded one way - saving and investing A LOT early and often. College costs on the other hand can be funded in several ways : Cash flow, especially if you’ve saved enough for retirement and can reduce/end 401K type contributions at the time. Less costly school. Merit aid and scholarships. Financial aid for some, as you wouldn’t have much in “counted” assets. Kids working and paying some. Loans. etc.</p>
<p>Most Americans without company pensions are way underfunding their retirements and college costs is one big roadblock causing this, as is spending, expensive homes, etc. My wife and I, with our oldest headed for college next year, are now able to end retirement contributions if we need to to use that cash flow for college costs - because we focused on retirement all along. IF we had extra it did go to 529 plans, but only in excess of what we felt would properly fund our retirement early, leaving us the flexibility at college time.</p>
<p>To the OP,
Like many others here, I would not touch retirement savings. Instead, I would cobble together an annual amount from other savings and also from current earnings. You should sit down and look at your monthly expenses and see where you might tighten your belt to gain some money that could go toward your son’s education. And it would be a great idea to include your son in these discussions. As a 61-year old parent of a college junior, I have now handled the finances of my mother (deceased), my mother-in-law (deceased) and my father (now in assisted living). It helped enormously that my mother began to talk with me about all her financial decisions when I was still in college. </p>
<p>Your own children will be stepping in at some point in your life to handle things, when you are no longer competent to make decisions on your own behalf. Here’s a teaching moment. Having the conversations together will also help your child think more objectively about acceptances to highly expensive reach schools offering no merit money.</p>
<p>Some of the most depressing posts I read are from students accepted to “dream schools” whose parents won’t or can’t pay. Unless they have been openly brought into these decisions, unless they know and understand the financial constraints their parents face, students can become resentful and bitter. Again – one of the most important things in life is to maintain strong family relationships.</p>
<p>Lots of people say “don’t touch retirement savings”. If the money is in a 401(k) and doing so triggers a tax penalty because the parent is below age 59.5, I agree. But taxes aside, money is fungible, so I think parents should look at their overall financial picture when deciding how much to contribute, not how much is in a bucket called “retirement savings”. </p>
<p>Around the world, but especially in Asian cultures, children have been considered a form of “retirement savings”. Some parents would consider the expected increase in earning power of their children when deciding how much to pay for college.</p>
<p>3togo - that’s it exactly! Don’t take from your retirement funds applies if they are underfunded, and you haven’t set them up to be able to take from them. A Roth IRA is actually one of the best tools for saving for higher education, because if you don’t use it for education, it’s already earmarked for retirement, and you don’t end up penalized for withdrawing it for something else. We won’t be dipping into retirement savings, but only because we had a different plan - rather than dump everything into the retirement accounts, we dumped into our mortgage, and paid it off. The result is no net change to our main budget - we will use a payment plan with the college, and convert the old mortgage payments to tuition payments instead.</p>
<p>Spending your future food, housing and medicine money for a kids college is lunacy. The kid can get a loan and has 50 years to pay it back.</p>
<p>Well, a lot depends on circumstances. We are fortunate that S got a significant merit award of 50% tuition for all 4 years + additional merit. That made his college something that we could actually fund out of current earnings, while paying off our home. D also wanted to attend same U as S and fortunately, by the time she was to start there, we were also able to pay her tuition & expenses, since our salaries had increased. (D did go to CC for 3 semesters & satisfied most of her foreign language requirement by teaching herself German and taking 12 weeks of at in-state flagship U, she also worked one summer & part-time during school.)</p>
<p>Taking money OUT of retirement can be dangerous, if there are penalties, if you may not stay employed as long as you expect (layoff, injury, cutbacks, disability). Much also depends on what assets you already have for your retirement. To us, a major goal is NOT to be a financial burden to our kids or loved ones and to have them graduate debt-free.</p>
<p>Only you & your financial advisor/accountant/CPA/bookkeeper can understand the big picture for you & your family. I would only urge you to discuss the matter with the student BEFORE acceptances come in and BE SURE your kiddo has at least one academic and financial safety among the apps that s/he LOVES and you can afford.</p>