<p>Beliavsky–problem is, most people are sorely underfunded for retirement and while it LOOKS like they have a lot in their accounts, tapping those accounts for $100,000 makes it even worse. General rule of thumb–$1,000,000 will give you an annual income of about $50,000 for 20 years. That is assuming you have your accounts well vested in pre/post tax funds and all of those dollars are not in pre-tax accounts like a 401K or IRA. If so, that same $1,000, 000 will give you an annual income of about $35,000 for 20 years. So, how long are you going to live and can you survive off of $35,000–yes your house is paid but what about your health insurance???</p>
<p>There is no “one” answer to the OP’s question. Each family has to decide individually how much can be contributed. But in general I would say that people should have their retirement planning in place before they start figuring out college contributions. Perhaps if you were a 21 or 22 year old when your child was born you might not be as concerned since you are still twenty years from retirement, but once you hit your fifties or even early sixties…as some parents are when the kids head off…you are much more limited in being able to recover retirement dollars. GOOD retirement planning will enable families to make wise decisions. Once retirement planning is completed only then can a family made the right decision. It doesn’t “matter” what happens in other countries.</p>
<p>With the tuition cost we are paying, we have to forgo retirement. :)</p>
<p>Ironic that if the parents diligently save for their kids college education, they get penalized for it big time come financial aid award time…</p>
<p>Heck, some people are in their late 60s and beyond when their kids are in college and some retirements are extremely short. H retired on 12/31–he is now an emergency hire and starts back 1/28! The closer you are to retirement, the less time you have to save for it!</p>
<p>SteveMA, had never seen the $1M will get you $50K/20 yrs, minus taxes before, but I guess that makes sense. One big problem is whether investments can keep pace with inflation so that whatever is withdrawn remains $50K in value over the years.</p>
<p>Not having fixed pensions with COLAs is a huge worry for many people and a reason that there are many people who do not retire as long as they can continue to hang onto their jobs. I know quite a few people who are in their late 70s and above who are still working. When they work, they don’t have to draw as heavily on their retirement funds (still have to make mandatory minimum distributions on IRAs if >70.5 years). Some of us have extreme longeivity in our genes (my great uncle died at about 107 & dad is going strong at 88).</p>
<p>What is “affordable” for a family or individual is highly variable. 2-3% of total savings/year would not have been enough to finance our kids’ college tuition & expenses (where they actually attended), but there are over 4000 colleges in the US, of all range of cost and I’m sure they may have been somewhere that would have been in the 2-3% range.</p>
<p>HImom–inflation is the kicker. Right now things are good because inflation is low/nothing really but if you are in your mid 50’s and older and your bank accounts don’t look like the above or a multiple of above to where you want your income to be in retirement, better get cracking on savings. Don’t assume your costs go down in retirement. Sure, you save money on gas but will you travel more. How about grandkids? What about weddings? You can pretty much swap out your house payment for your medical insurance/costs in retirement so that doesn’t really go away unless you get an outstanding retirement package from your employer. Most people find they spend MORE money their first 10 years of retirement then they did their last 10 years working. As you get older you tend to slow down so you don’t spend as much but people are shocked when they see how little they can take off the top of their funds to sustain them through retirement. </p>
<p>You also have to figure you are probably retired for as many years as you worked now, or close to it. It used to be that you retired at 65 and were not alive at 75, not people are living well into their 90’s and 100’s. That’s a lot of years. General rule of thumb is that 5% off the top should sustain you to age 95 if you retire at 65. It’s how much that 5% is that determines how you get to spend your retirement years.</p>
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<p>And saving for college after age 50 doesn’t work either…saving from early on and hoping for a stock bull market run sometime during your saving period works. But this past decade hasn’t been too kind to many…</p>
<p>The 80s were an aberration. The 70s were recession bouncers with super high interest rates (my girlfriend bought a condo and “lock in” happily at 20%) into the early 80s. The 90s were up and down. Many parents of college kids never knew what it can be like because they came of employment age in the 80s. Even the market crash in 1987 was a blip on the crazy expansion of the market in the 80s. I was working and had been working for a few years when we had an office bet when the Dow would hit 3,000 because it was unheard of.</p>
<p>Ok we have three kids and our oldest will start college in the fall. We are not planning on using any retirement savings to pay for college. We are assuming my husband will be not lose his job. We have saved money to pay for some of our 3 kids college expenses but we do not want to use it on the 1st kid just in case something happens with my husbands job. So we looked at our budget and figured out how much we can afford to pay per year. That’s the number we gave my son and then told him to try and find something under that amount.</p>
<p>If it’s over our amount then he will need to get a loan or job to make up the difference and we will NOT co-sign any student loans.</p>
<p>Thanks, SteveMA, we are a rare and lucky couple, as H does have a defined benefit pension with COLA that will be for both our lifetimes, as well as great group health insurance paid 66-75% by employer for the rest of our lives. We also have significant savings and other assets, so we are in very good financial shape.</p>
<p>We did always tell S that we really wanted him to attend a U that would give him significant merit aid. We figured it was likely that he could find such a U because he was a NMF. The thing that we hadn’t really thought out was that D decided she also wanted to attend the same U that S did. While she was able to get admitted (which was actually somewhat of a surprise), she was not offered ANY money at that U and we opted to pay full-freight for her. A similar thing happened for one of our friends. Their S got even better merit award than our S at the same very expensive private U but their D also did not receive ANY funding. Like us, they made the choice to send their D to that U and pay full-freight for her.</p>
<p>I know other families have made different rules–we will pay X amount and you will pay the rest via earnings, loans, etc. or you won’t go, etc., but we never made that rule with our kids and neither did our friends. If it would have jeopardized our financial security, we would have had to make such a rule and stick with it, but we are fortunate that FOR US, it has worked out. Each family has to figure out what will work for them and stick with it.</p>
<p>To us, a very important priority is NOT to be a burden to our kids and not to outlive our assets and resources. H & I could be fully retired from December 2012 and not earn another penny in wages and should still be fine financially, never being a financial burden to our kids.</p>
<p>Neither of the kids grumbled or even mentioned the difference in the amount we paid toward each of their educations–we allowed both to get an education at a great U. The kids savings’ accounts (started when they were born) were both turned over to them intact when they turned 18. Those accounts are not equal either, as S’s is much larger than D’s (I guess the first-born gets more gifts and he’s always been a great saver, plus we invested some of his money in state of Hawaii zero coupon bonds @ 9% when he was born?) We haven’t figured out whether to equalize this or not, as we will have to pay a lot more of D’s expenses than we did for S (he was hired by Feb of his SR year–D will probably not be hired as soon due to the volatility of her field).</p>
<p>I started saving before the children were born. It’s difficult to decide how much to spend because that depends on what the child would want to do or what career option he/she is geared towards. 2-3% is on the low side if you ask me but I wouldn’t advise using your pension money to fund their education unless you are totally out of options. So for those of us still actively working, we must start saving our pennies now.</p>
<p>At current prices $1,000,000 going into good quality rentable real estate is gonna give you over $50,000 a year, keep up with inflation, and still be there after 20 years (for your next 20 years or inheritance, who knows).</p>
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<li>and MAY protect you against a not-impossible catastrophic hyperinflation which is one feasible way to get rid of the national debt.</li>
</ul>
<p>Real estate IS an option for investment but what is “good quality” real estate and whether it will hold it’s value and how liquid it will be when assets are needed are all issues that need to be considered. It is not very diverse if you put everything you have into real estate. Current prices of real estate vary A LOT in different areas. In HI, $1M unfortunately doesn’t necessarily buy you as much as you might think. Many of the residential homes in nice (but not fabulous) neighborhoods that are 50+ years old, single wall construction and rent for only about $2K/month or perhaps slightly more go for about $1M. This is considerably below the $50K/year and doesn’t take into account maintenance/repairs/insurance/taxes, etc. It also doesn’t take into account the fluctuations in value that can occur and any maintenance fees, if it is in a gated community.</p>
<p>sorghum–net or gross? There are a lot of costs associated with a rental too. $1,000,000 rental here would NOT give you anywhere near $50,000 in income, especially NET income.</p>
<p>All,</p>
<p>Sorry for not being able to check the thread and thanks for all your advice.</p>
<p>DS3 does have a “full tuition” from our state school and he is after the other half now. He applied some reach schools too. If we have to pay the room and board for him to go to the state school, perhaps we may be able to pay some extra for his other options. We did discuss our share of contribution with him. I just wondered how would kids think about parents’ contribution. </p>
<p>We have saved mostly in retirement accounts. The non-retirement fund becomes a smaller portion. Hence, I am trying to assess the contribution based upon a % of the total savings. I can save less in the tax deferred account for the next few years. However, my tax may go up. I have not calculated if it is better to take a HELOC if I need to. </p>
<p>I will read more carefully when I go home this evening.</p>
<p>" 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."</p>
<p>It depends is going to depend on your ages, how fully funded you plan to be, and the other uses for the non-retirement funds.</p>
<p>Assuming that you are mid-late 40’s and have been doing ok with your 401K saving, I’d be ok doing $10K/yr.</p>
<p>We were never able to save any money toward college expenses when the kids were younger. However, we always lived on one income. When the first kid started college, I started a part-time job and that covers our EFC. Next year, we have will have 2 in college. I am trying to find a full-time job to cover college expenses. If not, then kids will have to fund the difference between our contribution and the cost. S2 is hoping for generous merit awards.</p>
<p>It is a relatively low time for property prices, and there is good value out there. Of course you wouldn’t put your only million bucks into property in your own local area. I think if you are willing to buy anywhere in the US, and let someone manage it for you, then yes you definitely can get more than 5%. Where? North Carolina, Dallas, Denver, parts of Ohio? Plenty possibilities. Of course it takes more work to set it up, and that is the pain of pathetically low interest rates on cash deposits, it forces you to do some work or you can’t live off your money.</p>
<p>Sorghum, there is often good value SOMEWHERE, if the person is able to look and willing to handle the complexities of being an absentee landlord. Alternatively, one could invest in an REIT or other security that is based on real estate to keep more liquidity and still try to get at least a 5% return annually. Real estate is an asset that requires care, some oversight, and is pretty illiquid. It’s value can go up OR down and can create liabilities. </p>
<p>People can also move to countries that are less expensive and do a host of other things but we are getting pretty far from the original question posed by OP.</p>
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<p>The amount you should fund will be determined by the “Expected Family Contribution” for the kind of college your kid will attend. For a full-pay student, that might range from $10K or less to commute to a directional state university, to $25K for full tuition, room and board at a public flagship, all the way up to nearly $60K for full tr&b at a selective private school. You will be expected to fund anywhere from zero to 100% of these costs, depending on your determined ability to pay and the school’s ability to provide financial aid.</p>
<p>2-3% of total savings might be reasonable … if that figure (plus contributions from current income, plus the expected student contribution) will cover your Expected Family Contribution.</p>
<p>For a typical middle class family with the average number of children and no unusual health problems, I think a reasonable goal when your kids are born would be to save & invest enough to cover the full cost of attendance at your own public flagship. According to bankrate.com’s college calculator, assuming a 5% rate of return for 18 years and current costs of $20K/year, that would require you to save/invest about $580 per month per child.</p>
<p>In the state of Washington, median monthly income for a family of 4 is $6885. So $580 would be a little more than 8% of income. For many young families, it would be a big challenge to set aside that much per month per kid.</p>