Greetings, Quentin
In our early forties, we are a married couple.
Together, our gross salaries as teachers total $210,000. We invest in our HSA and max out our Roth IRAs annually. We haven’t yet compensated ourselves, but we have kept thorough records because our medical costs have been small thus far.
We have $96,000 in the HSA and $300,000 in our IRAs, the majority of which are Roth. Our only debt is a tiny mortgage, and we also have $150,000 in a high-yield savings account for emergencies and future house improvements.
When we retire, we’ll both get pensions. If we retire at age 55, we will each receive roughly 50% of our wages based on our years of service; this will progressively increase to a maximum of 75% by age 63. Additionally, one of us will be eligible for a little Social Security payout.
Here’s where we diverge: in order to increase retirement savings and possibly retire early, one of us wants to begin making contributions to a 403(b). The other believes that since we don’t currently have any college funds, we should begin saving for the schooling of our three children, who are ages 10, 12, and 14.
Are we headed toward retirement? Should we instead concentrate on saving for college? And is it still feasible for kids to pay for their own college education, as we did in the early 2000s? Are ‘them’ or ‘we’ at fault?
Happily Married !!
Greetings, Married
Will you actually appreciate using all of this money for your retirement after this talk? I doubt it. The secret has been revealed. The secret has been revealed. In ten or more years, the children will be leaving the house. The moment to have this discussion is now.
If you save this money for retirement and expect your kids to cover their own college tuition, you’re not a horrible parent. According to what you say, you can afford to contribute to their education expenses, therefore considering your conversation, that would be a good course of action.
The amount of physical, mental, and emotional energy required to teach five days a week during the school year is something I never question or undervalue. Even if many teachers take advantage of those summer vacations to get extra money, you deserve every single one of them.
Having said that, you have a sizable and secure retirement planned and are reasonably well paid. 50% of your combined pay would be $105,000 in today’s dollars if you both retired at age 55, or more like $135,000 to $157,500 if you worked until your 60s.
If all else is equal, you may have up to $1.4 million after 15 years if you kept making contributions to your investments.
You will have worked hard for a comfortable and, let’s hope, joyful retirement, especially if one spouse is also expecting a Social Security benefit and your house is hopefully paid off by then. You can afford to set aside money for these 529 accounts in the interim.
Your HSAs and Roths total almost $400,000. Assuming no significant, protracted downturns and without taking inflation into account, you could have $1.4 million after 15 years if you contributed $7,000 annually to the Roths and the maximum of $8,300 for family coverage to the HSA.
Regarding the 403(b), you have every right to pursue a hybrid retirement plan. You might significantly lower your taxes with a standard 403(b), which is accessible to public school teachers and workers at tax-exempt institutions like hospitals and registered charities.
Every purchase, be it a new car, a trip, or a college present, involves a trade-off between saving for retirement and living life to the fullest while you are still healthy, which includes ensuring your kids receive an education.
Each child would have an advantage if they contributed $15,000 annually to 529 accounts. The youngest child (10) could have $49.500, the middle child (12) could have $35,000, and the oldest (14) has the smallest runway before college and could end up with up to $22,000.
Review this discussion.
Review your finances with your spouse and decide how much you both feel comfortable donating to the 529 plans. It would be a wonderful present for each of your kids as they start their college studies.
On the Free Application for Federal Student Aid (FAFSA), parent-owned 529s are evaluated as a parental asset with minimal weight. Compared to student-owned assets, it is a better approach to save for education because a maximum of 5.64% of the account is anticipated to go toward college.
Although 529 plan contributions are not deductible on your federal income tax return, over 30 states do provide a state income tax credit or deduction for 529 contributions, which, depending on your contributions and tax brackets, could drastically reduce your state tax liability.
Over the past 20 years, the average cost of attending college has more than doubled; according to Education Data, the compound annual increase rate of tuition costs is 4%. If living on campus, the average annual cost of an in-state public four-year college is $27,146.
“The average cost of attendance for a student living on campus at an in-state public four-year institution is $27,146 per year or $108,584 over four years,” according to the organization. “Out-of-state students pay $45,708 per year or $182,832 over four years.”
Teachers who teach in public schools are eligible for Public Service Loan Forgiveness, which allows them to have their student loans forgiven. They deserve a Nobel Prize for their ability to navigate bureaucracy in a system that has so many unresolved issues that it may run out of spanners.
You will have to worry about them less as they get more prosperous and self-sufficient.
A person may be abruptly disqualified for any small change to their employment or the servicer. The worst part is that a lot of people have worked hard for ten years in a public service position before realizing they violated a rule. The current amount of student debt is $1.7 trillion.
Furthermore, this study, which was published by Washington University’s Center for Social Development in St. Louis, shows that the benefits of saving money for college might extend well beyond its monetary worth.
It was discovered that “designating small amounts of money for school,” can raise the likelihood that students from different income groups will ever enroll in college. In other words, having a 529 account in the first place has cumulative, possibly immeasurable psychological repercussions.
Don’t forget to set aside a portion of the $150,000 as an emergency fund. In the end, you will be able to enjoy the results of all your hard work as a teacher and worry less about them as they become more successful and independent.
A small amount would go a long way toward lubricating the wheels.
Previous Quentin Fottrell columns:
My age is 67. My 48-year-old wife lacks financial literacy. How can I teach her how to handle our finances? I won’t be here forever, after all.
“He is getting more and more irate”: My disturbed kid resides with me. How can I make sure he has enough money when I pass away?
“I take care of my mother”: My mom, who is ninety-three, added me to her retirement funds. Will she be eligible for Medicaid?
