Early Retirement

[Pointedstick]

I urge you not to make the mistake so many baby boomers have made, and in the process of sending their child to a top tier college, either destroyed their life savings, or else shackled themselves to half of their children's student loan debt.

The system that colleges use (required by the government, naturally)--the FAFSA--requires that you disclose all of your financial assets so that they can bleed you dry determine just how much you can pay. If full tuition is $50,000 a year (very common) and they look at your nice fat PP, they're gonna conclude that you can contribute $47,500 a year to your daughter's education and give her a merit/diversity/legacy/effort scholarship to make you feel better about it. If you don't feel like paying that much, then there are going to be $190,000 in student loans involved, with you and her sharing the burden. You'll have to co-sign since it's an unsecured loan, but they don't tell you that student loan debt basically stays with you until you die, undischargeable in bankruptcy (thanks congress x2).

Beating this insane system is totally possible, but it's its own bizarro world of madness and insanity. If you haven't started yet, you'd better start soon if your daughter is going to be attending in 2016.

It's so avoidable… I don't want anybody to fall into this trap the way I and all my college peers did.

[Tyler]

In my experience, a prestigious college is a great pride point and a nice help to get that first interview for an engineering job.  But your employer will forget your school after 2-3 months, and after 2-3 years your experience is far more important on a resume.  After 5 years or so, a hiring manager probably won't read down to your education anyway so the school is pretty irrelevant.  Either you're a good engineer or you're not, regardless of how much you paid for a diploma.

Understanding that system, a student from a no-name school with extensive internship/co-op experience in their desired field will very often be able to trump a raw inexperienced student from a prestigious school for interviews.  Throw in some basic networking and interpersonal skills, and it's no contest. 

Engineering grad students (specifically the ones who take the direct BS>MS route with no work experience) are actually frowned upon in some hiring circles as they're more expensive, demanding, and specialized than their undergraduate classmates.  And the ones who expect management responsibilities right out of school are generally team killers -- I personally avoid those completely. 

Now a Stanford or MIT grad with experience and initiative will no doubt be quite desirable.  But it's the person, not the school, that makes the largest difference. 

[barrett]

Thanks Tyler and PS for your input. PS, I am not going into this blind. My scheming plan has been in the works for years. No time to share the details right now but my wife and I are making it a priority to not come out the other end poor.

Sorry for helping to derail the thread. To bring it back around, a huge part of why we won't let ourselves get wiped out by funding our daughter's education is that we will be retiring (early!) around the time she graduates from college.

[RobJ]

I think college is a great way to get easy opportunities then if you would go without a college degree. I know for a fact here in Belgium that a degree ain't that special when you go into a field like marketing/business related. Out of my three years that I attended college I had five internships just because I managed to attend several small events that were organised by school (and I promise you that almost nobody of my class attended that) and a little bit of participation on my own by going to other events / meetup and just chat a bit. If people see potential in you and you can provide them value they will accept you quicker than just "another random student". That's why I would never send an internship email to the business but rather to the person you want to intern to itself.

Anyway I work on my own now and never really used my degree again. I didn't had the best score in my class but I managed to do use my time wisely.

[barrett]

Hey RobJ,

Thanks for weighing in on the college issue. It sounds like Belgium is like the US in one critical way in that attending college can really open up the first few doors. After that "What have you done lately?" becomes way more relevant. At least I think that sums up what Tyler and PS are saying. I don't think anyone is trying to talk me out of college for our daughter. They are just saying that we shouldn't blow our life savings in the process. Here in the US the cost of higher education has gone up so fast for so long that the total cost of the "top" schools is out of reach for anyone but the very wealthy.

But, as PS said, "Beating this insane system is totally possible, but it's its own bizarro world of madness and insanity." I've been moving our chess pieces around for several years so that we can work within the insane system, help our kid to get a good education, and come out the other end in good condition. Harry Browne's rule #2 is especially on my mind at this juncture and that is "Don’t assume you can replace your wealth." It seems so basic but when I talk to people about paying for their kids to go to college, many of them are planning to either figure it out later or work until they are 80.

Neither of those options fit into an early retirement scenario (I will not derail the thread. I will not derail the thread.)

[Tyler]

Well-considered choices of how to trade your money for lasting personal value are what ER is all about.  Just make sure the decision is your own.  Following social expectations gets you into major long-term financial trouble these days, and the presence of easy financing is a big warning sign.  This extends to many areas beyond college (housing, cars, ...

...and birthdays.)
https://www.youtube.com/watch?v=9nTSQAmNHTo

[Lowe]

An expensive college education could be worth it, depending on your daughter's personality.  18 year old people are not fully formed.  I don't think very many of them have the emotional maturity and experience to deal with difficult situations.

At a smaller, more expensive school the faculty and staff are more likely to hold your kid's hand.  That may be worth the price tag.  Not that I have any idea.

[Pointedstick]

An expensive college education could be worth it, depending on your daughter's personality.  18 year old people are not fully formed.  I don't think very many of them have the emotional maturity and experience to deal with difficult situations.

At a smaller, more expensive school the faculty and staff are more likely to hold your kid's hand.  That may be worth the price tag.  Not that I have any idea.

It depends on the school, not the price tag. The two are completely unrelated nowadays. There are small schools that are cheap where you farm and build houses in addition to the academics. There are also small schools that costs $65,000 a year where there are no grades or majors and nobody holds your hand and you are expected to cobble together a personally or economically valuable program from the assortment of mostly useless academic classes they offer in African Studies and Queer Theory and The Ethics of Capitalism.

The fact that 18 year olds aren't fully formed yet (totally true) is to me the best possible argument not to be spending tens of thousands of dollars sending them away to an experience they may or may not be prepared for or appreciate. Some will, but many won't, and for them, it's just money thrown down the drain. I strongly recommend that high school grads take a gap year and survive in the "real world" for a while. Get a job, pay rent, the works. That kind of experience tempers the wandering mind in a way that no assortment of college classes can. If that's too painful to consider, at least send your not-quite-done-cooking-yet 18 year old to a cheap school. If they're gonna take a year or two to "figure themselves out", it makes no sense to spend fifty thousand dollars to do it when you can finance the same thing for two somewhere else.

[Xan]

Barrett,

Could you start a new thread describing (as much as you're comfortable) your college savings strategy?  I doubt I'm the only one interested in the topic.

[Libertarian666]

I urge you not to make the mistake so many baby boomers have made, and in the process of sending their child to a top tier college, either destroyed their life savings, or else shackled themselves to half of their children's student loan debt.

The system that colleges use (required by the government, naturally)--the FAFSA--requires that you disclose all of your financial assets so that they can bleed you dry determine just how much you can pay. If full tuition is $50,000 a year (very common) and they look at your nice fat PP, they're gonna conclude that you can contribute $47,500 a year to your daughter's education and give her a merit/diversity/legacy/effort scholarship to make you feel better about it. If you don't feel like paying that much, then there are going to be $190,000 in student loans involved, with you and her sharing the burden. You'll have to co-sign since it's an unsecured loan, but they don't tell you that student loan debt basically stays with you until you die, undischargeable in bankruptcy (thanks congress x2).

Beating this insane system is totally possible, but it's its own bizarro world of madness and insanity. If you haven't started yet, you'd better start soon if your daughter is going to be attending in 2016.

It's so avoidable… I don't want anybody to fall into this trap the way I and all my college peers did.

Oh, that loan is secured all right, by your lifetime's earnings (and maybe more than that). In other words, it is the new indentured servitude.

[stuper1]

I'd like more details on how to beat the FAFSA system.  My son started high school this week, so only four more years until college.  Should I start a new thread to ask about that?

[flyingpylon]

Barrett,

Could you start a new thread describing (as much as you're comfortable) your college savings strategy?  I doubt I'm the only one interested in the topic.

I'm very interested in this as well.

[barrett]

Not sure I really want to start a new thread just yet. I'll bury it in here for now.

I'm sure some will judge me harshly for this but my 'wife' and I are not actually married. She is technically a single mom and a lot of our plan rests on that fact. The daughter is from a previous marriage but she and I just consider each other as dad and daughter. I once told her that I knew that she totally accepted me as her father because when she hates me, it's the way only a teenager can hate a parent. Her response was "So true."

We have about $100,000 set aside for her education so this is not a plan to pay nothing... just one where we contribute what makes sense in terms of our overall financial picture. Of that, about half the $ is in 529 plans (tax savings up front) and the other half is in US savings bonds (potential tax savings on the back end).

Because we are both still working and I have money outside of IRAs, we try to plow as much of my wife's savings as possible into her IRAs where it will be treated much more favorably when applying for financial aid. My wife's liquid assets are therefore very low. In a true single-parent situation, that would be unadvisable at her age (47) because she could find herself unable to work with most of her assets tied up in retirement accounts.

That's the short version. I see that stuper1 is posting a question that might force a college planning thread.

[barrett]

Ah, I almost forgot. The birthday bit was great. Thanks for posting that, Tyler!

[barrett]

stuper1,

Skip to the bottom of this WSJ article. The part labeled 'Long-Term Strategies' will help you out:

http://online.wsj.com/news/articles/SB1 ... 3415618316

I would also recommend talking directly with a planner about this stuff. It took me three or four tries to find someone who wasn't trying to sell me life insurance or an annuity. I now have someone in NYC who charges me $300 for a one-hour visit but the potential savings are huge. You are starting early enough so that you can move assets around and improve your position, all within the rules.

A key date to keep in mind is January 1st of your child's junior year of high school... but that is covered in the article. Good luck!

[Pointedstick]

Perhaps the most effective tactic is to find a school that really wants your child. Barry Evans of Carmel Valley, Calif., says his and his wife's decision to send their daughter, Paige, to Southern Methodist University in Dallas was swayed in part by the scholarship money the school offered. "My perception is that early on in the process, SMU decided they really wanted her," he says.

I think this is one of the smartest and most undervalued ideas out there. If your kid applies to schools slightly less prestigious than the ones to which they're capable of getting admitted, these lower-tier schools will practically beg them to attend and will probably give them a full scholarship and free room and board. Some especially desperate schools will even throw in a free stipend and other crazy perks.

One of my high school friends who is a genius did this trick. He was accepted to Harvard but decided to go to Brandeis instead. The result: he got a top-notch education probably every bit as good as what Harvard would have provided and is now a highly successful lawyer... but his parents saved the $200,000 they'd actually accumulated for his college costs and he graduated debt-free.

Quite by accident, I almost did this as well, but in the end attended the school that I perceived as more prestigious but didn't offer me more than token financial aid. If you can resist the siren song of more prestige (which nobody but college professors give a shit about anyway), it's totally possible to do this, come out way, way ahead, and get an education that's just as good.

[barrett]

Brandeis is certainly not a slouchy school but point well taken.

I do think though that a lot of people value the prestige of certain school. I guess the real question here is whether or not that translates into a better career. PS, you seem extremely self-possessed and would probably do fine at Pudunk, graduate and get a good job. What I think happens in a lot of cases though is that a kid will pull themselves up to a higher level based on what expectations are. One of the factors in forming these expectations is attending a prestigious school. At least that seems to be how our daughter is wired.

[Tyler]

LOL. Never heard of that show before, but it looks hilarious. Gonna check Netflix and Amazon Prime; hope one of them has it!

...

Netflix, ftw!

  Portlandia is one of my Netflix favorites. 

"Portland is where young people go to retire."

https://www.youtube.com/watch?v=TZt-pOc3moc

[Jan Van]

Looking back I think I would have sent my kid to community college to get all the stupid stuff out of the way, at low cost. Then go to a "good" university to get the actual degree.

I mean really, they teach better soccer and PE at Texas A&M than at HCC?

[Pointedstick]

Brandeis is certainly not a slouchy school but point well taken.

That's exactly the point. "Settling" for slightly less than the best keeps you in range of schools that are still very good. Whatever level of school you can get into, the schools a tier or two below are likely to still be almost as good.

I do think though that a lot of people value the prestige of certain school. I guess the real question here is whether or not that translates into a better career.

It's largely dependent on a couple of factors, I think. My experience is that upper-middle-class east coast baby boomer college professors put the most weight on the "prestige" of one's college pedigree. The fewer of those traits are true, the less a person will care. I can tell you that nobody under the age of about 35 or who has been in the workforce for more than a few years really gives a crap.

PS, you seem extremely self-possessed and would probably do fine at Pudunk, graduate and get a good job.

Thanks. Believe it or not, I actually squandered a lot of my time in college (at a very expensive and prestigious school, no less) and graduated with no friends and a lot of debt, and my career success is due entirely to the things I did outside of college; the name of my school was actually an albatross around my neck when I was applying for jobs. My point is that it's not a question of Yale vs Oklahoma City trade school. It may be a question of Yale vs Colby. "Settling" for Colby instead of attending Yale is likely to not make a whit of difference unless you aspire to enter one of the few fields where your degree really does matter for life, like law, and especially law within the government.

What I think happens in a lot of cases though is that a kid will pull themselves up to a higher level based on what expectations are. One of the factors in forming these expectations is attending a prestigious school.

That's often true, but extremely high expectations can also lead to an unhealthy inferiority complex and a set of unrealistic self-expectations. Eventually a person has to develop a sense of self-esteem and some self-expectations based on their own personality and goals, and not the expectations of others. Doing this in college can often lead to an awful lot of expensive wasted time. This is the "time to find yourself!" that many talk about, but I think it's bull. I went to a school where everybody there was finding themselves and wasting a ridiculous amount of other people's money in the process of becoming borderline unemployable. Avoid the hippie schools…

[barrett]

PS,

Our daughter has loads of self-esteem. It puzzles me sometimes that she is so confident but what I think might not matter all that much.

Interesting that you brought up Colby for a couple of reasons. First of all, I would consider that a prestigious college, at least here in The Northeast, so there you have a bit of clarification of where I am coming from. Secondly, a close friend has a daughter who got a full ride at Colby but wanted to hold out to see if she got accepted at Dartmouth. His idea was quite crafty, I thought. He told his daughter that if she would take the Colby offer, he would gift her all the money he had saved for her college education as soon as she graduated. He saved a crapton in tuition and she got a nice pile of money to put to work when she was 22. That said, he probably wouldn't have done it if she weren't a driven kid.

[Pointedstick]

PS,

Our daughter has loads of self-esteem. It puzzles me sometimes that she is so confident but what I think might not matter all that much.

Interesting that you brought up Colby for a couple of reasons. First of all, I would consider that a prestigious college, at least here in The Northeast, so there you have a bit of clarification of where I am coming from. Secondly, a close friend has a daughter who got a full ride at Colby but wanted to hold out to see if she got accepted at Dartmouth. His idea was quite crafty, I thought. He told his daughter that if she would take the Colby offer, he would gift her all the money he had saved for her college education as soon as she graduated. He saved a crapton in tuition and she got a nice pile of money to put to work when she was 22. That said, he probably wouldn't have done it if she weren't a driven kid.

I got a full ride at Colby too. Sometimes I wonder why I didn't take it. Seemed like a great school. And Maine is such a beautiful place! Low cost of living too. You could probably buy a house to live in while you attended.

[Kriegsspiel]

I skipped out on the college I 'wanted' to go to, and went to a different one, because I got a better scholarship offer at teh second, and it worked out great. For some reason, all the scholarships I got at the first one only apply to tuition, not anything else. At the second, they covered it all. Some colleges are fucking retarded like that.

[frugal]

Hi,

if someone is running 100% PP during EARLY RETIREMENT,

what should be the method to get money from PP ? Month be month? Yearly?

Take 1/4 of yearly expenses from each asset? Or all from CASH?

Need your ideas and experience.

REgards!

[Pointedstick]

This has been backtested a few times and I seem to recall that the consensus was that the highest performance can be achieved by withdrawing from cash and letting the portfolio hit its rebalancing bands.