I’ve been meaning to calculate my savings rate and finally got down to it: 29%. Eh. I thought it would be more, but I’m maxing my 401k and the kids college will be funded by real estate.
I haven’t yet calculated my husbands, but I anticipate his is about the same but with a few differences, like funding our HSA.
We’re working to pay down debt, so our savings rate will remain flat for the foreseeable future (three mortgages!).
Here’s the breakdown:
401k: 15% (*just reduced to 13% due to bonus)
Employee Stock Purchase Program: 8%
529: 1% – this is just sad
Roth IRA: 1%
I wonder what our debt paying rate is? I’m not sure what that’ll tell me, but it will be interesting to calculate. It also varies based on other household spends like kids activities and household repairs. And skiing.
I have nine years. What will college cost in nine years? It’s a daunting thought and I try my best to avoid it. And think I must I live on Fantasy Island when I say I’m going to retire at the same time I’m sending my two kids off to college. I honestly don’t know if early retirement will be able to happen at the same time. (Loans are not an option – personal parenting goals.)
College is a wild card. Or maybe I want it to be a wild card because all my (limited) research shows tuition will about double and that’s scary. The Vanguard college tuition calculator provides a pretty basic estimate of anticipated costs. Low-ball estimate is that a four-year college education at $100,000 today will increase to $167,000 in nine years.
529s: Today’s standard for college savings. Put it in post-tax, pull it out for education-related expenses without penalty. We have two, established by the kids’ grandfather when they were babies. Our nine-year-old has ~$12k today. We contribute $100/mo. At this savings rate, using a compound interest calculator, this will be almost $40k in 9 years. Maybe enough for one year if we stay at the same contribution rate.
We increased our college savings another $100/mo into each of our Roth IRAs. (No, we’re not at the point where we can max these out yet.) Withdrawing from a Roth prior to age 59.5 carries penalties, unless for a qualifying reason. Your child’s education is one.
Community College Transfer: I really like the idea of saving on tuition by going for two years at a community college then transferring to a four-year, but there seem to be more drawbacks than positives. Maybe this will shift to being a more common practice in the future, but I can’t plan on that.
Change: It’s hard. Going to college is hard. And a lot of Community College students don’t transfer to 4-year institutions.
Social: You learn so much about life and living when you’re living away from home, at college. It’s like a safe bubble (ok, that depends…) where you and your peers are figuring it out together.
Having recently moved from Seattle, I’m wondering … perhaps moving back to enjoy the mountains and sound, while taking advantage of UW’s Dual Enrollment would be worth considering. (Reason #458 we should move to Seattle.)
Scholarships? This Washington Post article is old, but it probably still stands close to the truth today: 19% of high GPA students receive academic scholarships and 0.7% receive athletic scholarships. This would be really great, but I can’t count on it.
Real Estate: Our obvious choice and we’re so so so thankful we have it, because I really don’t think we could achieve the savings rate we’d need to pay for college without loans. We have two rental homes in the crazy Seattle market. We’ve owned one, our ex-primary, for 11 years and the other for four years. Either of them would more than pay for both kids to go to college at today’s average tuition rates. We can’t predict what they’ll be worth in nine years. I don’t have a crystal ball. But this is what will pay for college and enable us to retire around the same time.
We knew we’d return to the East Coast to be closer to family at some point. So, after 10 years of loving life in Seattle, we made the move back to the Philadelphia area.
The Seattle real estate market is insane. We lived in a 1,300 square foot single family home in a desirable neighborhood with great schools and close to downtown (i.e., short commute to Amazon). Prior to purchasing this house in 2006, we sold our Philadelphia home for a nice profit, affording us to pay off my student loans, buy two (used) cars and put 20% cash down on our new Seattle home. This was all without a thought of kids (which came only two short years later). Thankfully, the house worked for our family of four because we quickly realized we couldn’t afford a bigger house that wasn’t a fixer.
During our time in Seattle, we also purchased a smaller investment property in another neighborhood. We didn’t follow the “buy the worst house in the best neighborhood” rule, but we bought what we could afford and got newly renovated (low maintenance) house in a neighborhood we knew was “up and coming.” For three years, we acted as the property managers with no turnover and very few issues.
So, when it came time for us to move, we were torn: sell or rent? The Seattle market has seen such growth: was it a bubble and should we sell now (2016)? Or hold onto the properties with a nice monthly income, hope the long-term growth continues and accept there will be maintenance and management costs? We took a deep breath and decided to rent, turning over the property management to a company that takes 10% off the top of the first rental and 8% off the top of the second. This has proven well worth it! They take care of everything and are prompt to answer any questions of concerns.
In the two years since February 2016, property 1 (primary) has grown in value by 35% and property 2 (investment) has grown by 46%. This doesn’t account for the monthly rent which more than covers the mortgages. So, I didn’t do an entirely accurate comparison, but in the same time period, a $10k investment in VTSAX would have grown around 35%. Selling our properties would provide a much larger investment, so perhaps this would have been a wiser decision, but I like: 1) the passive monthly income and 2) having diversified assets.
The Plan for Property 1:
Keep it for the passive income during retirements, or
Move back! Right now, we’re thinking about retiring in WA.
We purchased our big, old, inefficient home in the Philly ‘burbs, but the market here is not nearly has hot, so it’s not so exciting to think about. With some improvements coming to the neighborhood that will increase walkability and overall appeal, I’m sure we’ll sell it for more than we bought it, but if you consider the real costs of home ownership, I can’t confidently say we’ll see a profit.
Either way, we’re in a great place with these investments and will keep them for now. I’m not sure what would change that. I’m afraid that if we sell and funnel the profit into investment accounts, we’d be putting all of our eggs in one basket. It’s all about balance!