Giving savings the ol’ college try
As you enjoy the beginning of summer, as I am doing this week, I’d like to share some questions that came up during an online discussion from readers who are concerned about saving for college and incurring debt to pay for it.
Joining me on the chat was Zac Bissonnette, author of “How to be Richer, Smarter, and Better-Looking Than Your Parents.”
I had children in my late 30s, and the two will be one year apart in school. My goal is to finish paying off my house (or get as close to it as possible) by the time the youngest is looking at colleges. My thought is that any extra money will go to college savings for the children, but since I will be so close to retirement myself, I need to have that house paid off or I will have to go live with them in their dorms. What do you think?
Bissonnette: My one concern for you — and it’s more of a broader financial-planning issue than a college-specific one — is that you also need to make sure you’re making retirement contributions at least up to any match, and into a Roth IRA, if you can, for a combined total of something like 15 percent of your income. If you plow everything into the house, you will end up debt-free (which is good!) but overweight in real estate (which is bad!).
Singletary: I agree with Zac that you need to also put money away for your retirement. I have three kids, and who knows whether any would want me to live with them. So I’m hedging the odds by saving for my retirement in case they hold all that penny-pinching I did during their childhoods against me.
At least three parties (in addition to my husband and me) have started 529s for my 9-year-old stepson and my almost-2-year-old son. (There are two types of tax-advantaged 529 plans: prepaid tuition plans and savings plans. A prepaid plan allows you to pay for tuition in advance. A 529 savings plan allows you to invest for qualified colleges expenses.) None of the other parties will tell us what’s in the 529s. We’ve tried to ask politely and have gotten nowhere. Is there anything we can do besides assume there’s nothing in any of these 529 accounts, hope we can save enough, and be pleasantly surprised by any amount there turns out to be?
Bissonnette: Can you try explaining to these people that it really messes up your financial planning to have no idea what’s in the accounts?
Singletary: Try talking to them again. Explain that it will help in your planning. But if you still don’t get any information, save, save, save because you are right — you won’t want to come up short.
My husband will be starting his third year of law school next year, and although he did have a large sum in scholarship money, we still took out some loans. We will need to start paying those loans six months after he graduates next May. My husband wants to sell one of our two perfectly fine cars and get a new much fancier car, which we would need to get a loan for. Can you please help me get him to see that a new car loan is a terrible idea? Our only other debt is our underwater mortgage.
Bissonnette: Please tell your husband this: If you are in law school on at least partly borrowed money and you have an underwater mortgage, you have absolutely no business driving any car nicer than the one Columbo drove in the later seasons of that television show. I worry a little bit that the whole law school thing is going to his head and that he thinks he’s entitled to a lifestyle he can’t afford right now. This will ruin his life if he doesn’t get over it. A new car will make you happier for only about two weeks. After that, you’re back to being stressed about other things in your life (like your car payment!).
Singletary: Ditto. I can’t imagine what your husband is thinking. But try this. List all your debts, including the mortgage. Show him the total amount. Then sweetly say, “Honey, I don’t believe getting more debt is wise. Look at how much we owe already.” If he doesn’t buy that logic, then you should buy a car air freshener that has a new car smell and put it in his old car — and refuse to sign any new car loan documents.
Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071, or firstname.lastname@example.org. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to postbusiness.com.