I Will Not Ignore My Dire Financial Situation in 2012

Just after Christmas, I received a glossy color brochure from The Motley Fool's 401(k) plan provider that included two ominous signs. One was a stop sign and the other was a danger sign. And in italics below the signs was the message, "You may not have enough money to retire when you reach the age of 65."

Sadly, my plan provider was absolutely right. And they didn't know the half of it. Not only am I behind in saving for my retirement, but I have two kids to put through college as well. In a nutshell, I have a long-term funding shortfall that is likely to get much, much bigger... unless I make some dramatic changes.

Truth and consequences
So how did I get into this jam? And how do I get out of it?

The first question is easy to answer. During the course of my career, I haven't been putting enough money away for retirement and my children's college educations. Throughout much of my twenties and thirties, I was either teaching or in graduate school, and I just wasn't able to save the necessary funds. More recently, I've done a little bit better, but I still haven't saved anywhere near enough.

At my current rate of saving, my 401(k) balance will only amount to about 55% of what I'll need to fund my retirement. That number assumes that I'd require 80% of my current income after age 65. Coming up with money for college educations is equally daunting. My 13-year-old son is interested in attending either UCLA or Columbia University at the moment. One year at the former right now, including tuition as well as room and board, costs $31,544 for residents and $54,422 for non-residents. A year at Columbia goes for $59,208. So when my son goes to college in five years, the total cost of his education will be anywhere from approximately $150,000 to $300,000 depending on the school he decides to attend. And once he graduates, my daughter will be entering college three years later.

Pass the smelling salts, please
So what can I do in the face of these formidable challenges? To begin with, it's important that I change my mind-set. Clearly, there's a problem here, and now is the time to start fixing it. Second, I need a plan. Here are a few changes that I intend to make in 2012.

First, I will increase the amount that I contribute toward my 401(k) plan. If I increase my current contribution from 6% to 8%, The Motley Fool will continue to match half of the total. That's free money that I've been leaving on the table, so I'll do that right away. Just that small change alone will mean that our retirement account balance will be considerably closer to what we'll need to support ourselves. I also hope to work well into my 70s so that will make the task even easier.

Second, I intend to refinance the mortgage on our home. In fact we've already reached out to someone who can provide us with a considerable reduction in our monthly mortgage payment. Mortgage rates are at near or record lows at the moment according to a recent survey by Freddie Mac, so now is an excellent time to refinance.

Third, I plan to put the monthly savings from the refinancing into a special account that I've already set up for my children's college educations. I strongly believe that investing in stocks is the best way to build wealth, so I'm confident that I can really make some headway by making this important change.

Right now, the college account is invested in three outstanding long-term businesses that I believe will outperform the market in the future: Google (Nasdaq: GOOG  ) , Apple (Nasdaq: AAPL  ) , and Boston Beer (Nasdaq: SAM  ) .

I chose Google because I believe that it will continue to dominate search, while also offering possible breakthroughs in other areas like automated cars. Apple is another truly excellent company, whose dominance in tablets and phones is unlikely to be overtaken anytime soon. And Boston Beer is the type of company that Fools love -- it's outstanding at both producing and selling its main product. I love the prospects of these three companies over the next five to 10 years, and will continue to purchase similar companies within the college account as I add more capital each month.

The most important change of all
I'm excited about my new plan and have already started to put it into motion. The key to success, however, will be to make sure that I change my entire outlook from this point onwards. In order to save for the long term, I will need to think long term. That's the single biggest thing I need to change about my approach to managing my personal finances.

One of the businesses that I admire the most right now is Amazon.com (Nasdaq: AMZN  ) , and a lot of its success has resulted from its long-term strategy. In a recent interview with Wired, Amazon's CEO Jeff Bezos said, "Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue." He added, "We're willing to plant seeds, let them grow -- and we're very stubborn."

That is wise advice, and I will not ignore it in 2012 and beyond. Over the next 25 years, I intend to save and invest more, so I can successfully meet my financial goals. If you'd like to join me on this long-term mission, we've put together a free report: "The Shocking Can't-Miss Truth About Your Retirement." Inside, you'll receive some expert advice on how to regain control of your financial future. You can get your free copy right now by clicking here.

John Reeves owns shares of Google, Apple, and Boston Beer. You follow him on Twitter: @TMFBane.

The Motley Fool owns shares of Boston Beer, Apple, Amazon.com, and Google. Motley Fool newsletter services have recommended buying shares of Apple, Amazon.com, Boston Beer, and Google, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (35) | Recommend This Article (47)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 09, 2012, at 11:54 AM, Fullstrum wrote:

    ... Or you could let your kids know that they will be paying for all/part of their own education. Whether they decide to contribute to that total through working in High School, working hard in High School in order to get academic scholarships, or perhaps taking 2 years at a community college in order to cut their total bill would be up to them.

    As a recent college grad who did pay for my own education; I can attest that it is possible. Paying for my education taught me quite a bit about learning how to handle finances and debt (I started working and saving for college at 13). Plus when you're paying for your own education it makes it much harder to party it all away or skip classes. Just say'n.

  • Report this Comment On January 09, 2012, at 12:36 PM, H3D wrote:

    "First, I will increase the amount that I contribute toward my 401(k) plan. If I increase my current contribution from 6% to 8%..."

    But you [said you] need 80% of your current income.

    10 years worth of 8% contributions will get you 1 year of retirement. So if you continue to get investment return near the rate of inflation then you better count on working for 100 years for each 10 years of retirement.

    Alternatively, take a serious look at your investment return. My pension has been in Apple shares for years. Maybe I won't wail 'til 65!

  • Report this Comment On January 09, 2012, at 12:39 PM, TMFBane wrote:

    @Fullstrum, That's wise advice! I agree that it's important for kids to contribute something towards their education. One of the biggest challenges for parents is trying to develop independence in their children. We think we're doing them a favor by stepping in and sorting out everything for them. But many times that's not what they need.

  • Report this Comment On January 09, 2012, at 12:41 PM, H3D wrote:

    Oh. And stay away from Amazon 'til after the bubble bursts. 6 months should do it.

  • Report this Comment On January 09, 2012, at 5:57 PM, daveandrae wrote:

    My .02

    Your "plan" is completely unrealistic and thus, unattainable.

    I will give you my reasons.

    1. It sounds like you live in California. If this is indeed the case, then it would not surprise me in the least if you are UNDERWATER on your home and not in the financial position to refinance it.

    My advice? Get a part time job as a high school referee and devote all the extra income to long term savings.

    2. By market cap standards, Google, Apple and Amazon are ALL, Very, Expensive, TECH stocks! Thus, especially by now, you should know that your "investment portfolio" is a concentrated BET on the shiniest pieces of jewelry in the stock market "store."

    This fact alone should tell you that you will fall far short of your financial goals.

    If this doesn't do the job, then do yourself a favor and buy the book "American Sucker." It will tell you everything you never wanted to know about making long term bets on high flying internet/tech stocks.

    My advice?

    Fidelity Index funds.

    3. Your children don't NEED to go to UCLA or Columbia. That's freaking bong smoke.

    My advice? Put the crack pipe down tell them that if they are sincere about a college education, then they will need to foot part of the bill and get a full time job during the summer and that a local college while they work part time on the weekends is all the education they will ever need.

    When they graduate with honors and NO DEBT, or if they happen to hit the lottery and land a scholarship only then would I encourage them to get their master degrees at a private school.

    Sorry, I know this is not want you want to hear, but it's a helluva lot better than what i just read.

    Good luck and God Bless

  • Report this Comment On January 09, 2012, at 6:24 PM, Follydolly wrote:

    "First, I will increase the amount that I contribute toward my 401(k) plan. If I increase my current contribution from 6% to 8%..."

    Is that the best you can do?? You should contribute the maximum amount allowed...forever.

    Although I also own AAPL, it is not 1/3 of my investments. Can't you diversify your portfolio....? You have taken on a lot of risk IMO.

    Your children are going to have to get good grades so they can get scholarships/grants and loans because there is no way you can pay for their higher education all by yourself.

    Best of luck to you.

  • Report this Comment On January 09, 2012, at 8:17 PM, TMFBane wrote:

    Thanks for the comments, everyone! I'm very grateful for the advice. The points about diversification are very smart. Our house accounts for the lion's share of our assets, though I am invested in about 12 to 13 stocks or so in my 401(k). I only started up the education account recently, so I'll be adding more stocks in there as I add additional capital.

    And for the record, I live in DC not California. My master plan is to convince both kids to go to the University of Virginia -- it's an outstanding school, and it's close by, so I can swing by for a visit on short notice. Just what every college kid wants: dad popping up for the weekend!

  • Report this Comment On January 09, 2012, at 8:28 PM, Hawmps wrote:

    I know this site is all about stocks and the like... but my best investments have been real estate, hands down. Don't get that confused with the "housing market". I like the idea of tenant's rent payments building equity for me. Maybe that's why I'm more of a dividend investor when it comes to stocks and such. I view it as the company (stock) paying me rent for having access to my capital, and I accept the risks that come with that.

    For college... first thing is to figure out where the kids are going to go; not where they want to go because it sounds good when they say it, where are they really going to go. Shelling out upward of $30k - $60k/yr is rediculous and unnecessary. There are too many other good schools all over the country and a year or two at a C.C. with a "part-time" class schedule is a great way to qualify for in-state tuition and cut the bill in half.

    So, decide where they are going, buy a duplex or small 4-plex apartment building and rent it with a local, reputable manager, and you'll have a good head start on building equity by the time they are ready for college. Their (your) housing costs are reduced considerably or you are profiting by renting out other rooms to your kid's buddies and you can sell it when they graduate thus paying off most of the education bill if not profiting from it. Or better yet, you just taught the kids about investing and they can see by the time they graduate that maybe by continuing to collect the rent instead of selling they can pay down a student loan without any "out-of-pocket".

  • Report this Comment On January 09, 2012, at 8:35 PM, jeepshepard wrote:

    Google, Apple, and Boston Beer? None of these stocks pay dividends! You're missing out on the asset of time and the compounding of wealth (dividends).

  • Report this Comment On January 09, 2012, at 9:14 PM, TMFBane wrote:

    @Hawmps, that's a very clever idea that is definitely worth considering. @jeepshepard, yes, you are absolutely right about the need for dividends. I'll make sure the next purchases in the education account are dividend stocks!

  • Report this Comment On January 09, 2012, at 10:08 PM, potluckdinner wrote:

    If your kids know what they want to do when they graduate HS (and it is in medicine or engineering) then by all means help them with college.

    If they want to major in liberal arts, history, or philosophy then my suggestion is to take their tuition and start a small business...

    Supplement your income and have your kids work for you for 2-4 years while attending trade school or community college. They will have a better idea of what they want to do at 21 or 22 then at 18.

    If the business has legs then you have some great options... sell it, continue to work it, let the kids run it.

    As the owner of a couple of small businesses I plan to do this for my kids. I can think of several good ventures I could start with $200,000.

  • Report this Comment On January 10, 2012, at 12:54 AM, MichaelDSimms wrote:

    Another option is sell all your assets when you get to 65 and live abroad in many locations which are far less expensive. Belize for instance. Which is my plan and probably the only option for many like myself. The world is getting smaller with the internet and skype. A small boat a bottle of wine, the little lady and a fishing pole.

  • Report this Comment On January 10, 2012, at 5:57 AM, dcflipflop wrote:

    On the college front, make sure you and your kids are looking at VALUE. This is one of the big mistakes I made. I went to the same school my older brother went to because I was a dumb high school kid and it seemed like a good idea at the time. Fact is, I got a great education but I paid WAY too much for it. I'm working with a bunch of bright young engineers and the ones who graduate with less debt are doing better financially. You can get a great education at almost any school if you put in the effort and apply yourself. It's a lot more about the student's motivation to learn than the college's ability to teach.

    Also, I refinanced in early 2011 and will finish paying off my house 8 years sooner with a savings of about $60k in interest. So, yeah, do that right away. Check local banks, not just the big ones.

  • Report this Comment On January 10, 2012, at 11:25 AM, JeanDavid wrote:

    I have friends who want to retire early, but they have no equity in their house, maxed out on a second mortgage, etc. They are around 40 years ago, so 20 years of saving wasted. A daughter (age 15) to put through college.

    They may not realize it, but they will have to work until they die unless the money tree blooms. But there is a problem with even that. Because of the economy and job situation, they will probably not be allowed to work that long. A company near hear fired all its older employees to escape the requirement to adequately fund the defined benefit retirement plan (no vesting at that time). Other employers will not hire older workers, or any workers at all. Age discrimination may be illegal, but it is quite common. What are the chances of getting a job when you are 70, one that pays enough to live on and pay property tax? Medical insurance? Food? Clothing? What if you are no longer physically fit enough for the available jobs for which you may be qualified?

  • Report this Comment On January 10, 2012, at 12:08 PM, JGBFool wrote:

    I just noticed that UCLA makes it more difficult to establish "residency" than I thought when I made the previous comment.

    http://www.registrar.ucla.edu/residence/finindep.htm

  • Report this Comment On January 10, 2012, at 12:32 PM, borneofan wrote:

    In education, as in healthcare and all else, price matters and the gubmint will not likely be the best option going forward.

    International is the ticket, go to canada or latin america for an inexpensive and valuable learning experience. Avoid law and medicine.

    There are way too many engineers out there, it is now the technical equivalent of a liberal arts degree 70 years ago. Necessary, but not sufficient. Do it if they can't help themselves, but expect freelance and constant change of employers and locales to stay solvent.

    Real estate is for landlords, not wage slaves. Don't buy it till you can pay cash and the work comes to you.

  • Report this Comment On January 10, 2012, at 12:34 PM, catoismymotor wrote:

    John,

    As has been said above your kids can fend for themselves so far as college goes. Chances are the apples did not fall far from the tree so they can earn scholarships and obtain grants in addition to taking out loans and working while in school. This is the approach my wife and I are taking with our two.

    Another thing we are doing is investing on their behalf, without their knowledge. We plan at a future date, decades from now, to hand over the proceeds. Hopefully it will be enough to pay down/off the student loan debt if that is a factor.

    All the best,

    Cato

  • Report this Comment On January 10, 2012, at 12:55 PM, TMFBane wrote:

    @JGBFool, as DC residents, my kids will be eligible for in-state tuition in all 50 states. That's why I included the resident amount for UCLA.

    @catoismymotor, I think your approach makes a lot of sense. For me, I just hope our children don't graduate with a lot of debt. I really like the idea of them contributing towards their education, however. Investing on their behalf sounds like a great idea to me.

  • Report this Comment On January 10, 2012, at 12:57 PM, DJDynamicNC wrote:

    In DC there can be a lot of pressure to choose a school based on prestige rather than on educational value. That isn't necessarily a bad thing - prestige can land jobs - but be aware of it and ask yourself and your kids what is truly more important to them, and if the prestige factor is worth the expense.

    It sounds like you're on the right track in terms of increasing your investment diversity and adding dividend bearing stocks, so the only advice I can offer is something hard won from my own life - let your kids take some time to figure out what they REALLY want to do. I just turned 30 and I've finally settled on what I want to do with my life after years of some pretty wild adventure. However, I'm saddled with several thousand dollars of school debt still from an aborted attempt at university studying... well, I was never clear on what I was studying, I just took whatever classes were interesting. It was fun, but expensive and ultimately a setback. If I'd waited a few years I'd still have been able to have my wild adventures (and I wouldn't trade them for the world, believe me) but without having to run up the debt for the wasted school years, giving me a clean slate for an actual attempt.

    Your mileage may vary, of course, but there is a lot of living to be done and the years between high school and college represent a golden opportunity to work a low-responsibility job and explore what life has to offer to figure out what you're really interested in. I'm sure if my high school classmates had seen me in 2004 working minimum wage retail they'd have laughed. When they saw my at our 10 year reunion running a global event management company I founded and touring the world getting paid to play music, nobody laughed. College was only an impediment to those results, and saving it for a time - like now - when I'm looking to truly learn something about business and finance for something I'm passionate about would have been a much stronger play.

    Not that 18 year olds are known for taking advice well, and I doubt I'd have listened at that age if somebody had told me the same thing, but it's worth a shot....

  • Report this Comment On January 10, 2012, at 1:18 PM, wolfman225 wrote:

    My first reaction was to have your kids either lower their sights for the college of their choice, or have them contribute at least half of the tuition. This advice has already been admirably covered.

    The other red flag I caught is your plan to "invest" for their college expenses. You say your oldest is 13. That gives you 5 years to amass enough to reliably fund their college. Aside from the outrageous annual rate of return you'd need, what happened to the Fool's most basic advice to NOT invest any money in the market that you are sure to need within the next 5 years?

    I'd be more inclined to take care of your own retirement first. 13 is clearly old enough to be told some of the ugly financial realities of life and to begin to plan for them. If you meet your goals faster than your initial plan, great. If not, and if you aren't able (for whatever reasons) to "work well into your 70's" you will need every cent you can create to secure your and your wife's future. It's vanishingly unlikely that your children will be in any position to assist you financially so early in their own careers.

    Just a thought.

  • Report this Comment On January 10, 2012, at 1:27 PM, wolfman225 wrote:

    Also, your children should be encouraged to start building the knowledge/skillsets they will need for their chosen career now. For free.

    All of the wisdom of the ages is available for free on the internet and in local libraries and museums. There's no real need to pay 10's of thousands of dollars. When it comes right down to it, the money spent on college is less about gaining knowledge itself than about having some prestigious pedigree that validates them to someone else.

    I don't know if it's still an option, but it used to be possible for a student to educate themselves and then "test out" at a local university (for a fee) to gain the necessary certifications.

    I'd be much more impressed by an applicant who took the initiative to educate themselves in such a way than the typical "B" student that likely spent as much time in an alcohol haze as they did with their nose in a book.

  • Report this Comment On January 10, 2012, at 2:04 PM, rpl3000 wrote:

    This article kind of makes me wonder about how much of what the fool's authors preach vs. what they practice.

  • Report this Comment On January 10, 2012, at 2:47 PM, ac131 wrote:

    I thought the DC Tuition Assistance Program only covers the difference up to $10,000 per year

  • Report this Comment On January 10, 2012, at 3:50 PM, Merton123 wrote:

    I suggest that your kids join the military and take advantage of the GI bill. Or they could go through the reserve officer training corp program at a land grant college where the army will pay for the degree and the student makes a committment to work for the military afterwards.

    As far as retiring - most seniors will have to work partime which is not a bad thing. Staying home watching T.V. or being at the workplace interacting with people will probably add to your quality of life. You may want to look at self employment opportunities for niche markets.

  • Report this Comment On January 10, 2012, at 4:14 PM, VoiceintheCrowd wrote:

    With respect to college choice, I fully agree with those who advise not overpaying for a university degree. Financial considerations were the overriding consideration in my choice of colleges--I went with the university that offered me a full ride, and turned down more academically prestigious schools.

    For law school, I made a different but not completely dissimilar decision: faced with a choice of a reasonably good school offering me a full ride, a top ten school offering me a 2/3 ride, and another top ten school offering me no scholarship at all, I went with the second option. To this day, I still sometimes wonder if I might have done just as well taking the full ride at the regional school (which is still very well-regarded).

    In either event, the bottom line is that at the age of 30, I earn an income that is enough that I do have income that I'm unlikely to need for five years, and which therefore can be deployed in the stock market in Foolish fashion. That income would almost certainly be devoted to debt service had I gone to Kenyon or Princeton for undergrad and then paid full sticker price for law school. Perhaps I would be making substantially more than I am now, but even if I were, unless the difference were *very* substantial, I wouldn't notice a significant difference in my real standard of living.

    Do the math with your child early--preferably before they ever visit a campus. Find out what four years at that college will cost them (or you, if you're determined to fund all or part of it yourself), and then get a loan calculator and figure out what the monthly payments might be at 10, 15, and 20 year repayment terms. If you trust your children with information about your own finances (and if you don't, you may have other problems), let them in on information about your own wealth and income (and, if you can remember it, about your own wealth and income around age 22 or 23, when you'd have been graduating from college), and what kind of burden that financial commitment would have been on your own life--including, quite frankly, whether you would have been able to have the child to whom you're talking.

  • Report this Comment On January 10, 2012, at 4:46 PM, DJDynamicNC wrote:

    ---> "I don't know if it's still an option, but it used to be possible for a student to educate themselves and then "test out" at a local university (for a fee) to gain the necessary certifications. <---

    That's a good idea. There is an online university called Western Governer's (so called because it was founded by 19 governers of western states) which is entirely knowledge based, meaning you simply sign up and take all the tests to indicate competence in the chosen courses. Obviously there are classes available for information you don't already have, but if your kids are go-getters who like to learn, this may represent a valid alternative for them (the university is accredited and non-profit, so don't fret that you're signing them up for a University of Phoenix knockoff).

    Again, there would be more of this sort of thing if university education was actually focused on learning things rather than on getting a piece of prestige with which to enhance your apparent market value.

  • Report this Comment On January 10, 2012, at 6:08 PM, TMFBane wrote:

    Just wanted to say thank you for all of your helpful comments. I really appreciate all of the advice, and enjoyed hearing some of your personal stories. Hopefully, I'll make some progress in 2012!

  • Report this Comment On January 10, 2012, at 6:41 PM, Hawmps wrote:

    The story and all the comments reminds me of a political cartoon I saw when I was in college... it is a picture of a student walking up to the ivory halls of academia with a giant sign above the entrance to the building that reads, "Public University, Inc."

  • Report this Comment On January 12, 2012, at 11:03 AM, jaketen2001 wrote:

    This is basically just a sad, sad, story. I wish you all the luck in the world. But if you are in your 40s saying things like 'max out my 401k contribution' and 'refi', you are just a latter day Suze Orzman. She is basically a financial janitor telling people to keep their finances in order..... and to max out their 401k. I will sum up your investing philosophy with a story. I knew a guy who knew a guy. This guy was a down and out type with no skills to speak of. He got it in his head that he was going to sell Amway. The guy that I knew, once removed from 'the' guy, found a letter from an Amway meeting laying around their what I am sure was grimy apartment. The Amway letter said such things as 'associate with rich and successful people, and you too will become rich and successful.' Which is to say, telling people that Google is rich and successful, and that is all you need to know about it, and to invest, is about as deep as the Amway letter.

  • Report this Comment On January 14, 2012, at 11:22 AM, Pinpress wrote:

    College tuition costs are galloping away from affordability as states reduce their proportion of support and students pick up the slack. Anyone who paid their own way, as I did in the 1970s, should take a hard look at the relative costs today compared to what we paid. I had a co-op job; today those are far less common. "Get a scholarship" sounds a little like "Get a job" as though all you have to do is ask and as though it's not easier for some than for others. The only solution to college these days is the 2-year junior college/transfer to university option unless you're willing to fork over a huge sum of money. But done this way, you can get the degree from the more prestigious university for half the cost.

    The more prestigious university is a good choice if it gives the student a leg up on access to networks and job recruiters (assuming getting a good job is important). It absolutely should be weighed against cost as well as projected gain.

    @lutert "way too many engineers out there ... equivalent of a liberal arts degree " WHAT? As an engineer I can assure you it is a far more employable degree than most anything out there. Everything you touch has been engineered, every industry employs engineers. But working fulltime while earning such a degree is not as simple as working while earning a liberal arts degree. It is also not exactly a self-study kind of path. So those options are certainly dependent on what course of study is chosen.

    As far as retirement, as one who has invested pretty heavily and still feels short, I can only say it's another balancing issue. Just having the kids out of the house has decreased our costs significantly; but the elephant in the room is healthcare costs. At the moment the government still pays--that looks to change sooner rather than later.

  • Report this Comment On January 14, 2012, at 12:03 PM, carolsmithhsa wrote:

    This is a great discussion thread. Lots of good ideas.

    In this entire interesting thread so far, I did not see any recommendation that you think about the composition of your investemtns from a tax strategy view-point. By this I mean that you must consider that by the time you get to finally START consuming your hard earned savings over many years, that you have some of your income stream coming from tax-free distributions. I mean like Roth IRAs or Roth 401k.

    You still have some time as an advantage. Now is the time in your 40s to ensure you not only make investments, but you have some of your investments and all their associated earnings over time in Roth concepts. I do not know if your Motley Fool plan allows this option, but if it does, then FULLY participate to the max amount allowed under the plan and make sure at least some significant portion of your investments are in Roth. If you have traditional IRAs already, start doing conversions to get them into Roth IRAs. It is not enough to SAVE alot and INVEST WELL if at the time you get to consumption stage, a desperate and confiscatory government takes most of it away as you take distributions. If anyone believes that US tax rates are going to go DOWN in this country, you are delusional. Tax strategy has to be part of any solid financial plan.

    As far as kids going to college -- if they want to go, you should jointly plan as if they are going to pay for it themselves. This rids them of the partying mentality or school-name snobbery aspects of adolescent school choices and makes them focus on what is really important to them when they say they want to go to UCLA etc. It does not mean you will not help. What it does mean is you are taking responsiblity for helping them learn. As soneone who put herself through college it was a wonderful life lesson.

  • Report this Comment On January 15, 2012, at 11:19 AM, TMFBane wrote:

    @carolsmithhsa, thanks for your helpful comments. And I agree that this has been a very informative discussion. I’m very grateful for all of the advice.

    Your point about taxes, for example, is exactly right. That will be something else for me to figure out this year.

    I also like the point about having my kids take some responsibility for their education. That’s been something that others in the thread have emphasized as well, and I find that argument very persuasive. My dad obtained his college degree by attending Northeastern University at night, while working full-time during the day (he also finished number 1 in his night school class I’ll proudly add!). So the message of self-reliance has always appealed to me!

  • Report this Comment On January 15, 2012, at 2:45 PM, optionBill wrote:

    I have the feeling most of the commenters who claimed to have put themselves through college are my age or older and therefore enjoyed heavily subsidized tuition. Even at private schools tuition is restrained by competition with public schools.

    The University of California was practically free for residents in the '70s. I have a vague recollection of paying $800 for my last quarter's tuition. Run through an inflation calculator that amounts to less than $2000 today.

    The staggering tuition costs students face today amount to intergenerational hypocrisy. Under the delusion that we did it all on our own, we -- the generation now in power -- have not provided our children the benefits our parents and grandparents gave us.

    John, I wish you and your children all the best. Unfortunately, making higher education affordable once again will require a political sea-change.

  • Report this Comment On January 15, 2012, at 3:13 PM, conifer wrote:

    Firstly, where your kids 'decide' to go to college might not be the best approach. Let them know they will go where you can afford to send them - absolutely in-state with your finances - and that they will be working each and every summer. Secondly, expecting that 3 stocks (2 being tech) will get you there is unrealistic and way too much risk. Remember the tech bubble ?

    Time to rethink it.

  • Report this Comment On March 15, 2012, at 6:31 PM, TMFBane wrote:

    Just wanted to update this piece. Today, we completed our refinancing. We now have a 30-year fixed mortgage with a very low rate. I'm really happy that we accomplished this goal! Fool on!

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