The Intersection of FIRE and Disney

[disfanforlife]

It’s funny that you mention college tuition and have been rethinking my strategy. My oldest started college this year and she has enough in her 529 to pay for about 2 years of school, but not all 4. I just paid the first semester’s tuition bill and I don’t think I am going to take a distribution. My initial thought was to let it sit in there a little while longer and pull out the last two years, but am now thinking about just paying out of pocket for the entire bill and leaving this for her kid one day. I know there are caps as to how much you can contribute, but if it can sit there and grow tax free for another 30 years, that will create some value. What traps am I not thinking about?

Our son is a senior in college and he will still have some money left in his 529 after graduation. The only thing I can think of is that if it is used for a non qualified expense that there is a penalty. What I was planning was transferring the money to grandchildren ( if we have any) for their college expenses. I am not an expert but that was my understanding. We used up all of our 2 daughters 529’s so they don’t have any money left in them, but they are done with school so that is a great feeling!

 

[disfanforlife]

Happy almost end of summer everyone! Our family unit just hit coast-FI (we're late 30s with 2 young kids). There are many definitions of this, but for us it means that we don't have to save a dollar more into retirement and we could live very well at 65+ (start of withdrawal at that time). No inheritance, no company stock option sale configuration...just saving! I don't want to boardcast it to friends or family but wanted to share it with someone. Love this Board!

Congratulations!!

 

[QueenIsabella]

2 Comma Club...

That's it... That's the message friends!

Welcome! Enjoy the view!

 

[Starport Seven-Five]

2 Comma Club...

That's it... That's the message friends!

Congrats!

Save a seat at the table for the rest of us. We will be there soon.

 

[Budzooka]

I would hope that the educational funding model changes within the next 30 years. Current trajectory is not sustainable.

Even if it changes, it won’t be free. Unless they do away with the 529 program, in which there would be notice and an ability to withdraw funds, it seems as though this can be an advantageous estate planning tool. The downside is having to pay first generation tuition out of pocket and losing the earnings on those dollars toward my own retirement. That seems to be the decision point.

 

[mgarbowski]

It’s funny that you mention college tuition and have been rethinking my strategy. My oldest started college this year and she has enough in her 529 to pay for about 2 years of school, but not all 4. I just paid the first semester’s tuition bill and I don’t think I am going to take a distribution. My initial thought was to let it sit in there a little while longer and pull out the last two years, but am now thinking about just paying out of pocket for the entire bill and leaving this for her kid one day. I know there are caps as to how much you can contribute, but if it can sit there and grow tax free for another 30 years, that will create some value. What traps am I not thinking about?

Others have addressed the uncertainty of the 529 plan and college funding model over 2-3 decades. I agree but also think your idea has merit, and maybe you can hedge. Pay for 3 years OOP, use the 529 for senior year, and still have a nice head start for the next generation without putting all your chips there.

You also say she is your oldest. A lot depends on how many other children you have and where their college funding stands. You should be able to switch anything left over from child 1 to the other(s) as well if necessary. Plus, if any of them want to go to a post-graduate program, it could be used for that.

Finally, they have opened the possibility to use 529 funds for certain k-12 education costs. This happened after my girls were beyond benefitting from that so I have not looked into the details, but having some funds available to help with that, should your daughter want/need to send her eventual/maybe offspring to a non-public school program could be very welcome.

All of which, I think, leans in favor of your plan to reserve some or all 529 funds, as long as you can afford it.

 

[dclpluto]

2 Comma Club...

That's it... That's the message friends!

just hit it today or yesterday myself. 987 in 401k and the rest in bank account. Of course that 987 could go down real fast and next week or whenever I won’t be able to say it. Than a lot of it of course will go to taxes.

 

[SouthFayetteFan]

just hit it today or yesterday myself. 987 in 401k and the rest in bank account. Of course that 987 could go down real fast and next week or whenever I won’t be able to say it. Than a lot of it of course will go to taxes.

Ooooh don't pay taxes. That's my #1 rule. 'Tis our duty as Americans to avoid taxes at all costs, am I right??

 

[QueenIsabella]

So, I have a question for you guys...when calculating retirement funds, how do you figure in pensions and SS? They aren't assets in the typical sense--you can't sell them or leave them to heirs--but they act like an annuity for your portfolio. Let's say you have a combined $50k annually that will come in from these sources when you retire--that's the functional equivalent of an extra $1M in your portfolio, assuming that they pay out 5% of their worth each year (like an annuity would). Do you just ignore this for planning purposes, or do you figure it in your annual spend in retirement? If you're retiring early, a pension may be delayed or the amount reduced.

We're looking at our numbers, and it turns out that pensions + SS + current RMDS (inherited IRA) + DH's RMDs + my RMDs =way more money than we can comfortably spend in a year. I say "comfortably" because, although I'm sure we can find a way to use it (or give it away to kids), it will be way out of our typical spending pattern. I know, first world problems and all that, but it's a little jarring.

 

[jen7233]

So, I have a question for you guys...when calculating retirement funds, how do you figure in pensions and SS? They aren't assets in the typical sense--you can't sell them or leave them to heirs--but they act like an annuity for your portfolio. Let's say you have a combined $50k annually that will come in from these sources when you retire--that's the functional equivalent of an extra $1M in your portfolio, assuming that they pay out 5% of their worth each year (like an annuity would). Do you just ignore this for planning purposes, or do you figure it in your annual spend in retirement? If you're retiring early, a pension may be delayed or the amount reduced.

We're looking at our numbers, and it turns out that pensions + SS + current RMDS (inherited IRA) + DH's RMDs + my RMDs =way more money than we can comfortably spend in a year. I say "comfortably" because, although I'm sure we can find a way to use it (or give it away to kids), it will be way out of our typical spending pattern. I know, first world problems and all that, but it's a little jarring.

When I think about retirement, I’m only thinking of pension and SS and not calculating in anything else. We’d possibly have to go to a lower cost of living area or consider less house, to just consider in pension and SS only, for us the house price and taxes will be a large part of calculating retirement cost. We haven’t bought yet and retirement is not too far off if still planning that in our 60s. In comparison at that age, and at least to our unrooted careers moving all over, maybe it is more common at retirement in 60s to have led more stable lives in the same area and had a chance to pay down their mortgages.

 

[QueenIsabella]

We don't figure our house into either our retirement plans OR our net worth. On the good side, housing prices have been skyrocketing in our area, so our house has appreciated quite a bit. OTOH, we've only lived here 6 years, so we don't have a ton of actual equity built up--we don't prepay on our mortgage like a lot of people do. I want to have the mortgage paid off before DH retires, but it could be the week before. We could potentially age in place--while our house has a second story, it's all the master suite upstairs, and there's a second (less fancy) master on the first floor. It currently has a good-sized bath where we plan to convert the tub/shower combo to a walk-in shower with a seat, anticipating future needs.

 

[Frwinkley]

Teacher here 3 years away from retirement. DH retired this past May. We are both 60.

I don't count my pension or SS toward net worth. Having said that however, it definitely factors into our overall calculations. I don't count my paid off house either. Having a pension allows us to be more aggressive in our portfolio, since my pension will cover about 75% of our monthly expenses. We will use cash savings to supplement our pension income, so that we don't have to make any kind of withdrawal, especially if the market is down and prior to collecting SS. I also feel like once we are collecting SS and have to take RMDs, we will have more money each year than we really need. I guess we'll just reinvest it.

I'm actually tempted to have one of us take SS at 62; it may not be what typically is done, but I feel like we could use the money for travel etc. while we are in better health. I'm still on the fence about what the do about this. I realize by waiting we'd get more money each month, but if either one of us was to die before FRA of 67, it wouldn't matter. I would opt to take the lower of the two for a better survivor benefit.

I'm feeling a very "live for today" attitude recently. Nobody is guaranteed tomorrow.

 

[AlohaNow]

Great question @QueenIsabella! I don’t figure in pension and SS at all. Just this year I started a job that will provide a pension, so having that is brand new to us. I guess it’s because I’ve used Quicken for years and years that I am used to seeing my net worth number represented by what we have, like in hand, at the moment. So that’s how I think of it. I have never included SS or potential inheritance. I go pretty bare bones with my current numbers and figure anything else will be extra. That way, my calculations are conservative and seeing that we are on track with what is presently in hand makes me really happy. Those FIRE calculators mentioned upthread were fun to play with and I liked seeing 100% success rates! It’s so interesting to see how everyone else does it and just how people approach their financial situation in general. If I had the time and money I’d get a PhD in behavioral finance.

 

[Budzooka]

Great question @QueenIsabella! I don’t figure in pension and SS at all. Just this year I started a job that will provide a pension, so having that is brand new to us. I guess it’s because I’ve used Quicken for years and years that I am used to seeing my net worth number represented by what we have, like in hand, at the moment. So that’s how I think of it. I have never included SS or potential inheritance. I go pretty bare bones with my current numbers and figure anything else will be extra. That way, my calculations are conservative and seeing that we are on track with what is presently in hand makes me really happy. Those FIRE calculators mentioned upthread were fun to play with and I liked seeing 100% success rates! It’s so interesting to see how everyone else does it and just how people approach their financial situation in general. If I had the time and money I’d get a PhD in behavioral finance.

SSI is factored into my retirement plan but not on my balance sheet. Don’t have a pension and don’t factor inheritance at all. Will consider once received.

 

[Samantha*belle]

A 7% return seems really high. You'd need to be 100% invested in equities for that to work.

https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/
Check out slide: 76.

A 7% return assumption after retirement might not be realist ultimately because of inflation. What I'm factoring in is that some years there will be no increase and some years there might be a 15% return (like we've had lately!) Returns are such a hard thing to predict. https://www.sofi.com/learn/content/401k-rate-of-return/

 

[ski_mom]

A 7% return assumption after retirement might not be realist ultimately because of inflation. What I'm factoring in is that some years there will be no increase and some years there might be a 15% return (like we've had lately!) Returns are such a hard thing to predict. https://www.sofi.com/learn/content/401k-rate-of-return/

What kind of return do you use for planning after retirement?

 

[Samantha*belle]

Congrats and thanks for sharing! I have a question, if you feel comfortable answering. You mention 2 young kids so I'm curious if your projections take into account any planned spend on college tuition for them. I love to hear people's success stories - that is awesome that you've hit your number!

None of our kid's 529 accounts are factored into our FI. Kids kind of have the opposite effect on FI. haha. We're down shifting our retirement savings a bit to save more for their college. I think an in-state school will cost ~150k per kid in 15 years.

 

[Samantha*belle]

It’s funny that you mention college tuition and have been rethinking my strategy. My oldest started college this year and she has enough in her 529 to pay for about 2 years of school, but not all 4. I just paid the first semester’s tuition bill and I don’t think I am going to take a distribution. My initial thought was to let it sit in there a little while longer and pull out the last two years, but am now thinking about just paying out of pocket for the entire bill and leaving this for her kid one day. I know there are caps as to how much you can contribute, but if it can sit there and grow tax free for another 30 years, that will create some value. What traps am I not thinking about?

One consideration is that of the beneficiary. Depending on how the rules change over time, it may make more sense to leave it in your child's or grandkid's name. Do they have the personality for that responsibility? What should you do in the case of multiple grandchildren? Perhaps it is worth having a conversation with a wills/estate/trust lawyer who is also familiar with 529s.

It is possible that your daughter may want to go onto to grad school? Or medical school? Those can be pretty pricey.

 

[Samantha*belle]

I would hope that the educational funding model changes within the next 30 years. Current trajectory is not sustainable.

Gosh I hope you're right. The cost of college is so ridiculous!

 

[RamblingMad]

A 7% return assumption after retirement might not be realist ultimately because of inflation. What I'm factoring in is that some years there will be no increase and some years there might be a 15% return (like we've had lately!) Returns are such a hard thing to predict. https://www.sofi.com/learn/content/401k-rate-of-return/

What I posted was returns over the last 20 years showing a 7.5% return with 100% invested in the S&P500, where one decade basically returned zero. I'm assuming 4-5% return in the future as bonds most likely will return a negative real yield.