What to do with savings.....

[Deleted]

I've lurked on the other board but never posted. I have $99,000 that I inherited from the sale of my mother's house and am not sure where I should 'keep' it. I currently have no debt (other than $4000 at 0% interest until July) and my mortgage, my 401K gets the full IRS contribution, and my oldest is a freshman in college (and gets no need based aid due to my income). I just moved $49,000 to an ING savings account currently paying 1.10%. I want to be extremely conservative with my money. I'd like to hear some suggestions.

Thanks

[Kung Fu Panda]

there are some very conservative funds at Vanguard. they are very friendly and easy to setup an account, and you will be able to get Admiral share pricing. Total Bond Market is a good stable secure fund. I would also tell you that 1.1% is lower than inflation, so I would suggest keeping a healthy emergency fund at ING and investing the rest to be competitive. YOu would do well to split your investment between Total Bond Market and Total Stock Market. (maybe 70/30?)

[Deleted]

How easy is it to get access to money since I will need to get to it twice a year to pay my daughter's schooling (and my next one will be in college in 3 years)?

[Kung Fu Panda]

You link your checking account to VG. Since funds close every night, they "sweep" the money. That means it is actually cash every night. You simply put in a withdraw request, and they will EFT it to your bank within 3-ish days.

[Deleted]

It's best to look at your situation holistically.
How old are you? How long to retirement? Are you married?
What is your retirement plan? Are you eligible for a pension? What do you have in your 401k?
Do you have other assets besides the 401k and the 49k savings?
It's important that you think of your retirement 1st before funding your daughter's college. It might make more sense to borrow that money and keep your money invested.
I, myself am researching Vanguard's total bond fund but as part of a larger portfolio plan.

[Deleted]

I'm 45, divorced, with 3 kids (17-the one in college, 15 and 12), that I am the sole support of.

I don't have a retirement plan (other than I don't think I will ever be completely not working, or at least not until my late 70s or so).

No pension.

I have about $140K currently in my 401K. I have an additional $50K from the sale of my parent's house and I have the house that I live in ($300K value, mortgage of $190K).

I am only funding part of her college - this year (freshman) she will have $22K in a loan from our credit union as well as the max for Stafford sub and unsub. She is applying to the common market which (if it's accepted) means that she will be receiving in-state tuition for the next 3 years (which will save $14K a year but may make her become inelegible to even the stafford loans due to my expected family contribution). I would prefer to minimize her loans as she will also need loans for vet school once she is out of undergrad.

[Deleted]

Holy cow--she's taking out $22K for her FIRST year of school??
As for easy access and conservative nature, ING is very good. I've found it very easy to access my funds and transfer money back and forth. However, you might consider a CD Ladder since you know for the most part when you'll need the funds and how much you'll need. That being said, it's great you want to help your kids with school, but remember it shouldn't be at the cost of your own retirment, unless they will be housing you in your old age.

[Savoir Faire-Demogague in NJ]

I would stay away from bond funds in this climate, especially funds that hold long term bonds. I would not touch any bond fund with an average maturity over five years.

[Deleted]

Virginia Tech out of state $30000 a year for tuition, room and board, and fees. This is a bargain compared to her first choice (although that school has the highest admission rate to vet schools in the country). Univ. of MD in state $21000 so not much difference. I had no money saved for her college so she pretty much had to borrow most of it. As she didn't turn 16 until a month into her senior year of high school, she didn't have much chance to earn any money.

[phil5185]

Virginia Tech out of state $30000 a year for tuition, room and board, and fees. This is a bargain compared to her first choice (although that school has the highest admission rate to vet schools in the country

That $120,000 of tuition plus living costs in certainly going to confound the family std of living for the rest of your lives, especially if the other kids have similar goals.

Why not use your community college for 2 yrs, your state university for 2 yrs - a total of about $20,000 for the BS - and then prepare to spend for the vet school?

[Plain Old Petunia]

How much do you earn? How much do you plan to contribute each year to daughter's education?

Frankly, I don't think you can afford to spend your inheritance on your daughter's education. You're 45. You have 140k earmarked for retirement. You still owe 190k on your house. You have 2 more children to raise. Just my opinion.

[Deleted]

Well first of all she's at the university, she's not going to drop out and attend community college. Second, the state university is $21000 a year so even 2 years there is $42000 (not sure where Phil got $20000). Next, as I said, if she is accepted to the common market (her major is not available in Maryland so she will get in-state tuition where she is) her cost will be $16000 a year (or less as she is moving off campus - which is $5000 LESS per year than our in-state university), so the next 3 years will cost $48000 not $90000. So let's move away from college, as nothing will be changing there. I never said I planned to pay for the entire thing, but $10000 a year is not outrageous to contribute.

I currently earn $112K a year. My only monthly debt is a $1300 mortgage payment (obviously there is food, clothing, blah blah blah but that is all variable and can be changed, cut back, etc.). I have $16500 a year going into retirement plus my company's match and I have 20 years at a minimum until retirement.

[Plain Old Petunia]

Well, if you earn 7% annually on your investments, your 140k plus 16.5k annual contribution will grow to just over 1.2 million in 20 years. That's respectable. At a 4% withdrawal rate, that will provide you with 48k annually, not adjusting for inflation. It looks good to me, because that is close to my current annual income. But for you, that is a substantial drop and may be insufficient. You are the best person to evaluate that.

I don't think that any amount is outrageous to contribute. The crucial factor is whether or not you can afford to do it. Will it cause hard feelings if you don't do something similar for your other two children? You are the best person to evaluate that as well.

Do you have a good handle on your spending? With 112k gross income, no debt but 15.6k annually to the mortgage, you have quite a bit of wiggle room. Can you "cash flow" 10k per year towards your daughter's college expenses? If so, you might invest the 50k for long-term growth, pay 10k out of your ING account, then commit to repaying it in one year's time. Rinse and repeat each year. The additional 50k growing for you over the next 20 years would boost your nest egg to 1.4million (still assuming 7% growth) and boost your annual withdrawal to 56k (still not adjusting for inflation).

Just for giggles, assuming 6% growth your nest egg (counting extra 50k) would be 1.2 million. Assuming 8%, it grows to 1.6 million.

[Deleted]

I should be able to pay $10000 a year out of my salary, or at least close to it. I just paid off my 2nd mortgage so that is $500 a month that is freed up.

I have $99K available. I obviously want to keep some of it close at hand as my EF but wanted to know where to stash the rest. I'm not comfortable with stocks/bonds but may put some in CDs (although the interest rates don't look much better than the ING savings).

Will look at some different scenarios as well as how much I can realistically save from my salary before making any long term decisions.

[Plain Old Petunia]

Do you track your expenses now? I was just plugging Mint on another thread. I am a big fan. It will import transactions from your bank accounts, credit accounts, etc., then summarize your spending by category for you. You can set up any categories you like. You specify a budget for each category. It really helps me to see where my money is actually going, as opposed to where I think it is going. Most people are surprised when confronted with hard data, I know that I was.

It's hard to grow money by keeping it in cash. When rates are higher, inflation is usually higher too. Do you have your 401k money in stocks/ bonds or cash? If it is all in cash and you are unwilling to venture into stocks and bonds, your only option is to drastically increase your savings rate.

For example, if we assume your 190k + contributions grows by 3% per year, in 20 years you will have 786k. That will provide 31.4k annually, not adjusting for inflation. That is a huge drop from your present salary. If you're not OK with that and don't want to venture into stocks and bonds, your only option is to dramatically increase your savings rate. To get back to the 1.2 million that 6% would provide, you would need to increase your annual contribution to 32k. To get back to the 1.4 million that 7% would provide, you would need to increase you annual contribution to 40k.

Have you thought about your "number"? Do you have a target dollar amount for your nest egg in mind? With 20 years to go and a good income, now is the time for you to make a goal for yourself. 20 years is still time for some beautiful compounding.

Best of luck to you.

[Deleted]

I do not track my expenses. I did at one point in the past but it was a pain (I did discover that having a Panera close to work was very bad - fortunately I'm not near one now).

I'm sure this is a YM sin, but I'm not really sure what my 401K money is in. I just clicked on the moderate risk profile at Schwab and let them do what they do. My rate of return since inception (July 2008) is 7% or so (I think).

I don't have a "number" in mind.

[debtheaven]

I don't want to stir anything up, but why isn't your ex paying CS? Even if you don't need that money to live on (good for you!), obviously it would come in very handy to help with your three kids' college costs. You may want to rethink that.

I second the opinion that you need to think about your retirement. Gd willing you will be healthy enough to work till 70 if you want to, but you may not be, and you may change your mind about working till 70 somewhere along the way.

Some other thoughts: A lot of people here don't believe in paying for their kids' college expenses. Like you, I do. But, I'm not sure I feel the same way about grad school / vet school. If you can help your child get out of college with little or no SL debt, I'm sure she could manage vet school.

As others have said, you don't want to be spending everything on one child and little or nothing on the others, that will breed resentment. I have four kids and I always tell them "fair is getting what you need when you need it" but at the same time, you can't pay for college and vet school for the first, and nothing for the third. (An exaggeration I know). Especially since you probably could certainly cash-flow AT LEAST 10K per year, even if it means making other cuts.

I think you are in a HCOLA. We live in Europe (I'm American) and when DH and I inherited, we bought a couple of modest 1BR apts that are set to be paid off when our youngest finishes HS. So college tuition for him, then retirement for us. Just something to think about. Admittedly prices aren't the same now, but I think it's still something to think about, since if you want to use that money for help with college, the market is probably too short-term.

I think you were wise though to stick 50K into retirement for yourself, you need that boost. You may have to cut back on some things in order to pay for college. But, everything is a choice. I am at a place in my life where I see PLENTY of people "cutting back" because they have one or two kids in college at the same time.

Best of luck!

[cronewitch]

What is common market? What makes you think you can find jobs when you are 70?

[Deleted]

My ex isn't paying child support because he is unemployed and has been unemployed so long that his UE has run out (including whatever extensions PA got). He is currently $95K +in arrears, but you can't get blood from a stone. He has no assets to attach and every year has to go before child support enforcement to explain why he can't pay. He is an alcoholic with a social anxiety disorder (he barely made it through DDs high school graduation without having an attack) so I seriously doubt he could even hold down a job at this point.

At this time I don't plan to pay for vet school (will reassess when the time comes as the 2nd kid will be in college then) but would like to get her out of undergrad with a minimum of SLs with the expectation that she will take them out for vet school.

So I'm still a little confused as to what to do with the money. Savings/CDs for low risk/low yield? I would prefer to preserve the principle rather than hope for large gains. I think I'll move more to ING (my credit union savings acct. pays nothing) and then reassess in 6 months.

[debtheaven]

At this time I don't plan to pay for vet school (will reassess when the time comes as the 2nd kid will be in college then) but would like to get her out of undergrad with a minimum of SLs with the expectation that she will take them out for vet school.

This sounds like a good compromise to me. I'm very very conservative so I would probably just stick that money in laddered CDs if I thought I needed it for college. If you thought you could cash-flow her, though, I'd try to find a better return.

Again, we have not done very well in the market but we have done extremely well in rental RE. Just a thought. It's not headache-free though.

[Deleted]

The common market is a group of 13 states that have a reciprocal agreement that if a specific major isn't offered in their state, the student can go to an out of state school at the in-state tuition rate. She is adding a 2nd major that isn't offered in MD so she can submit her paperwork (it's been all signed off at the college, just needs to go to the common market approval board) and when it's approved, she will recieve in-state tuition at her current out of state school.

What makes me think I can find a job when I'm 70? Perhaps the fact that I work with quite a number of people who are in their 70s and have worked with people that age for all of my career.

[Deleted]

Yeah, for my credit union to match ING, it was a 2 year CD with $100K (or something similar). I too remember my first CD - it paid double digit rates.

[cronewitch]

Jan 4, 2011 20:42:27 GMT -5 @singlemominmd said:

The common market is a group of 13 states that have a reciprocal agreement that if a specific major isn't offered in their state, the student can go to an out of state school at the in-state tuition rate. She is adding a 2nd major that isn't offered in MD so she can submit her paperwork (it's been all signed off at the college, just needs to go to the common market approval board) and when it's approved, she will recieve in-state tuition at her current out of state school.

What makes me think I can find a job when I'm 70? Perhaps the fact that I work with quite a number of people who are in their 70s and have worked with people that age for all of my career.

You are lucky to have picked a field that hires people over 70. We have many over 65 but few over 70 and usually hired before 65 or so. We did hire one retired man but he wasn't over 70. I am 62 and don't think I will make 65 from bad eyesight. I replaced a 71 year old but her arthritis was too bad for her to work longer and she was 60 when hired.

[Deleted]

My degree is in aerospace and ocean engineering. I work for a NASA contractor, so they don't want experience to disappear. But I don't know that I will necessarily continue in this field until retirement - I may finally decide to go to law school or just do something totally off the wall. So I may not stay at the same salary but I don't see myself sitting at home doing nothing. Once I don't have teenaged boys to feed, I'll have tons of extra money.

[phil5185]

Oh do I wish for the days of the 7-11 cd

LOL - be careful what you wish for, we had a couple of those 10% CDs too - and as I recall, the corresponding inflation was 14% and mortgage rates were 13%?

[Deleted]

OP,

I think you've been so busy working and raising kids that you haven't spent enough time thinking about what you need in retirement! You can afford to be a little slack with some pension plans but not when your only retirement plan is your 401k and SS. At age 45 you need to be focused on your financial well-being and not just your kids.

I really like Petunia's post #100 and will "exhalt" her. You can split the baby (sorry for the expression) and keep a rolling 2 years of college expenses on top of your EF in laddered CDs. Put the rest in a ROTH or some other account which isn't easy to access. This is your "other" retirement account. You can start off in CDs while you do some research. I generally like to start folks off with the Millionaire Next Door, then a Random Walk Down Wall Street and then the Intelligent Asset Allocator. Your retirement money needs to be focused on the long, term; not just 20 years but more like 40-50 years because you are likely to live into your late 80s, early 90s. This means being more heavily invested in equities; e.g. stocks, real estate et cetera and switching your allocation to more conservative as you approach retirement. That's an over-simplification but you're a smart woman and can grasp the concept. Phil or some of the other number crunchers can give you some scenarios.

Good luck and take care of yourself!

[Deleted]

I was putting money into a Roth through Schwab, however, the next to last paycheck before the end of the year, my contributions were wrong. When I asked about it I was told that I could only put $16,500 TOTAL in retirement accounts - I had thought the amount was pre-tax only - so what is the point of a Roth outside of my work retirement if it's just another post-tax savings account?

[Deleted]

You pay taxes on earnings going into a Roth but its earnings will grow tax free. But there are income limits. You might try Googling Roth IRA and see if you qualify.

Even if you don't qualify (like us) you might start a brokerage type account (we use USAA wealth management) and treat it as a supplemental "retirement" account. We actually have far more outside of "qualified" (aka 401k, 457 Plans) retirement plans than in because DH has been considered "highly compensated" most of his career so has never been able to max the annual amount and the inheritance.

[Deleted]

I'm pretty sure I am above the income limits (looked at Roth last night on ING). Which goes back to my point that I don't want a brokerage account. I don't want to pay someone to manage my money for me and trust that they'll do a good job and I'm not confident enough in my skills (nor do I want to take the time and effort to learn) to do it myself. So it pretty much sounds like I should ladder CDs and make sure to max out my 401K.

[Deleted]

oops, I just looked at my tax return from last year and my AGI was $93743. It's possible that my AGI for 2009 will be below the $105,000 limit, but I'm pretty sure it won't be for 2010, so I have only one year. Does that mean that if it is I can fund a Roth for 2009 up until April? Does it make sense to do that? Will the money I contributed to a Roth 401K during 2010 affect how much I can put in?

this is why I don't do anything with my money...