Retirement and Saving for Children's College

[Bsweets]

Hi, we aren't sure what we should do and need help with saving for our retirement and our child's college. *Our information is as follows:

- We are 32 and bring in around 80k/yr gross.
- Husband has a 401k with about 70k in it but we just have it sitting in a money market and it's *not really making anything because we are afraid to lose it in stocks.
- I have an old 401k with 6k just sitting in it.
- We both have Roth IRAs but only have 600 in each of them.
- We have company stock that's currently worth around 250k.
- We want to open a 529 for our 1 year old but can't decide which one.
- We have a mortgage but no other debt.

Can you please give us direction on what to do? *We talk about it all the time but just waffle and can't decide on what action to take. *We are scared we don't know what we are doing. *We want to make sure our retirement is covered and that we can help our child with college. *Please guide us! *Thank you.

[Mr Nice Guy]

Hey guys I got this one

What is your combined monthly income?
What are your monthly expenses?

Do you both work at the same company? If so, it seems like you are somewhat over-weighted on your company stock. There is this rule in the personal finance world that you shouldn't have too much invested in the company you work for. If things go sour, you lose your retirement AND your job.

[Mr Nice Guy]

P.S. welcome to the board! Grab a drink and make yourself at home.

[Bsweets]

Hi, thanks for taking the time to help! We take home 4k and our bills (not including gas, food, fun) come to about 2200.

Oh, I'm a stay at home mom now.

[Bsweets]

Hi, thanks for taking the time to help! We take home 4k and our bills (not including gas, food, fun) come to about 2200.

I'm a stay at home mom now.

------------ Sorry for the double post.

[LivingAlmostLarge]

Sell company stock $250k is a lot in one company especially when you lack other assets.

[Bsweets]

When he received his company stock four years ago it was $4/share and now it is over $40/share. Would you still sell?

[jpg7n16]

Originally Posted by Bsweets

- Husband has a 401k with about 70k in it but we just have it sitting in a money market and it's *not really making anything because we are afraid to lose it in stocks...
- We have company stock that's currently worth around 250k.

Do you see a problem here?

You are afraid stocks won't make money, so your solution is to invest 75% of your portfolio in a single stock. The reason you give for not selling it is because it's made so much money.

This just seems very inconsistent.

But before you go off and sell it all, is the company stock held in a retirement or non-retirement account?

- I have an old 401k with 6k just sitting in it.
- We both have Roth IRAs but only have 600 in each of them.

Old 401k's usually charge fees to maintain the plan. You should really consider rolling it to an IRA. You'll get significantly more investment options, have more control over the assets, and most IRAs don't charge any maintenance fees.

Can you please give us direction on what to do? *We talk about it all the time but just waffle and can't decide on what action to take. *We are scared we don't know what we are doing. *We want to make sure our retirement is covered and that we can help our child with college. *Please guide us! *Thank you.

I'd really just recommend speaking with a fee only CFP in your area.

Find a Certified Financial Planner Professional

Search for those planners with specialties in Retirement and Education planning.

[Bsweets]

Hi Jpg, we didn't invest anything into his company stock. It is separate from his 401k and was given to him (this was a startup company that did well). I do see how it looks weird though. We are not risk takers so we just tend to sit on things and not take action when it comes to finances. I'll keep researching. Thanks for your help.

[gattaca]

Bsweets,

My friend sat on her company stocks so that she could use them to pay for medical school. By the time she went to school the value of the stocks had dropped by half. Do not expect that your husband's company's stocks will keep going up. At the very least, sell a portion of them to fund your child's education. That way you don't lose everything. Waiting for stock value to go up is like gambling you really don't know if you are going to win or not.

[jpg7n16]

Originally Posted by Bsweets

Hi Jpg, we didn't invest anything into his company stock. It is separate from his 401k and was given to him (this was a startup company that did well). I do see how it looks weird though. We are not risk takers so we just tend to sit on things and not take action when it comes to finances. I'll keep researching. Thanks for your help.

Sorry, my point was more that you were saying

1 - you don't want to invest in stocks
2 - you don't think stocks will make money
3 - you are not big risk takers

I find that odd since

1 - you are heavily invested in stocks
2 - you have empirical proof that stocks can make money
3 - your entire financial future (both husband's salary and retirement portfolio) is tied to the success/failure of a single company, which is a pretty big risk


At some level I think you guys understand the benefit to stock investing, but are just afraid about the economy (likely because either you watch too much news, or you listen to other people who watch too much news). There are benefits to having a portion of your portfolio invested in stocks, and you should likely include them in your portfolio. Just choose/have a planner prepare, a more conservative portfolio.


If the stock is held in a non-retirement account as you say, there may be certain tax consequences that a CFP, CPA or tax advisor can help you address. On that amount of money, I think it'd be worth your time to at least consult with a tax specialist before doing anything with the stock.

[LivingAlmostLarge]

Yep absolutely. With 10 fold return I would have probably have sold it when it hit $20 and diversified a long time ago. I would hold a conservative amount maybe 5% of my entire portfolio. Realize there will be 15% capital gains and state income tax on the gains, but at least you made money.

Then I'd decide from there what to do with the money. $250k after taxes could still be $200k. Maybe I would keep $20k invested or $25k but not more than that. Too keep more would be ignoring the rules of investing.

Then from there I'd fund Roth IRAs for you both at least 2011 and 2012, then I'd have an EF if you don't already have it, then I'd look and see if I have any other big expenses coming up soon. Then I'd probably put $2k for each kid into an ESA for 2011 and 2012 and then see where I am financially. Then I might set aside a set amount like $20k into a 529 and say that college is now funded period.

But it depends on what rate the mortgage is, how much you owe, etc.

[photo]

Originally Posted by Bsweets

we are afraid to lose it in stocks...........We have company stock that's currently worth around 250k.

Do you understand that your $250,000 could be lost? Assuming you're a long way from retirement, you should be much more concerned about the non-retirement stock than the retirement fund.

[Like2Plan]

I agree with the others about too much exposure in the company stock.

While I would not sell all of the stock, you could incrementally sell some stock and invest in other areas so you don't have all your eggs in one basket. (Yes-even if your company stock continues to go up in value.) You will have to pay taxes on the gains-(another reason for selling incrementally), but the tax rate is currently at a historic low for long term capital gains. As jpg7n16, a CFP could best help you with the specifics in your situation.

I also agree about saving a little for college each year (whatever you find affordable after funding your retirement savings and your emergency fund). When we started saving for our son's college, our mortgage payment was around $1,000/month (we paid off our mortgage a few years ago). DS's bill for college (tuition and fees and room and board) this year is slightly under 21,000--so, the amount of the mortgage payment would not have been enough to cover it. (DS is attending a public 4 year in state college.) College costs has far outpaced inflation. The college calculators that I checked when DS was an infant predicted that the $1,000 mortgage payment would have been sufficient to cover the costs, but they underestimated the inflation, too.

[snafu]

Bsweets, you and DH are huge risk takers, far greater risk than most of us on this site. You risk outliving the sums in your retirement plans. Leaving large sums in a Money Market account is losing 4% to 8% [depending on whose statistics you read] in buying power and getting worse. You may notice that you are paying more in the grocery store and for utilities. How much interest has been added to Money Market or any of your plans in the past 4 months or since 1/1/11?

You would likely feel more comfortable by understanding the basics by reading Kiplingers or Moneysense magazines followed by a couple of books like Investing for Dummies, The Wealthy Barber or any of several often mentioned here. I fully understand your concern and suggest you investigate Dollar Cost Averaging [DCA] with a low cost investment vehicle like Vanguard Index. Until you feel comfortable, arrange for monthly transfers from Money Market. Yes, the value will move up and down daily but over the long term stock [also called equity] outperforms Money Market significantly. The American government has stated endlessly that they will not increase interest rates for the next 2-3 years. At any point you can re-evaluate accounts and holdings based on the economy and your comfort level.

I hope you'll take comments seriously and diversify your single stock holding.

[LMA]

I would recommend first making sure you max out your IRA. You can use your IRA to pay for qualified college expenses when the time comes. You want to max the IRA because only you can save for your retirement while paying for college can be done in more ways than one.

Whatever you have left in your monthly savings after maxing out your IRA can then go to the 529. If you open up a 529 in your state, the contributions are deductible from your state tax returns. Something to consider...

[LMA]

I agree with others on the size of the company stock. That't the bulk of your savings right there. Sell some of it and put in a more secure investment. Heck just putting 50k of that into a 529 and leaving it there until college time can pay for all of college if you figure in the appreciation over the years.