When Beth and Brian arrived for their first appointment, they were well prepared. They had completed the questionnaire carefully and had files of statements from their retirement accounts and their recent statements from their banks and joint taxable account at Fidelity.
As I read over their goals for our work together, Beth verbally added their sense of urgency to decide about college for their daughter, Danielle. “We always told her that we couldn’t afford a school like Yale. But she wanted to see if she could get in. Now that she did get in we feel very torn. We haven’t been able to save for college, and the problem is that now that we have good incomes, we aren’t eligible for much financial aid. We feel like terrible parents if we say no to a school of such prestige.” I told her that we would try to work out a plan around making a decision about college, but first I needed to understand their employment situations and their cash flow.
Beth, age 58, has been teaching at Boston University for the last couple of years as an associate professor. She earns $60,000. Brian, at age 56, has not been employed steadily for the past five years. Though he’s now working at Boston Scientific as a mechanical engineer, earning a comfortable $100,000, his leaner years left them with $15,000 of credit card debt and Roth IRAs that had been drained to make ends meet. They had not been able to save for retirement during those five years.
“We had to withdraw money from our Roth IRAs to cover our costs. We knew that that money was supposed to be for retirement, but it was the only cushion that we had.” I agreed that it was smart to use those accounts. The contributions can be withdrawn at any time without tax or penalty because taxes have already been paid on that income. Although you can’t borrow from a Roth IRA, you can withdraw up to the total amount of contributions. So they were smart to use that money rather than going into more debt.
To get a better understanding of their daughter’s college options, they filled me in on the schools that accepted her and the tuition for each of them.
At Yale the tuition, room and board total $46,000 with no assistance offered. At the other schools she was accepted at, the costs are as follows: Roger Williams, $39,550 minus a $5,000 grant with their cost at $34,550, Clark University, $40,850 minus a $10,000 grant. Their remaining cost would be $30,850. Finally, at U. Mass she would have a free ride in the honor’s program because of her high grades and test scores.
Danielle was pleased to have so many options, excited and flattered to be accepted at Yale, and also somewhat interested in Clark because a friend of hers is there. But she really would like to go to Yale if they can afford it. Can they?
