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June 24, 2010


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I'm not a parent so I don't know what it is like (not yet anyway) to want to support your child and send them to school. In fact, I was blessed myself in that my parents paid for most of education, at a private college (about $20K a year) no less.

However, I am now concerned whether my parents will have enough saved for retirement once they are ready to retire. As much as I hate debt, I would rather be in more debt and have my parents better off for retirement than the other way around. In another 30 years I could be supporting my parents because they have run out of money (I honestly don't know how much they have saved however so they might be just fine).

So, that being said - make retirement your first priority. Your daughters can get scholarships and/or loans for school; you won't be able to borrow money for retirement (I suppose a reverse mortgage would be borrowing but I haven't read anything good about them). Perhaps you can contribute a certain percentage each year towards their school and then leave the rest up to them? Those are my two cents.

Figure out how much you need to live when you retire and multiply that by 25. Work until you save that much. Max out your IRA's each year if you can and diversify your investments. Never have more twice the amount you can afford to lose in stocks. That's about all you need to know.

Swamproot has a very good simplisitc answer and Rob is spot on with funding retirement first education second. Your girls can always attend a community college, work part-time and attend part-time, get scholarships/grants or borrow if needed. You have fewer options for funding retirement.

I'm a little conservative when it comes to projections so to expand on what swamproot advised I would plan to replace at least 90% of your income in retirement in inflation adjusted dollars but 100% would be preferable. This means means if you retire at 60 you would need to replace ~$121,000/year (assuming 3% inflation). Without knowing your current saving status it is hard to say yea or nae on you being ready but you can run some projections here,

To help get ready I would, in this order, do the following:

1) Contribute to 401(K) up to the your employer match
2) Build a 3 month emergency fund
3) Funnel extra money towards paying off both mortgages
4) After mortgages are paid max ROTH
5) After ROTH max 401K
6) After both are maxed contribute to college
7) Retire comfortably

Of course this would change significantly if you already have $750K in retirement savings versus $75K.

Your total income is actually pretty low, and your children should qualify for some pretty serious financial aid. If you are making less than 100K - your children have a good chance of getting good financial aid - at some top private universities - families making less than $50K a year can have their children go free.

Keep your eyes on retirement savings. You can always help your children with their student loans after they graduate if you are in the financial position to do so.

Without knowing her health situation, job type and security, and amount saved in the 401k it is hard to give a good detailed answer. I like all of the ideas posted so far. I generally think 90 % is a bit high if people are being frugal.

Even more important is ensuring that you develop good habits; save at least 10 percent of your income above your retirement savings. Continue to do that in retirement. That habit will keep your expenses lower. Raise retirement and savings amounts with each pay raise.

Whatever you retire with, ensure you take out no more than 4%.

Consider a Fixed term annuity to provide income with a hedge against market volitility ( but only with a small amount of your money)

diversify! Not just us stocks, us bonds. Think international, frontier, emerging markets, small, medium, and large cap companies. Think metals, real estate, and even ibonds or tips as inflation hedges. These can all be bought directly or in ETF/mutual fund form.

Your daughters work? Have them start a Roth Ira now!!! That will be for retirement for them; you could match them in small amounts of 10-25 dollars. Then have them not touch it. If they do that and leave it alone from 14-30 and contribute regularly, they will be in great shape! That's even better than helping them with college loans etc.

Also consider long term care insurance costs.

Just some things to think about without knowing more details.

We don't know how much her homes are worth or how much she has in retirement savings. Hard to know if she's on the right track without really knowing what she has. Sounds like she is doing the right things though. If she has $250k or more in her 401k then thats one thing, but if she has $10k in the 401k then she has some catching up to do.

If her home and rental will be paid off within 20 years and she's putting 10-20% of her pay into retirement savings then she's probably just fine.

FMF asked the question, "What is your advice for her?".

Presumably this is a single Mom with two teenage girls, that are planning on going to college.
There was no mention of the girls' father and whether there is any alimony, child support, or future divorce settlement.
It also isn't clear whether the $70K income includes the rental income.
Paying for the total expenses on two homes and raising two daughters who will soon both be needing cars and assistance with college expenses is tough enough for a single Mom, let alone saving for a comfortable retirement in the face of a terrible economy and a sliding stockmarket that looks headed into a double dip recession.
It would be great if she had a loving, caring, and contributing partner to help but that's probably a tall order I'm afraid.
In light of the May real estate statistics, the severe drop in nationwide sales, and the sharp downturn in the leading economic indicators, I don't think that in her situation it makes sense to carry that much debt and to remain a landlord.
I think I would carefully examine the financial details of both properties, value, debt, mortgage payment, mortgage interest rate, taxes, maintenance etc. and then dispose of one of the homes and invest the proceeds. At least that way she will be getting rid of some debt and expenses and adding some investment income.

There really isn't enough information to provide the best solution. This young woman need someone very knowledgeable about real estate, personal counseling, and financial and retirement planning that she could sit down with, tell them everything, and figure out the best solution - maybe a father, uncle, or good friend.

Lots of good advice has been provided already, but I find it interesting that no one has mentioned Social Security. For someone with a $70,000 per year income, Social Security will cover a very meaningful portion of their retirement expenses. You can't make informed decisions about how much money you need to have saved without taking Social Security into account.

To get a good feel for how much her Social Security benefit will be, she can simply check her statement, which gives an estimate based on her historical earnings.

After accounting for Social Security and College Financial Aid (as @sasha pointed out), she may find that she's in better shape than she thinks.

She hasn't mentioned how much income is derived from her rental property. Her best bet may be to get rid of this property if it does not generate enough income. It is difficult to say exactly what she needs to do because she hasn't stated how much she has saved already. I would suggest maxing out the 401k, setting up a Roth IRA, and looking into a college savings plan for the youngest daughter.

Old Limey, I found it interesting that you feel that she'd be better off financially with a loving, caring partner--because I have learned that the vast majority of men are unfortunately just financial liabilities for formerly-divorced women.

Sure, a man with a job will bring some money to the household, but it's not going to be that much after all. She might have to move to a larger place if she finds a man. In her age group, most single men are divorced and their ability to bring money to a new family is heavily encumbered by alimony & child support. Men eat lot more than women do, usually demanding "real (ie expensive) food" instead of the cheaper salads and light meals that women prefer--her grocery bill will go way up. & I've also seen it over and over with my GFs--most men in the lower-earning bracket ( $300K. Most divorced women I know get far less child support because their ex's don't make anywhere near that much money. Also of course, child support stops after the child reaches age 18--so she can expect to lose what little support she does get when the child starts college.


The calculator I provided ( has an option to include social security in the plan

I have been happily married for 54 years to the woman I first met 60 years ago, and have a very attractive 49 year old daughter that divorced 3 years ago, however she received a settlement of several million dollars and a very large spousal support payment for 9 years so she doesn't have financial problems. Her two boys are also now over 18. However after a loveless marriage to a much older man, that was a mistake from day one, she found the need for an emotional involvement, and fortunately found just the person at The divorced man that e-mailed her 9 months ago was a tall, handsome guy, a very well educated engineer, and an executive at a large, local hi-tech company. As an engineer myself, I could not have hand picked a better person. He has two adult daughters in college and a boy at high school that lives with him in a $2M home that is currently on the market. Both were in unhappy marriages but are now extremely happy. I doubt very much if they will ever marry, for one thing she cannot marry for 6 years without losing the spousal support, also a marriage would serve no real purpose so I imagine they will one day become live-in partners. Right now they are in Florence and soon start a hiking and bicycling vacation based out of a winery in Tuscany, with members of his large extended family. It was the untimely death of an 8 year old daughter from a brain stem tumor that triggered my daughter's divorce, she was the glue holding the marriage together. Now my daughter is happier than I have seen her since her college days. As I have said many times, the two most precious things in the world, are to love someone and to be loved by that same someone. You cannot put a price tag on that. With that kind of relationship, together you can overcome most of life's problems.

I have to agree with PMT above. I'd check out my retirement progress on a financial calculator and see how much you need to contribute to your 401k and Roth IRA to fund a comfortable retirement before considering paying for your daughters' college expenses.

Well old Limey, what can I say? Your daughter is lucky. Most divorced women (including me) are not in that position, not even close.

I was very surprised that she found the person she is going with on her second attempt, and that the first attempt was also a good match. I believe that in the on-line dating world you have to be totally honest when you build your on-line profile, otherwise you are wasting your time and money. My daughter had a girlfriend take some nice up-to-date pictures in a particularly nice dress and she was very candid about herself and also about the kind of person that she was hoping to meet. They both feel that the good thing about "eharmony" is that they use their sophisticated software to compare profiles in an attempt to match people that are as compatible as possible and then only send out one or two profiles at a time that meet all criteria. They both took themselves off the service very soon after the first meeting.
Of course, most divorcees come with "baggage" - a far cry from my wife and I that were both immature teenagers when we met, through a mutual friend, at a dance in 1950.

Looks like eHarmony is paying some writers to hijack this comment thread.

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