5 Steps to an Early Retirement Plan for a Couple With 3 Kids in College

Money expert Bernadette Joy
Money expert Bernadette Joy answers your burning questions about budgeting, investing, and getting out of debt.
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Hello! This is Burning Questions, an advice column where I answer your questions related to FIRE (Financial Independence, Retire Early)! I am not a licensed financial advisor; I provide education. The information here is based on my opinions, my personal experience, and the work I’ve successfully done with clients. In these columns, I’ll give you practical steps to conquer your top challenges in money, plus insight on how real people are achieving financial independence from a variety of circumstances.

This week’s question is from someone who’s looking for an early retirement—but first, she needs to get on the same page with her college-age kids. I gave her a five-step guide on how she can refocus finances on her own future.

Pro Tip

Got a burning question for Bernadette? DM her on Instagram @bernadebtjoy or email us at contact@nextadvisor.com.

We want to retire early, but we’ve got twins in college!

Hi Bernadette! We have 3 kids in college who are 20, 20, (twins) and 18. And we would love to retire ASAP- but will probably need to wait until we’re 65- which would be in about 12 yrs.

We make enough money to pay for most of it out of our income every month. And we’ve filed the FAFSA which has given some free (non income based) COVID grants that have helped 2/3 kids in community college. We also got a parent plus loan and a student loan for 1 of our kids.

We don’t want them to be in the college debt poor house but we don’t want to neglect our retirement.  One of our companies just recently offered retirement, and we don’t have more than a few years worth of retirement saved.”

My question is; what % of our monthly income should be going to retirement (hoping to retire in 12 yrs) versus helping kids with college? What’s a financially healthy way to think about helping kids with college costs? 

– Signed, Parents Hoping To Retire, Ever

Kudos on getting three of them to college so close together. That’s an amazing feat and you must be very proud of your family!

Your answer was hidden in the second sentence of your letter to me: “We would love to retire ASAP.” 

So, let’s get to it.

I don’t have kids myself (because I heard they’re expensive), so know that some of what I’m about to say is not based on my experience as a parenting expert. Instead, they’re from the perspective of the eighth of nine children of my father, who did not plan enough money for retirement before he passed away.

  1. Calculate your FIRE number right now to determine exactly how short you are on retirement savings.

This is not to shame or guilt you: the truth is you do not have enough saved up for retirement. I wish for both of you to live long lives, and even if your expenses are as low as $40,000 a year (less than $4,000 per month), a comfortable retirement amount would be at least $1 million. That is a hard pill to swallow. I’ve never had a client figure out their FIRE number, which is the amount of money you need to have invested in order to be financially independent, and not feel shocked. So I’ve learned to give them a 48-hour freakout window to process their feelings before taking action.

  1. Reverse into what that means in dollars, not percentages.

In my opinion, percentages are useless for creating sustainable action, because you don’t actually know how much you need. Whenever I ask someone how much they put into their 401(k), they tell me a percentage of their paycheck, but they have no idea how much that is in dollars. We pay for things in dollars, not percentages.

For simplicity, I suggest you take the FIRE number you calculated, subtract how much you have saved so far, and then calculate the straight-line monthly number you need to start putting away into investments. For example: If you calculated $1,000,000 as your FIRE number and you have $200,000 invested, that means you have 12 years to grow another $800,000. This equates to $800,000/144 months = $5,555.55/month.

Real money nerds will try to give you anxiety with a more complicated calculation that considers inflation and interest rates and a whole bunch of other jargon that just stalls you from taking action. The point is to ballpark where we need to start accumulating, because chances are that monthly amount is going to be more than what you can afford right now. This is where your second freakout moment will likely come.

I had the same freakout when I realized my monthly goal was in the realm of $20,000/month. This next step is key.

  1. Have an honest conversation with your three kids about your need to start saving for retirement.

Too many parents, including mine, shield their money situations from their kids. Sometimes it’s out of embarrassment. Sometimes it’s because they want to protect them. But not telling the truth, and not including your kids in your decision making, will come back later. 

Sure, you might have helped pay for college for them. But as a daughter, I can tell you it was more stressful to deal with the consequences of my parents’ lack of retirement savings than paying off my own student loans. 

In response to how you can think about helping them with college in a financially healthy way, be brave to have an open discussion with them about what your plans are and what you are expecting (if anything) of them post-college, including if that means they will need to be responsible to pay for their own student loans.

  1. Make every penny count. You won’t get to the full amount you need overnight, but you can start somewhere. 

It’s only failing if you do nothing at all. If you’re not already, get on a monthly budget and start finding how you can put as many dollars as you can into the retirement plan your company offers. Start closing the gap little by little with other areas of your budget.

And don’t be afraid to expose your kids to how you are learning to budget and save for retirement, so they can learn alongside you. 

  1. Be confident in their ability to make their own choices in the future, and commit to building money habits together as a family.

You already made some great choices by sending them to community college and getting some other types of aid. There is no shame in those choices. When I went to college, I got into my dream school but ended up going to a “safety” school because my parents could afford that tuition after the scholarships I received. My brother similarly went to a school that paid him to attend, even though he wanted to go to an expensive one.

Back then, I resented my parents for not being able to afford the more prestigious school. But now I’m so grateful they made that hard choice for me. Even though I eventually had to take out $72,000 of student loan debt for grad school, I had more resources than my parents did to learn how to pay it off quickly. And quite honestly, at a young age I was more flexible to change my money habits and my income than they could. Now I’m a debt free millionaire!

Seeing how thoughtful you are in wanting to support your family financially tells me that you AND your kids will be able to save more towards retirement and college by building good money habits together as a family. Check out more tips on how to save for retirement from NextAdvisor