Education Fund Planning: Expats should figure their big expense Now !

Meet the Smiths.

Bob is 34 years old.  He’s been married to Susan for 10 years with 2 children.  Samantha is 9 (born in 1999) and Johnny is 7 (born 2001).

How much is it going to cost Bob and Susan to meet 2 basic financial obligations – sending their two children to private university and providing a retirement nest-egg that will enable them to enjoy the lifestyle that they are accustomed to?

Let’s assume that each child starts college at age 18 and graduates in 4 years (though many take 5 years!)  Tuition is $30,000 TODAY, with room and board coming in at $10,000.  Inflation – conservative at 3% per year – will raise the annual total to nearly $51,000 by the time Samantha enters university in 2017.

This is what Bob and Susan Smith will be paying in tuition during the 6 years from 2017 through 2015:

2017:  50,835
2018:  52,381
2019:  107,948 (heeeere’s Johnny, starting college)
2020:  111,232
2021:  57,307 (Happy Graduation, Samantha.  Now get a job.)
2022:  59,050

Their all-in price for sending 2 children through school?  $320,000 in 2008 dollars, and a whopping $438,753 by 2022 (thanks to inflation) — when he’s finished.  Ouch.  But remember – that calculation is based on tuition rising by 3% a year.    If inflation runs closer to 6%, he should plan on shelling out just a little over $602,000.

Retirement planning

And what about retirement?  Let’s say that Bob works until he’s 65 and plans on being retired for 25 years (i.e.: living until 90).  If the Smiths wants a retirement income of $100,000 per year in 2008 dollars, what will they need to retire?

At 3% inflation the Smiths will need an income of $250,000 a year to equal today’s salary of $100,000 when they calls it quits in 2039.  To pull this off they will have to put away $3,196,000 – assuming a return on  investment of 9%.

If inflation were 6% and their returns remain stable at 9%, they’ll need an impressive $10,600,000 to build up the reserves needed to payout the equivalent of 100,000 per year in today’s terms.