How to Balance Saving for Retirement and Your Kid's Education

Dr. Don,

My husband and I are both 46 and have a combined annual income of $70,000. We have one son, 15, whom we expect will attend a state university three years from now. College expenses will run about $15,000 annually. We own a house with a market value around $225,000. There is a $100,000 first mortgage at 7 1/2 % with twenty years remaining and a $20,000 home equity loan at 8% with six years remaining. The combined loan payments are about $1,100/month. We have no other loans or credit bills.

Our son has about $10,000 in savings bonds for school but we've followed previous advice given from other sources and saved for our own retirement over his college.

Could you review our IRA asset allocation and secondly (and more importantly), suggest steps to take over the next few years to pay for our son's college education? I've been thinking of putting more money into bonds. Also, should we put retirement savings on hold and pay off the home equity loan, so that we can possibly take out another one to help pay for college?

Thanks,

MB

MB's Portfolio
Name	Shares	Market Price	Market Value	% Total Value	YTD Return	Morningstar's Stock Industry or Fund Category
MB's IRA Accounts
(FDGRX Quote)Fidelity Growth Company	75	54.90	4,118	3.7%	-23.0%	Large Growth
(FGRIX Quote)Fidelity Growth & Income	595	38.62	22,979	20.8	-7.8	Large Blend
(RYLPX Quote)Royce Low-Priced Stock	821	10.95	8,990	8.1	17.1	Small Value
(VBISX Quote)Vanguard Short-Term Bond Index	1,032	10.24	10,568	9.6	6.7	Short-Term Bond
(VFINX Quote)Vanguard 500 Index	226	109.59	24,767	22.4	-9.6	Large Blend
(VGHCX Quote)Vanguard Health Care	165	123.59	20,392	18.5	-5.6	Specialty-Health
MB's Taxable Accounts
Lucent Technologies (NYSE: LU)	200	7.02	1,404	1.3	-47.9	Phone/Network Equipment
Verizon Communications (NYSE: VZ)	100	52.11	5,211	4.7	6.3	Telecommunications
Cash	12,000	1.00	12,000	10.9	n/a	Money Market Fund
Account totals:			18,615	16.9%
Portfolio totals:			110,429	100.0%

MB,

Your portfolio problems are minor compared with the problems you are creating by changing the priority of your financial goals. The good news is that you can help your son finance his college expenses without stopping your contributions to the retirement accounts. The bad news is that you'll be doing it by taking on additional debt. ...