[Editor's Note: This is a guest post from a physician reader. After hearing me say that a house was the biggest purchase of a physician's life, he cornered me to point out that the education of children can have a much higher cost than a house. This post grew out of that conversation. He wishes to remain anonymous. We have a very minor financial conflict of interest that I can't really reveal without ruining his anonymity, so you're going to have to trust me on this one. This post is a great contrast to my personal plans for my childrens' educations. Enjoy!]
As an internal medicine subspecialist in my late 50s who is planning to retire in a couple more years, I wanted to show WCI readers how my wife (a non-MD with a Master's degree) and I accomplished an early retirement despite spending more than $1 million dollars for educational expenses (More on that later.)
I finished my subspecialty fellowship (in one of the lowest paying non-procedural fields) in 1989 and paid off my $125,000 in college and medical school debts within two years. My medical school loans had doubled in cost during training. These were the dreaded HEAL loans. I had to moonlight like a maniac during residency and fellowship just to keep our heads above water. From the beginning of my medical practice, we saved my wife's entire gross income of $30,000-$60,000 per year from her two jobs. My wife “retired” from one job recently and now only works 40 hours a week! Her primary employer has a 403B that we continue to max-out yearly. We pay an additional $700-$1000 per month for health and dental insurance as her primary employer's plan was better than my office plan. She gets a $1000/month pension at age 65.
Educational Costs
How will we end up spending a million dollars on college? Well, let's take a look.
Child # 1
24, male, 2014 Ivy League graduate, Legacy student as it was also my alma mater, BA in English.
Cost: $240,000 (all inclusive)
Currently first year in-state MD/MPH student. Lives at home with free maid service, free laundry, and lunches made by mom
Cost: $80,000 (all inclusive)
Child #2
22, female, Senior at famous Out-of State-University, earning BFA 5/2016. Parents have distinct privilege of being required to pay an additional $25,000/year for out of state student tuition (only two more payments to go!)
Cost: $240,000 (all inclusive)
Child #3
20, male, Freshman at major out-of-state public university.
Majoring in Chinese and business. Partial academic scholarship. Fifth year, Capstone free. Yeah!
Cost: $120,000 (all inclusive)
Child #4
17, female, senior in high school, applying to multiple “Seven Sister” schools on East Coast. Already accepted to an in-state public university ($120K total) and offered a merit scholarship to an out of state public university (still $65K total.) Aspires to be a lawyer.
Cost: $240,000 (all inclusive)
Cost (In-state law school): $90,000, all inclusive
We sent all 4 children K-8 to religious day school; a luxury our parents could not afford. We decided in the early part of our current 27-year marriage to gift this to our kids. Our oldest son was awarded a $70,000 academic scholarship to a private high school and graduated #1 in his class. The other three went or are going to magnet high schools. (Read: free) We estimate the K-8 costs at $300,000 even with the sibling discounts!
Grand total: $300K for K-12 and $1.01M for post-secondary = $1.31 Million
Our Story
We were and are studious savers but made all the financial mistakes and more that the WCI writes about in his eponymous book and website. We wish he had been born 25 years earlier! We also have a passion for travel and have visited over 30 countries with our kids including a five-week around-the-world trip courtesy of frequent flier programs and Hilton Honors points earned from the practice.
From 1989-1993, we accumulated over 20 mutual funds (including active and passive flavors) as I was truly clueless about asset allocation. Eventually, this was weaned down to a dozen funds with 95% index funds at Vanguard with an appropriate allocation that has become more conservative in the last few years with the help of our “fee only” financial advisor. I did go through a “day trader phase” in the mid 1990's. Luckily, I did not inflict too much damage on our finances.
We wasted thousands of dollars during my fellowship on an ill-advised universal life policy that we eventually let lapse. In 1997, I won a $40,000 BMW Z3 at a 25 cent slot machine in Las Vegas which we sold in 2 weeks to payoff our car and minivan loans.
In 2003, we paid off our 30-year mortgage after only 10 years. We had put down 20% to avoid PMI. The 3800 square foot house has appreciated in value from $300,000 to $400,00. The property taxes are about $9000 per year.
We have 6, yes six, used, paid-for, cars that average 125,000 miles apiece. We have no collision coverage. Our “newest” car is a 2002 Toyota Camry. We drive our cars until they die.
When we started saving in 1989, we maxed out our qualified plans and saved money for the kids for college in a limited partnership. Over the years, it waxed and waned, but we did the “heavy lifting by brute force” early on. By the time our oldest child started college, the LP was in the 7 figures and we just let it ride on its own with minor tweaking. We decided to pay the college bills out of cash flow for as long as we could without touching the LP while still maxing out our qualified retirement plans. This got a lot tougher with our second child starting college, but we persevered. Ramen noodles are quite tasty (just kidding). I got used to debiting over $12,000 per month from our personal checking account for 10 months a year in order to cover all college costs.
Now, with two in college and one in a state medical school, the costs are roughly equivalent to the first two kids in undergraduate schools. Our untouched “College LP” has now become a major part of our retirement kitty. This year, our second oldest child graduates, and then the $60,000 per year for 4 years repeats for our youngest child. Our plan is to use income generated from our investment portfolio to cover our youngest child's college and law school costs once I retire.
Our goal has always been to allow our children to choose the field and school they want to attend and start their respective careers debt-free. If this requires me to work until 62, I will do that. We have a few years to go, but we are confident we will succeed. We have also earned enough frequent flier points to take an around-the-world trip, first class, sans children at some point in the next few years. We just need to carve out a few months to do that.
But wait, there's more! My beloved wife is currently studying for the LSAT in order to fulfill a dream to go to law school and practice law when she “retires” in a few years. At some point, there is a sabbatical year she will utilize. Depending on the school she attends, the cost will range from $60,000 to $150,000 over 3 years.
Summing It Up
So, would we do it all again? You bet, in a heartbeat! We will retire comfortably but not extravagantly with a seven-figure portfolio and no debt. Perhaps, at some point, all the kids will be “off the payroll.”
The “take home message” is this: drive a beater(s), live below your means, don't buy too much home, live off of one spouse’s salary, stay married, and save until it hurts. Have we made several poor financial decisions along the way? You bet. You can fool me once….
For the last 4 or 5 years, we run any significant financial issues by our advisor before we commit. We believe it is important to spend your money on what is important to you and your family, whether it is education, great vacations, a wake boat (sorry WCI) or a little bit of everything. Most importantly, enjoy your family as that is what really counts in the end.
What do you think? Do you plan to save up $250K+ per child for college? Why or why not? If so, how will you do it? Comment below!
I put $$$ away for kids education at birth-age 3 and in those years, 80’s, I bought ZERO COUPON BONDS that paid quite well and paid all three kids college and 1.5 grad school
the obvious is to start early and be lucky in the mkts
Yes, there were a number of nice things about being an investor in the 80s!
Yes, theres a little burn to all these kinds of stories that involve investing during what is now called one of the best bull runs in history.
Youre (and I a few years behind) on the opposite end of that spectrum (but you did miss the 2000 bust?) and we will see how that goes for our eventual stories.
Yes, I thankfully missed the tech meltdown, graduating from med school in 2003.
Interesting post. I’m curious how much of this (1.3 M in school expenses, retiring moderately early) is a product of practicing in the “golden age” of medicine. Re high priced schools, I think they’re worth it if you can articulate a clear reason why. I went to an Ivy before medical school (75% off) and saw that it was definitely worth it for some and definitely not worth it for others. (Financially speaking, there are other benefits). There are basically 3 groups of students financially.
1. Children of the very rich: Doesn’t matter where they go or do.
2. People who want to go in to a field that will tremendously benefit from the prestige of the school. – The cost can economically be worth it for the investment banking and PE bound. I have one friend making 1 M + at 27. I don’t think he would have been better off if he shopped around for merit scholarships elsewhere.
3. People whose careers are not dependent at all on the fanciness of the school. This includes people going to law, med or grad school or planning on writing the next great American novel.
It’s worth sitting down with your kid and seeing if they really belong to group 2 and not group 3.
The “golden age” is a bit of a myth. In fact, THIS might be the golden age of medicine. The only real benefit for those practicing 20-30 years ago was the cost of school was lower. Despite what some would have you believe, many specialties had significantly lower salaries in the 80s and 90s.
https://www.whitecoatinvestor.com/would-you-encourage-your-child-to-be-a-doctor/
The average physician income in 1985 was $130K a year per this survey: http://content.healthaffairs.org/content/11/1/181.full.pdf
If you adjust that for inflation, it’s not very different from today.
At any rate, I know this particular poster well, and he did not have some dramatically higher income 20-30 years ago that would explain his success.
That may be true for the average physician and the writer of this article, but you definitely meet some older physicians, particularly in procedural specialties, who will tell you point blank they used to make way more money and have the vacation homes to prove it. In House of God, which was written in 1978, when the fat man is talking about the ROAD to happiness he mentions ophthalmologists making millions a year. Obviously it’s a work of fiction, but still.
There is also a great deal of variation within a specialty. Even shift-based specialties like EM. I see surveys where some docs are working for $100 an hour while others are working for $300. Then I hear about some people doing locums in terrible places and getting $600 an hour from desperate staffing companies.
An ophthalmologist who owns a surgical center and has 6 other ophthos working for him might make $3M, while another one might make $180K. Lots of variation.
But when you look at the actual surveys that were actually done back then, I’m not seeing this mythic golden age. Look at that link above- surgeons were averaging low 200s, not millions.
And I certainly don’t think “vacation homes” prove anything. I know a doc with vacation homes running as fast as he can on the treadmill to stay up with all the payments.
As near as I can tell, this is the golden age for EM. Emergency docs have never made as much as they are making now on an inflation-adjusted basis. We’re all looking at each others saying- “Make hay while the sun shines!”
You may be right about EM, Ortho seems great as well, but maybe its always been that way. Everyones period seems to be a little different of course. I think it was just before the early 80s and in them when procedural specialties were making a mint, which is why we now have hmos and the like. I hear crazy things in my own specialty like 20k for a breast aug back in the day, which is insane.
I would love to go back and do EM or some other half the time very similar pay situation. There isnt enough predictable premium for longer specialties.
I really believe that certain procedures or specialties are “overpaid” for a few years then the carriers figure this out and ratchet down the pay. I know fees on deliveries are around the same as when I was in residency in the 80s. I think the take home message for young docs should be that you cannot count on incomes rising to the sky during your career. Save early and often because carriers can and do suddenly decrease payments on what you do by 25% from time to time. When I was a resident the good ol days were the 70s. I guess the golden age of medicine was always 10-20 years before you were in practice.
I think his last paragraph sums it up. He spends on what makes him happy, and they save on other things. TO many spend on whatever, and then are sad when they don’t have the money to do what they want.
I am on the WCI side for school. My kids will go to state schools and pay for some of it themselves, so my biggest purchases will be home and business. But no wrong answer here if you budget it and it makes you happy.
Can you expand at all on using “limited partnership” as your education (why you chose this…and what it is exactly). and were 529’s also available to you at the time?
Many high earners used limited partnerships in the 1980s as a tax shelter. Then tax law changed and eliminated the benefits. So no one really does it any more for that reason.
529s grew out of pre-paid tuition programs. They were part of the Taxpayer Relief Act of 1997. So 18 years.
The heyday for LPs was 1983-1989. The Tax Reform Act of 1986 was the beginning of the end for them, but many investors were stuck with the structure. More history here: http://www.journalofaccountancy.com/issues/1997/jul/knight.html
The author emails to note the LP is mostly an asset protection scheme:
1.We started the LP on the advice of our estate attorney for asset protection as we have the LP wrapped in an LLC which supposedly makes it difficult , but not impossible, to pierce in a lawsuit as we had already maxed out our qualified plans.
More details here: https://www.whitecoatinvestor.com/family-limited-partnerships/
Thank you!
When my parents were married, my father only had $33 to his name. Neither of them had a college degree, but they were farmers and hard workers. They always lived within their means and saved whenever they could. They helped all of their eight children attend college. All 8 of their children have degrees…many even have advanced degrees! While it would have been amazing to graduate debt free, my parents taught us something by not paying for our education (they still helped out financially). They taught us that you have to work hard if you want something. We took our education seriously because we were paying for it…there was no idea that college was a time to party on mom and dad’s dime. I also was very aware that if I was going to be buying and working toward a degree, I’d better have a matketable skill set that would justify the cost of my education. I’m not sure I would have cared as much about my education or learned good financial habits if I had known the money wasn’t coming out of my pocket.
Some feel that way while others had their education given to them, feel like they still turned out all right, and want to do the same for their kids. Different strokes for different folks.
Absolutely! Not a truly right or wrong answer! If their kids have learned the good financial habits then they can be lightyears ahead of their peers. I would have loved to start debt free. Kudos to the parents for caring so much about their children’s education and future!
Love the “take home messages.” Thank you for a nice post. Hope the young docs starting out are getting the message that a reasonable house and cars can go a long way in helping balance out early financial mistakes and setting one up for financial success. By the time you can afford the fancy doctor house and cars, perhaps you realize that you would rather spend the money on other things you value more. If you value the house and cars, that’s fine, but wait till you can afford them without financial stress. Being a doc offers you plenty of stress without adding finance to the list.
Thanks for this post, it really resonates with me. Currently none of my children are school aged and the cost for care for them monthly is 1.5x my mortgage with property taxes accounted for. It’s even more painful because I live in HCOL area (No Cal) and we don’t have a McMansion but certainly pay the McMansion price. I’m often on Boglehead reading about people paying off mortgages and retiring early and have only recently realized this will not be in my future. I was in denial phase, but this recent post really confirms it for me. So, like the OP, we just need to focus on what’s important and what will make us happy. No early retirement, No paid off million dollar mortgage but I do plan to have SOME retirement nest and kids undergraduate paid for by mom and dad. As a background, I has scholarships and worked in college and did research/labwork in medical school which reduced costs substantially. My parents were unable to contribute at all to my education, but as other posters noted, there is so much more that they gave me than money.
This reads like luxury spending… that they pretend isn’t just luxury spending.
Of course, we’re all doing “luxury spending” every day, right? It’s all about what you compare to. I mean, organic food, going to restaurants, paying someone else to mow the lawn, heck owning a lawn mower- they’re all luxuries.
Great post, wish my parents were in your position. I’m sure they would have sacrificed the world to help me, they just couldn’t afford to. Have paid for everything since leaving for college at 17. Now I’m 31, finishing my fellowship debt free after paying off my 97k in student loans from Ivy med school during the first 18 months of residency ( went to local public university for undergrad, lived in low cost of living area for residency, and wife made 40k per year so that all helped).
Has anyone ever thought to start a 529, but not tell their kids about it and ask them to compete for scholarships independently and then let them know afterward that you have in fact saved for them and you will be making up the difference? Does that make me a jerk for considering that? My reasoning is that it gives them the opportunity to work toward a scholarship(s) and think about where they will get the best value for their education without totally relying on mom and dad. Thoughts?
We openly discuss money with our kids. I taught them to walk, talk, read, write, etc. So, I felt finance was mine to teach too, especially since so much of our values are tied into our financial choices. When college came, the kids knew they had 90K in 529’s and how much we were willing to cash flow. I made them read Debt Free U. They were both considering med school. So, we discussed how to make the money last and our views on value of the named school we attended. After visiting several schools, they decided to go to in state college on scholarship. They both worked part time during school and full time during summers. My daughter is out working as a Chem E with 50 K left if she goes back for an MBA. My son starts in state medical school still with 90K in the 529 this fall. If you go with your plan, teach them well so they make smart choices. But, you may be missing some good opportunities to educate them on finance and your values. Good luck!
Why not just teach them about money and its value and work and its value from an early age rather than trying to hide something from them.
MY CT surgeon told me he got paid from my insco the same as he did in l981; 4500 for 8 hours of surgery
My radiation onco friend earns 1/2 of what he made yrs ago
Dentistry can be much more lucrative with less hoiurs
Tell that to the new dentists coming out with $450K in loans and getting associate wages of $120K.
You are right on the money, WCI. I know plenty of young general dentists with 300-450k in loans making 120-140k working 40-60 hours a week for these huge corporate dental offices. Quite sad actually.
Yes, very common. So much for a “sure bet” eh?
BTW-Your CT surgeon has been operating for 35 years? How old is he, 70-75? You’ve got a lot of guts letting a 70 year old crack your chest!
WCI, some people are great surgeons at an older age. I have two very good friends who are operating at 81 and 70. I would let either of them operate on me. The 81 year old evaluated yearly by our malpractice carrier for dementia which the examiner jokes about. I think Debakey operated into his 90s. Both of my friends Are financially secure and practice because they want to not because they have to.
I know a great plastics guy in his 70s. I suspect most surgeons probably ought to quit by 70 but it’s obviously an individual call.
Agree. You may not be less effective than a 40 year old but its certainly a good idea to have some cut off. Until there is a good objective and effective way to tell its just not worth it.
My parents felt it was their duty to pay for my education, and they did. There were a couple scholarships along the way, but in the end, I was the one who benefited from them. The money left in the old UTMA account when I graduated from med school in 1991 went to me, about $15k, IIRC. My father was an orthodontist and had the means to provide this, and, more importantly, felt it was a generational imperative.
Similarly, I expect to pay for the education of my children. So far, my son, a junior in (private) his school, has burned easily $225K+ in tuition. He has about $150k in a 529 and another $100k in UTMA accounts. I have told him that I will pay for his education (like my father told me) from these accounts and my own cash flow, but when these accounts are gone, the money is gone. I am encouraging him, but not forcing him, to choose an educational path that will not draw down all of this money. In my own mind, it is his money, and it is spent.
My daughter (eight grade) burned through about $100k in private school until we moved her to the public school, which is a better fit for her. She has a similar amount of money in her 529 and UTMA accounts ($150k and $90k), and her messaging will be the same.
I also look at 529/UTMA accounts as their money, already spent in my mind.
I have twins..they are only five. I’m estimating similar costs to what you have here – around $250K combined when they are 18 .
My plan is to use real estate to pay for their tuition (and make them wealthy too). And I already purchased the properties too.
I’m not directly paying for their education – rather i’m getting them pay the bills using rental income/equity that they receive from a rental property. I want them to learn to budget, pay bills and get their ears wet in real estate.
I wrote an article of how to do this on my blog, which I’m planning to execute for my kids:)
MY CT is 68.5yrs old and is quite well known throughout the world
I was about his 6000th Victim
The most wonderful and compassionate doctor
Yes dental students with massive debt are in big trouble
PRIVATE is hitting 500k for 4yrs dental
only leads to poor quality and GROSS OVERTREATMENT
Very informative. After working my way through college and going the military route for med school, I vowed my kids would get some help financially. Although I’m a lowly primary care physician, my wife (stay-at-home) and I have been able to put $100k in 529’s for each of the 4 kids. This will (barely) pay for 4 years at our top-ten ranked state university. Help with grad school is beyond our means if I want to retire anytime soon. Same house, same wife, same job x 20+ years. Fortunately, none of my kids aspire to the Ivy league and are happy with their choice so far.
Does your state university offer merit scholarships regardless of need? Our state university offers set tuition amounts for a 3.5 high school GPA (easy) and various tiers of ACT or SAT scores. My daughter got partial tuition (missed full by 1 point on ACT). My son got full tuition. My youngest is determined to match his brother’s score. We never filled out a FAFSA. No one cared parents were both MD’s. The kids benefitted from their hard work and weren’t penalized by our finances. Great lesson there. Saved us over 50K. Allowed them both to have 529 funds left for grad and med school.
That sounds great. Unfortunately, no merit scholarships – need based only.
I feel like there has got to be a better method to cover $1M of college tuition. Can’t you try to work for the most prestigious university that offers tuition remission?
For example, at my state university, they provide 100% tuition remission for undergrad and grad degrees for your spouse/partner and dependents if you are either full-time faculty or regular full-time employee. But they do not cover for College of Law, College of Medicine (including MS in Physiology), and College of Pharmacy.
Stanford offers a generous program without having to work there. You have to make less than $125,000. If my kids could get in, I would go part-time just so they could go to Stanford for free.
I had to send my child to a private high school- was tired of seeing her coming home every day in tears from her highly (over)rated public school .
Tuition is sky-high, hurts like hell and pushes my distant retirement into even more distant future but… the kid is flourishing academically and socially. Not sure there was much choice…
So, for a lot of money I got a happy kid. Not priceless, but yeah, close enough
Scholarships are often available to help with tuition. However, the other 1/2 of college expenses is housing. I see them building so many nice, new apartments and condos for student housing. This has been a trend over the last 20 years to get rid of the traditional college slum living and replace it with better housing.
So why not buy a condo near the university, let your child live there rent free during school, then sell it afterward. Get 1-2 roommates and you can cover much of the mortgage payments.
My parents did this. It helped even more that 3 of their children went to the same university (2 twins and an older sibling). When all was said and done they actually made a bit of profit off of our college housing.
My wife’s parents did that. But what a difference between the dorms I lived in with a roommate and a shared bath (shared with an entire floor of dudes) and what they’re building these days where everyone has a private room and bath and a fancy organic kitchen with dozens of choices instead of cafeteria slop. That stuff is nice, sure, but it isn’t cheap.
House divided on this issue. My husband says “She got a scholarship, she earned it.” I say “We gave her our genes- when she gets As and higher ACT it is with a lot less work than most of her schoolmates.” Had 529 and EIRA for kids but decided bad place for our money (since getting scholarships and have GI bill) so have emptied all but last kid’s EIRA and used the money to repay us parents’ expenses for them.
We let #1 keep a $1500 award she got with an essay etc, but otherwise the free tuition she got to State saved us money. We were willing to pay (go back to work prn) for Ivy/MIT but she didn’t like them much- maybe high school beau was a factor sadly. I feel she still- with allowance we gave her and letting her have minimal savings we had in her name- had more pocket money than most of her friends so I fear she was too rich at school. Not like she bought everyone else’s beer, but like she wanted to eat at restaurants her friends couldn’t afford as often as she could. She got grants for master’s program and as she bragged increased her income over our prior allowance to her (which we cut off at BS graduation- had she not gotten grant we might’ve helped with expenses her master’s year).
For #2 in 10th grade we still have GI bill intact. That and yellow ribbon program (private college may accept GI bill for full expenses) might cover her even at an Ivy- don’t know which way she’s headed and whether or not she’ll qualify for academic scholarships where she attends (already will qualify at State but might aim higher- we’ll pay wherever prn). However if she attends with scholarships might use GI bill for a parent for flight school or basket weaving or something. And if she goes somewhere that costs a lot more- Ivy without yellow ribbon program etc- we might use the savings in her name for bills rather than her pocket money. However don’t want her choosing cheaper college to have more beer money so don’t discuss that possibility much.
My best friend’s policy was State is on parents, anything more on the kid. Her friend (MD) sent 4 to Vanderbilt and will work until she drops dead because of that. I picked middle ground- I’ll go back to work for topnotch school, not for expensive but less impressive one- in that case State is better use of my money. GI bill alters it but I’ll still feel guilty if it covers #2 to Ivy when #1 went to State and will likely stick to not encouraging her to go to second tier expensive school- why not have let her sister do the same.
Ha. Here in NYC having 2 kids going to local daycare programs cost us ~$45k/year. We’ll have spent $200k on ‘tuition’ before they start elementary school.