Annuity distribution ideas

[Pliablemoose]

Youngest daughter's getting ~100K annuity @ age 18.

We can control it's distribution.

I'm thinking:
1.) Yearly distributions from age 19-23 to cover college expenses & used car (she'll be 19 when she starts college) (1/3)
2.) Lump sums @ 24 & 29 (1/3 each)

Any thoughts?

 

[PowerEngineer]

I gather that the yearly amount (for five years) for college will be roughly $5k, which is very nice but may still leave her well short of what colleges cost today. U of W anbd Washington State (in-state) costs run roughly $15k/year. Private college costs run up to $35k-$40k/year (before financial aid).

You might want to tie the amount she can access during college to some percentage of the expenses she can expect (after any financial aid) while attending that college.

 

[DaveSimmons]

^ good advice from PowerEngineer. The two main things she will need help with are college and the down payment on a house, so it makes sense to shift more of the money towards the college years.

Is your daughter old enough to discuss it with her, and explain that you can help more with college, but that will mean she gets less help later on?

 

[sygyzy]

I would not give a lump sum at 24. That's too close to graduation. It would not motivate her to get a job or be successful when she is going to get 33 grand for doing nothing.

 

[Pliablemoose]

Originally posted by: DaveSimmons
^ good advice from PowerEngineer. The two main things she will need help with are college and the down payment on a house, so it makes sense to shift more of the money towards the college years.

Is your daughter old enough to discuss it with her, and explain that you can help more with college, but that will mean she gets less help later on?

Nope, not old enough.

Appreciate the advice.

 

[flot]

Do you have to decide now? And do the amounts need to be fixed?

The things she'll likely need the most money for, before age 30:

1) actual college expenses, 19-23/24 - anywhere from $5k to 100k
2) "starting real life" expenses, immediately after college (IE relocating, finding a job, etc) $3k
3) somewhere between 1 and 3, buying a car $10k ?
4) Buying a house - $20k-50k down payment
5) getting married - nice to have $10k lying around for this

Honestly - student loans are easy to come by, and it is WAY too easy for a college student to squander money away if it is just lying around. Her college expenses will vary greatly based on where she goes to school, so it's hard to pinpoint that sort of thing in advance.

I did have one friend in college, and I remember I walked w/her to an ATM once and saw the balance of her acct, which was something like $13,000. I freaked out, and she explained to me that that was her "college fund" and basically it started at $40k and she had to make it last until she was out of school. I was pretty impressed that she managed to pull that off - and what she had left at the end, was hers to keep. That DOES go a lot farther towards teaching fiscal responsibility than having a "magic check" show up every year. So, having said all that - I'd lean more towards a max of 2 payments in college (one when she's a freshman and one when she's a junior)...

As for the rest of it - even if you decide to go 50/50 (college and after college) really the biggest thing she is going to need the rest of that $$ for is to buy a house...


***OH*** this is very important. You should definitely do some research about college financial aid and annuities before proceeding. This is going to sound shady, but it's true: If your daughter "makes" $20k a year in her college years, the school's financial aid department will immediately use that against her in the amount of loans/scholarships she may be eligable for. (*your* income will also play a part in that) It may be cheaper for her to take out large student loans (with matching large grants/scholarships) and then pay them all off immediately upon graduation. Again, you really need to do some investigation there. As a "for instance," my father works for himself, and at the time he could make $30k a year or $150k a year, depending on how the year went. This was an absolute nightmare in dealing with my school's financial aid office, who would have a fit every year, and assign some new arbirtrary # to how much financial aid I was allowed to get.