Hello, I'm new to Mr.MoneyMustache, and have been avidly reading my way through it. I don’t want to risk having missed something!
I have a situation that is somewhat unique, or at least, I haven’t yet seen it discussed, and I would very much appreciate your sage advice. Here’s the background: we are a family of five – husband in early 60’s, wife in late 50’s, and 3 sons in college. Husband has always had his own business , wife worked PT during children’s formative years, and currently works FT, with wages of $60,000 plus 10% employer contribution to retirement fund, and 100% employer-paid health insurance premiums. Up until 2008, our family lived under our means and managed to save over $400,000 in retirement funds, $300,000 in investments, and $70,000 in accounts earmarked for college. However, in the perfect storm of 2008, Husband’s business income (which in a good year netted 60,000 plus) began to drop precipitously and leveled off by 2012 to an annual net of $22,000, Child #1 entered college (followed by Child #2 in 2009 and Child #3 in 2012), AND (here’s the real kicker) Husband borrowed $150,000 from the home equity line of credit to cover stock market margin calls.
Fast forward to 2013: for the past five years, we’ve been paying the interest and a small amount of principal on the HEL ($425/month), and Husband makes occasional large deposits and/or withdrawals from the HEL (from stock market gains or losses), but the median balance always seems to be $150,000. The college accounts have been depleted to pay for the first several years of college. The retirement accounts have grown to about $500,000, and the investments to about $500,000. However, between the college expenses and decreased income, we will be running at a deficit for the next 3 ½ years.
Here’s the question: is it better to fund that deficit through additional loans from the HEL (3% interest) or by cashing in investments? And, how are we ever going to pay down the HEL except by cashing in investments? Am I even asking the right questions?
Other relevant financial information: mortgage is $130,000 and since 2 of the college aged kids are still living at home, don’t want to sell/move until they are out of the house. Annual expenses (not including college) are currently $74,000 (yes, I know we're not yet Mustachians). College expense will be $38,000 for 2013, $52,000 for 2014, $35,000 for 2015 and $35,000 for 2016. Yes, we (Mom & Dad) are footing the entire bill for college, but since that’s the precedent we set with Child 1, it doesn’t seem fair to change the rules mid-way for Children 2 & 3.
Thanks in advance for your thoughts.