Should I Borrow Against My $4 Million Stock Portfolio to Fund My Sons’ College Expenses?

A Reddit user is trying to decide whether to borrow against his investment account to fund college for his kids. While the poster has a hefty sum at $4 million, he’s not yet close to his retirement goal despite being 55 and wanting to retire early.

Other Redditors were not optimistic about his plan, so is it really something that the original poster (OP) should consider doing, or should he change course so his children’s college plans don’t derail his efforts to retire on schedule? 

Will college costs derail this Redditor’s retirement?

The Reddit user explained in his post that he is 55 years old and his wife is 46. They have $4 million in assets right now, including $2 million in a retirement account, $1 million in stock, and $1 million in home equity. The couple also has a $600,000 mortgage at 2.5%, and their target retirement number is $6 million saved. 

However, the cost of putting his two children through college is estimated at $500,000, not including money they’ll need that’s in their 529 plans. He said he’s been advised to take a loan against his tech stock rather than selling the stock, so the stock can keep working for him and he can avoid hefty capital gains taxes. He said the loan would have an interest rate of around 5% to 7%.

While taking out this loan might make sense on the surface, though, many commentators were concerned about the entire plan, as the Redditor is already in his mid-50s, was hoping to retire “early,” and needs substantially more money saved — especially given that $1 million of his self-described $4 million net worth is tied up in home equity and thus isn’t going to be useful in providing the poster and his wife with retirement income. 

Reducing his nest egg by another $500K would mean he’d need to save around $3.5 million in the coming years if he wants to end up with $6 million in invested assets that can support him. Given that he’s only saved $3 million total so far in investments, that seems very unlikely. 

What should the Reddit poster do?

The poster is going to have some tough choices to make here. Specifically, he’s going to have to decide if he’s going to retire with the money he needs at a reasonable age or if he’s going to spend $500K on college for his kids, because he can’t realistically do both. 

A substantial number of commentors to the Reddit post suggested that the best solution would be for the children of the original poster (OP) to consider a less expensive college education. They already have money in 529 accounts, and for the poster to spend another $500,000 on top of that savings may mean that they are simply spending too much on school and may not get a good return on investment. 

This seems like a reasonable suggestion, although a lot depends on why the cost of college is so expensive, what the kids are studying, and exactly how important it is to the OP to be able to pay for the kids. If the $500K includes grad school for both, for example, and the OP is really committed to covering the costs, then he may just need to come to terms with the fact that the early retirement he was dreaming of isn’t going to happen and he may have to work at least until the standard retirement age if not later. 

The OP’s best option would be to talk with a financial advisor, run the numbers on what his retirement looks like both with and without the college education costs, and then decide if he’s willing to trade extra years at work to pay for such costly education or if his kids are going to have to either pick a cheaper school, rely some on student loans, or both. 

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