I speak with a lot of high-earners who feel financially squeezed by private school. This is what we talk about together.
When high earners have vague feelings of financial uncertainty, it’s not usually an issue of whether a specific item is affordable today.
It’s more a question of long-term financial clarity. What implicit or explicit sacrifices are you making down the line because of how you want to support your family today?
Paying for private school is one of the most common versions of this conversation. Three kids, $30K per year each.
Although it technically fits in the yearly budget, there’s a creeping fear that paying tuition now is quietly stealing from retirement later.
For the people in this situation, people who started saving aggressively in their late 20s and early 30s, that fear can be exaggerated.
When you actually model it out, the nest egg they’ve already built is doing more work than they think.
Here’s a quick hypothetical example.
- A couple, both around 40 in a high-cost-of-living area
- They earn $500k but feel squeezed between taxes, mortgage, and daily expenses
- $2M already saved across retirement and investment accounts
- They have three kids they want to put through K-12 private school that costs $30k per year per child
Even if this couple stopped contributing to retirement for the next 25 years, that $2M they have now could grow to more than $12M by retirement at 65 assuming historical market returns on a moderately aggressive allocation between now and then.
$12M in assets could equate to $480,000 in annual retirement spending using the simplified 4% rule.
The wealth management industry has done an excellent job scaring high earners into maximizing retirement contributions at all costs. Some of that fear is legitimate. But for people who started early and saved aggressively, the marginal retirement contribution can end up being a nice-to-have, not a necessity.
One of the most valuable things I do for clients is helping them see that they already have more financial flexibility than they’re giving themselves credit for.
The clarity that comes from understanding short, medium, and long-term tradeoffs changes how people make decisions. It changes how they think about their careers. It changes whether they take the sabbatical, fund the private school, or finally make the move they’ve been deferring.
The numbers are usually better than the fear.
Originally Shared on LinkedIn. Follow me there to get regular content like this.
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Disclosures: Kangpan & Co. is a registered investment advisor. All content is for educational purposes only and is not financial advice. Past performance is not indicative of future results.