Dear Dave,

I hear you talk about using an ESA when it comes to funding college for your kids. What can you do with an ESA, though, if your child decides he or she doesnt want to go to college?

--Anonymous

Dear Anonymous,

You may just have to shoot the kid. Im kidding, of course, but if something like that happens, youre going to get killed on the investment. An Education Savings Account (ESA) can only be used for education. If you use it for anything else, youll get hit with a 15% penalty plus your tax rate. The governments going to take about half of your money and maybe more.

Now, college is a great idea, but should everyone go to college? Of course not. Some people just arent cut out for college, and some kids dont need four years at a university to find the training they need to do what they want to do in life. In our house, we just talked about college as if it were going to happen from the very beginning. We said things all the time like, This money is going into your college fund. An ESA makes perfect sense in this kind of situation, but if the entire family isnt committed to the importance of getting an education, then you shouldnt be loading up an ESA.

But hey, if a kid doesnt want to go the traditional college route, theres always specialized training in several fields and plenty of vo-tech schools around. An ESA can be used for lots of these kinds of things, too, as long as the school participates in the federal student aid program.

I dont have a problem with any of that, as long as theres a plan. But letting a kid get the idea that theyre just going to party and lie around while mom and dad hand half of that ESA over to Uncle Sam? Really?

I dont think so!

--Dave

Dear Dave,

Do you recommend that people have a certain goal percentage or dollar amount saved for retirement?

--Faith

Dear Faith,

Well, life doesnt generally happen in linear fashion. In my opinion, your overall goal--closely and constantly adjusted and monitored--should go something like this: Build a nest egg that you can live off about 8% of. If you have $500,000 stashed away, then that would mean about $40,000 a year. If youd rather live on $80,000 a year at retirement, youd need $1 million. Otherwise, youre liable to start counting on the government. And we all know how well they handle money&

Want to know where I got this figure? Throughout the history of the stock market, the Standard & Poor 500 has averaged between 11 and 12%. Some folks dont think it will average that in the future, but they didnt think it would when it was booming, either.

FBN Tool: Are My Current Retirement Savings Sufficient?

But, if inflation runs about three or 4%, and youre making 11 to 12%, you can pull out 8%, and youre still leaving enough in there to give yourself an inflation raise every year and not touch your nest egg.

--Dave

For more financial help, please visit daveramsey.com.