Wednesday, May 20, 2009

Save for Retirement or Kids Education

Those of you who have kids have probably given some thought to putting aside a few bob that will go towards helping with their education. You may even have set up a specific savings or investment account for them, where children's allowance or other money gifts are put away until they are needed.

More often than not, it is likely that the accumulated value of these educational funds will be insufficient to cover the full costs that will be incurred. But, at least you have made a start and you have a plan.

It is difficult to balance your 'here-and-now' family overheads, from the limited income resources available to you, with your potential long term liabilities in terms of educational costs. You may even be tempted to elevate savings for college as a primary objective; and bury retirement planning in the back of your mind. It's only natural; as you want to what's right for your kids and it is one of those selfless acts that comes with the territory.

The decision to prioritise your kids education over a comfortable standard of living in retirement is a personal choice. However, it may be worth considering some common sense financial issues, if you are beating yourself up over one or the other.

* If you have the opportunity to contribute to a PRSA or Occupational Pension Scheme, where the employer will match some or all of what you will contribute, it's a no-brainer; take the money.

* Any tax reliefs foregone cannot be recovered in future years. If you pay tax at the highest marginal rate, it makes perfect sense to contribute to a pension. This may change in the future as the divide, between the lower and higher rate of tax relief system, may be put on a more equitable footing. It is also possible that access to limited amounts of pension funds may be available, prior to normal retirement age, at some stage.

* If you have credit card debt, or other high interest loans, pay them off before you start making any long term savings plans.

* Make your kids aware of the fact that education is not free and that compromises will have to be made in the years ahead. As they get older, try to formulate a plan with them on managing their educational funding. If a limited amount of student debt is part of the plan, so be it. It's part of life and they can learn from it. It is easier to borrow for education than it is for retirement.

* If you have the resources to start funding for educational costs in addition to retirement planning, you should begin as early as possible. It's difficult to make up for lost ground if you leave it too late, and it may influence you into making investment decisions that would not normally be within your risk profile.

* If you are a home owner and you have not re-mortgaged on a regular basis you will have equity in your property which could be freed up if the need arises.

* Protect your family by having an adequate amount of life insurance in the event of the untimely death of a parent.

* If you are a business owner, try and add some value to that business so that it will enhance your future earning capacity and make your financial situation better. We tend to forget that more lucrative job opportunities may also happen for us in the future.

* Although there may be uncertainty about Government assistance for educational purposes, it is probably fair to say that there will be some form of grant or scholarship system available in the future. Weekend or part-time jobs for the students would also help with costs.

In summary, do not sacrifice funding for your retirement over your kids education. Look after number one, first. Always remember that you will be able to offer some financial assistance and guidance to your kids but it may not be in the form that you now aspire to. Financial goals of deferred retirement, reduced standards of living or taking on second jobs in retirement should not be on your radar.

Relevant/Featured Website/s

No comments: