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Retirement Planning Vs Child Education: Finding The Right Financial Balance Between Both

Dec 06, 2018 | 2 years ago | Read Time: 4 minutes | By iKnowledge Team

Creating a portfolio that accommodates both retirement planning and child’s education can be daunting without the right strategy. We tell you how to go about it.

The cutoff list for admission into any of the reputed educational institutes is not what it previously used to be. Kids today must compete much more than the generations before, since they are now expected to score mostly above 95% in the subjects of their choice. With such fierce competition over the more ‘respectable’ or the more ‘popular’ career choices, your child may even choose to switch between multiple career options at the last minute. It is important to you as a parent to be prepared for such a scenario, just as it is important to plan for your retirement. Most parents, should they fall short of meeting their child’s education goals, resort to using their retirement corpus to cover it up. Chances are, it may be their most costly loss ever.

Retirement planning and your child’s education are the two most important financial goals in your life. Both these goals require your attention, and reflect in your timeline at different ages. You must understand that they are both equally important and must be given separate attention. It is understandable why most parents would sacrifice their retirement corpus to compensate for their ward’s education. But by doing so, they put to risk their financial independence during their old age. With the nuclear family structure taking a dominant position, especially in urban areas, the possibility of not having your children around you all the time in your old age is quite real. Based on their career choices, they may even need to move out of the city to explore opportunities. In case of such an event, you will have only your retirement corpus to see you through your old age.

How to plan for your retirement?

Financial planning is a ‘me-first’ activity. This means that you must first ensure that your financial position is on strong footing, to be able to take care of your loved ones. The most important step towards retirement planning is to start early. The earlier you start, the larger your corpus saved. Retirement planning requires patience and disciplined savings, for it is the key to reap the benefits of compounding returns.

For example, if you start saving Rs. 5000 a month every year, in financial instruments like pension plans, from the age of 30 years, you will end up building a corpus of over 50 lakhs by the time you are 60 years old.

However, should you choose to do the same from the age of 45, your total corpus built, will have an approximate 15 lakhs. Experts recommend that you start saving in pension plans from the day you start earning, seeing as loans are out of the picture, to meet your financial needs once you retire. Reverse mortgage in India, at current rates, is a poor choice to consider.

How to plan for your child’s education?
The question that most Indian parents would still ask – how do you think for yourself above the wellbeing of your child? The answer is as simple as self-care. You prepare a separate portfolio, dedicated specifically and entirely, to your child’s future financial needs, without touching the corpus you’ve built for your own. As difficult as the decision seems, financial prudence would suggest to the contrary, that you save for a time when you are dependent on only yourself, especially at a time when you need someone to depend on. Aegon Life’s iMaximize plan is an online Unit Linked Insurance Plan (ULIP) which offers a combination of protection and market linked returns.

It has been designed to offer a considerable degree of flexibility, making it well suited to the first time investors and market expert alike. This plan can also cater to your child’s needs in your absence through the Triple* Benefit pay-out option, which provides financial relief in stages. No allocation charges mean you maximise the return from your investment as the full amount gets exposure to the fund of your choice.

Retirement planning must not be ignored even though our children are our world, as it is customary for young birds to leave their parent’s nest and make their own. It is recommended that you invest in child plans after your child is born, and focus on your pension plan until then. Your income and cash flow will have surely increased by the time your child is on the way, and this extra income can be used to save up for your child’s education. Retirement planning is as important as providing your child with higher education. It is not about choosing between the two but about striking the right balance between the two. A good retirement plan ensures that you get to spoil your grand-kids when the time comes, and enjoy the final stage of your life in considerable peace and comfort.

To know about Aegon Life’s life insurance products like term insurance and other products, visit our home page.

II/Oct 2018/4484


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