When it comes to saving for the future, there is often a conflict of interests while prioritizing between goals. Usually immediate goals like funding our child’s higher education takes precedence over saving for our retirement, which we consider to be an event that will take place, far in the distance. Regrettably, we realise the impact of these decisions on our retirement plans at a much later point when it’s too late to reverse the outcome. This is why, it’s important to first set a budget for expenditure for all goals including retirement, and plan our investments accordingly.
Start building a retirement corpus at an early age
One of the most-asked among investors is whether to save for their retirement or their child’s higher education. Though this is understandable, it is actually futile to concentrate all of one’s savings towards only one goal – in this case – higher education. The general perception is that there will be enough time to save for retirement once major expenses like higher education are accounted for, but this is not actually the case.Saving for retirement at a young age gives investors the additional benefit of their money compounding for several more years. For instance, if one invests Rs 5,000 per month towards retirement savings at the age of 30, and leaves it to compound for 30 years till they turn 60, this monthly saving will help build a corpus of about Rs 1.22crores.
Keep retirement and higher education goals separate
It is advisable to treat the retirement goal and higher education goal as altogether separate goals. Instead of using your retirement corpus to pay for your child’s education, you ought to instead, make adjustments when it comes to your standard of living and spending habits. Since the cost of education is increasing with every passing year, you can increase the amount of investment per year on building an education fund, in keeping with your salary increase. This is especially prudent if you are planning to send your child to a foreign university. However, for those who haven’t planned well, if you do use your retirement fund to pay for higher education, you have to ensure that your new goal becomes replenishing the retirement corpus at the earliest, to make up for the loss.
Education loann
When it comes to higher education, children have the added advantage of being able to avail of education loans and repay them when they get a job,which is why saving for retirement should remain the primary objective. It’s much easier paying back the loan amount and interest in regular intervals than having to start saving for retirement from scratch since you have diverted your retirement savings into your child’s higher education. [Also read: How to Save for Your Child’s Education]
If you concentrate on your child’s future education instead of retirement, it would be difficult to make up the money as you grow older as income stops, post retirement. You might have to compromise on your standard of living, as a result. Also, since health concerns grow with an advancement in age, it’s important to consider the worse-case scenario and build a substantial corpus to safeguard yourself and your loved ones, in case adversity strikes.
In a nutshell, you needn’t concentrate wholly on either saving for your child’s education or building a corpus for retirement; you can do both simultaneously. Your goal should be to plan your investments smartly, by say for instance, investing in long-term funds with strict lock-ins to safeguard your retirement corpus, and going for growth assets such as equity through systematic investment plans (SIPs), to build an education fund for your children. [Also read: The Advantages of Investing Via SIPs]