What to prioritize? Kid’s Education or Self’s Retirement?

Out of the various stages in an investor’s journey, the ‘30s and ‘40s prove to be the most dynamic. This is because a lot of financial goals, especially long-term are prioritized and de-prioritized quite frequently depending on the phase of life one is in. When you start investing in your ‘20s, it is mostly for short-term goals like an education loan repayment or buying a car or even marriage. However, in your ‘30s your priorities might change as your kids come into the picture. A lot of studies have shown that the focus of investments drastically moves onto the kids’ future (majorly building funds for higher education). But that is also the time when you ought to start planning for your retirement. And it is quite a common practice to deprioritize retirement over the child’s education.

Although the need to focus on your child’s education is very understandable, at the same time, we must understand retirement cannot be overlooked at all. And it is very possible for you to plan for both provided you are clear on the below questions-

 

  • When do you plan to retire? What is the kind of lifestyle you are looking at, post-retirement?
  • What kind of a school/college do you want your child to be enrolling into? Do you have an upper limit to the monthly spend? (Keeping inflation in mind)
  • Is there any pension scheme you have invested in?
  • Basis your current investment strategy, what is the estimated balance at the beginning of your retirement period?

 

The thing to remember here is that education can always be supported with education loans or even scholarships, but there are no retirement scholarships. It is absolutely organic for you to lean toward education loans. In addition to arranging for funds, they also inculcate a sense of financial responsibility in our kids which is welcome any day. If you keep visiting the above-said questions regularly, you are sure to re-adjust and reach your target maturity amount. A regular and systematic approach like a SIP solves the problem here with effectiveness.

Let us look at this with an example. Assuming you start investing at 30 and intend to retire at 60 years of age and also assuming that your child needs to go to college in another 18 years, let us look at the probable corpus you may accumulate-

We see here that even after assuming an inflation rate of 6%, our total corpus for retirement is Rs 1.8 Cr and that of the education is Rs 65 Lacs. This, with a total outflow of Rs 22,000 a month in a top performing mutual fund. If required, the rest of the education corpus can be loaned-in.

Whether this 1.8 Crs is enough for you to lead the kind of retirement life you desire to, will depend on your monthly operational costs. And hence, the best way to derive at the ideal monthly saving is to work backwards from the retirement age. Determine how much money will be required and accordingly calculate the inputs. Needless to say, both the cost of living and educational fees is bound to increase over a period of a few decades.

For the above said retirement and savings planning, you may get in touch with the Financial Consultants at WealthApp for the best-designed portfolios. We are dedicated to helping you achieve your life-goals without having to de-prioritize any of them. Let’s take care of ourselves first in order to take care of our children better!

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