Recently I chanced upon the cut off list for university admissions while reading a newspaper, that ended around 99% percent for most sought after courses. The appalling list shook me up a bit when I compared it to the ones we used to see during our college years. Competition nowadays has grown many folds, however there are multiple career options as well which the students may choose and do away from making a bee line to the ‘respectable’ or ‘popular’ courses. What is even more important, that how financially prepared are you as a parent, in case your child opts for a different career option at the last minute instead of choosing the one which you had prepared for. Many of you might use your retirement savings as a fallback option, but have you ever thought that this might be the biggest financial mistake of your life?
Retirement and Child education planning are two important aspects of financial planning for every individual. It is essential to understand that both hold their own importance in your financial portfolio at different life stages. Ironically people are inclined to sacrifice retirement for children education. Depleting or exhausting your retirement funds for your child’s education is highly risky as it can cause you financial distress in your old age. Times have changed and the concept of a joint family is almost non- existent (specially in metropolitan cities). Most of us stay in nuclear families. There is a possibility that your children are not around you all the time in your old age as they might get a better career opportunity away from your city. Thus the only source to fall back on after you retire will be your retirement savings. You will only be inviting financial trouble if you forego your retirement savings.
The basic principle of financial planning is ‘pay yourself first’. As the phrase suggests, your own financial stability is of utmost importance to ensure that you are able to take care of the financial needs of your loved ones. The most important step towards financially securing your retirement years is to start early. You can ensure a big corpus for your retirement years by saving early. The power of compounding makes you grow your money by making disciplined savings. For example, if you are 30 years old and have started investing Rs 5000 per month, you will end up building a corpus of over 50 lakhs by the time you are 60 years old. In case you choose to do the same when you turn 45, you will only be able to build a corpus of 15 lakhs. It is therefore advisable to start investing from the day you start earning. You must remember that you will not be able to take any kind of loan to meet your financial needs once you retire. The only other alternative that remains is of reverse mortgage which is anyway not a good option specially in India at the currents rates. Also you will have to mortgage an asset that you have built by investing all your life.
Most Indian parents may ask the question – isn’t it selfish to think of oneself first, even before the child who depends on you for her future. Emotions will drive as to sacrificing everything for child. But financial prudence will tell us to save for that life stage need first for which you do not have another option. There is no doubt that children’s education becomes a priority as our world revolves around them. We must not forget that while doing so, we should not move our focus away from the retirement planning. The better idea is to start investing into a child plan from the time your child is born.
By the time your child is born your income also grows, which should be used to invest into a child plan instead of depending on your retirement savings in case there is shortage of funds at the time of child’s higher education you may opt for a loan as well. Retirement readiness is as important as providing for your children’s higher educational expenses. It is not about choosing between the two but about striking the right balance between the two.
Sachin Saxena, SVP and Head- Products & Channel Marketing, Max Life Insurance.