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Originally Posted On: Saving for your kids’ education or for your own retirement? – Alain Guillot
Your Kids’ education or your retirement?
The best of both worlds would be to pay for both, for your retirement and for your kid’s education, but in a world of limited resources…
In my eyes, the individual’s retirement takes priority.
The kids can get scholarships, they can work and study and at the same time, they can work during the summer and study during the regular semester, or they can get a loan and pay later.
If you don’t provide for your own retirement, no one is going to do that for you. You will have to depend on the government’s pension plan, which is not generous and deprive yourself of a comfortable retirement.
In an ideal world, this is how I would prioritize the allocation of money
- Make sure you don’t have any credit card debt (or any high-interest debt)
- Make sure you are saving for retirement
- After you have contributed the amount of money you have calculated that will keep you on track for your retirement, then start contributing to your kid’s education.
The numbers behind a college education
Right now in 2020, a Canadian student can expect to pay about CA$7,000 per year. Your kids could earn part of that during a summer job quite easily. They could also work part-time after school.
If we multiply $7,000 time 4 years, the total cost of tuition could be about $26,000. Let’s figure out how we can find those $28,000
Registered Education Savings Plan (RESP)
The nice thing about saving for your kid’s education is that you get a bit of help from the government. It’s called the Canadian Education Savings Grant, whereas the government matches 20% of whatever you contribute, up to $500. For example, if you contribute $2,500 per year, the government contributes $500 for up to 15 years ($7,500).
If you contribute $2,500 and the government contributes $500, you have a total of $3,000 per year.
The government will contribute up to $7,500 (15 years. $500 X 15 years = $7,500)
Assuming you invest it in an index fund where you are expecting to get a 6% return. After 15 years you would have $74,000. Taking full advantage of the government program, you could have enough money to pay for your kid’s education several times over.
Help from family and friends
We see it all the time, at Christmas, the kids get all kinds of toys, designer clothes, electronic gadgets, gift cards. How about if you ask your family members and friends to help contribute to the kids’ education. Sure, the kids will not be amused when they get an envelope with contributions to their RESP. Our consumer society doesn’t celebrate savings, our consumer society celebrates the flash of a new item, but in the long run, your kids will be getting so much value from some RESP money than from another plastic item.
Every little thing helps
There are many ways to cut down on education expenses without cutting down on education.
- Your kids don’t have to go to a branded university. They could get many of the essential credits in some regional college
- There are courses (with college credits) that can be taken online for a fraction of the cost or free. Well-known universities such as Yale, Harvard, or Standford offer free university classes online.
- Some companies internship count as college credits
- Some employers (such as Starbucks) pay 100% of their employee’s education.
Retirement isn’t complex
Maybe you don’t have to worry about the costs of retiring? There are different ways to retire, ways in which you don’t need to worry about the utility bills, grocery shopping, and your own safety and security. If you would like an inclusive package, speak with La Posada about their wellness philosophy and the kinds of multistory floor plans you can get. They have executive chefs that cook the best meals for you, you have lots of different activities to do, you’re always free to go out shopping and enjoy yourself away from the residence. But, they also have resort-style activities and amenities that you would find the only while on holiday in a tropical hotel. Since all the costs are taken care of in one package, you don’t have to worry about the little niggling bills and long-term expenses.
You don’t have to give up on retirement to pay for your kid’s education. There are many alternatives. Many parties are happy to help. From your family and friends to the government, to corporate North America, to many employers. All it’s needed it’s the willingness to do something. If you leave your planning to the last moment, there you have very little choice, but if you plan ahead of time, you could retire and provide your kids with an education.