One of the most challenging issues you might face as a parent is prioritizing between your child’s college savings and your retirement. If you’re like most parents, you might rephrase the question this way: What is more important—my child’s education and secured future or my own security at retirement?
Several people find themselves in an uncomfortable retirement situation where they drain a large portion of their retirement corpus on financial goals that are significant for their children. Unable to save and invest in building a higher education corpus, many parents take the painful decision of funding their child’s higher education dreams at the expense of their own safety during retirement. Such moves have a direct consequence: these old people are left fending for themselves if the child does not return back the money or is unable to support their parents later. This situation quickly escalates into one where ‘retirement’ becomes a nightmare for these parents. There are numerous tales where old parents are forced to lower their economic standards and live hand to mouth.
Both goals – higher education and retirement are essential and one shouldn’t come at the cost of the other. However, if you haven’t taken the initiave of providing for your child’s higher education systematically, then you may find yourself at crossroads where you eventually sacrifice your retirement kitty to cater to this important goal. Here’s how you can avoid digging into your retirement corpus while simultaneously saving enough for your child’s higher education:
Separate both investment goals
Ideally, both these goals require a long-term investment horizon, although you have more years to plan for your retirement. To ensure that you don’t get tempted to dip into your retirement pool is separating your investments and creating a different portfolio for these varying goals. Creating a separate portfolio means various mutual fund investments. If you are wondering what is a mutual fund, a mutual fund is simply a financial vehicle that pools the money of numerous investors and invests in various securities such as bonds, stocks, money market instruments, etc. Depending on your goals, investment tenure and risk appetite, choose from the different types of mutual funds available to you – like equity fund, debt fund, hybrid fund, etc.
Make sure your goals are achievable
An easy way to determine the required funds for your goal is to work backwards. Look for costs of undergraduate courses overseas and take the highest cost options. Once you have today’s cost, inflate the costs at the rate of 10-12% each year. Working backwards will help you determine the future cost of your expenses. You can also use an SIP calculator for the same.
Remember, cutting down on your retirement kitty could be detrimental to your financial health in old age as access to medical facilities and life expectancy improves. Invest in mutual funds for a minimum duration of 10-12 years to let your investments grow at their best. Happy investing!