Kids’ studies or your retirement fund: What’s more important?

After watching incomes stagnate and retirement funds barely growing after the financial crisis but cost of college tuition going up at the same time, many parents in the UAE are faced with a very difficult choice – should one save for their old age or save to secure their children’s future?
 
“I’m totally confused. Both are very important. I think my priority will be my children. I will first ensure that I have money for the higher education of my two little ones and then try to build a retirement fund,” Nick, an expat form Croatia told Emirates 24|7.
 
This is a choice, which a majority of parents will make, irrespective of their nationality. But, this can be more of an emotional rather a practical or realistic decision, say experts.
 
Expert opinion differs on this. In a perfect world, anybody would like to move forward on both fronts, but this isn’t a perfect world. One school of thought believes that when it comes to saving for your child's education or saving for your own retirement, you have to put the kids second.
 
M.R. Raghu, Senior Vice-President-Research at Kuwait Financial Centre (Markaz) believes “they are sequential targets in that saving for children’s college precedes that of retirement planning”.
 
“However, both will have severe inflation impact as they are long term. You have some leeway for children’s college fees in that there are educational loans available at affordable costs to deserving students which can then be repaid upon entry into a career. This also forces some discipline and seriousness on the part of the kid to take the commitment seriously. However, no such luxury exists for retirement planning. The picture is fairly clear when it comes to children saving since you know the time frame and approximate cost that will be needed to fund the education. However, in the case of retirement planning both these factors are grey areas. It is not clear how long you live post retirement and it is also not clear therefore how much money you would need to support your lifestyle and more importantly health expenditure. Hence, from a balancing point of view I would rather plan and provide more for retirement than for children education,” he told Emirates 24|7.

Richard Musty, Managing Director Lloyds TSB in the Middle East, said both are equally important and the key to achieve them is starting earnestly, even though it may be small.

“Both of these factors are equally important. In the wake of the economic turmoil witnessed over the last few years, many people are being much more proactive about planning for the future, whether it’s saving for their children’s college education or managing your retirement fund,” he said.

Stressing the need to start saving early, he added: “If you haven’t yet started to put in place a retirement plan, then now is the time to begin! Planning for retirement is vital and something that expats in particular need to pay attention to, given the absence of public pensions and often limited support of company based savings schemes.  We advise our customers to start their financial planning by reviewing their current situation, looking carefully at their income and expenditure and their present situation at work. It is also important to consider which stage of their life they are at. Where they are on their life journey will be an influential factor in how they set up their protection, retirement, savings and investment portfolio.

“Equally, saving for your children’s college education is important. You can’t put a price on a family.  However, providing for your child takes a hefty chunk out of a family’s budget. The best way to ensure that your child is well-provided for and given the best start is to open a dedicated savings account now. As with all savings accounts, the sooner you start the greater the amount will be.  When a child is born, you could send the account number to grandparents, godparents and other benevolent well-wishers and suggest that for birthdays and other such occasions they send money rather than buying another, soon to be forgotten, toy.  There is also the added bonus that they will be helping to secure the child’s future.  A number of small donations made over many years really add up and can make all the difference at a later, crucial stage in life,” he explained to this website.

Retirement and college savings often draw from the same bucket of available funds, and a balancing act is the key to success. And the earlier it is done the better it will be.

“Depending on where a family is on their life journey, you will have different levels of responsibilities and this means there are various opportunities to save. The simple fact is the earlier that we begin to save for our child’s education or our own retirement, the better chance we all have of achieving our savings target and being financially comfortable.

“A dedicated savings account for both targets would be the ideal way to invest, the accounts would be earning interest and its future pot will be growing on a daily basis. As people are becoming more financially aware they are turning to financial advisers and other professional firms for guidance and for assistance with developing savings plans which suit their individual needs. Seeking professional advice is sensible, especially when it comes to your child’s education or your own retirement planning,” said Richard Musty, Managing Director Lloyds TSB in the Middle East.

“As well as being tailored to an individual’s circumstances and financial needs, savings products should be straightforward and easily understood and it is critical that they are transparent on charges.  It is well worth spending a good deal of time discussing charges of any investment product with your financial adviser. They should be in a position to give you all the information you need and be very clear on any commissions or fees that they earn.

“So the key advice to consider is, first and foremost, that it is never too early to start saving for your child’s education or your retirement. Second, do seek professional advice from an independent financial adviser or from your bank but be very clear on any charges, costs or commissions that they charge. Having a savings plan will not only give you great piece of mind but will also go a long way in making everyone’s future financially secure,” he said.

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