Your child's education or your retirement?

Without further education our children would be at a significant disadvantage in terms of finding employment. As a parent it is our responsibility to provide for our children as much as we can, but how much is enough and where do our obligations to our children end? When do we need to start focusing on our own futures?

If you haven’t planned for your children’s tertiary education or you have cashed in your retirement funds along the way, there are probably insufficient funds to meet both your retirement needs and your children’s education.

This is the challenge faced by two of our contestants, Thuli, mother of four and head of operations at an NGO, and Nkosi, environmental affairs officer and single mom. Both have adult children they still support. With only 15 years away from retirement they need to start making tough choices.

Thuli had the responsibility of looking after her parents as well as educating her children.

READ: Money, marriage and children - How to cope financially

“Initially, I started saving in an education policy. But when there was an urgent need for money, I would cash up and cancel the policy. I did this three times and realised I was losing money. When the time came for my children to go to university, we used short-term debt to fund their studies as our income levels did not qualify for the National Student Financial Aid Scheme. This left us with no option but to use credit card debt and personal loans. We thought about student loans, but we did not want to burden the children with loans even before they started working.”

As a result, Thuli’s debt levels increased, leaving her with little option in terms of increasing her retirement provision.

Nkosi’s plan was for her son to study and become financially independent. However, he has not applied himself to studying and at 24 he is still financially dependent on her.

“While I’m planning towards my retirement I also had to consider my son, who is unemployed. Though he has reached an independent stage, he is still dependent on me financially. You never seem to stop spending on your kids ... and then you have grandchildren.”

Both Nkosi and Thuli need to look at what they must change in terms of financing their children. Thuli has two more children to fund through tertiary education and, determined to cut back on her debt, she will have to consider student loans.

Nkosi must have a tough discussion with her son about his life: She has provided for him for 24 years, she has given him the tools for independence, now he must go it alone.

“I joke round with my clients faced with this kind of situation and say your children can get a student loan, but you can’t get a retirement loan. It’s not easy to think this way but it can help you to have enough when you retire,” says Nkosi’s financial adviser, Funi Nemanashi, who adds that the worst thing you can do to your child is be a financial burden when they are trying to raise their own family.

“If you run out of money in retirement and become a financial burden to your children, what happens to their children’s education and their retirement? You start a vicious cycle from which your family cannot break away.”

While, as a parent, you may feel you are letting your child down by requiring them to take a student loan, it is far more cost-effective than tapping into other forms of credit and it helps your child develop a credit record without having to take out “bad” debt, such as credit cards or store cards.

READ: 4 ways to pay off your debts – lessons from our Money Makeover contestants

“My two teenage kids will be going into tertiary in a few years’ time. This does not give us time to adequately save for their education. In addition to this, we will be retiring in 15 years’ time. Now we are more open to student loans. We will stand surety for the kids’ student loans and, to ease the burden on them, we will pay interest so that they pay only capital repayments when they start working. We will also look into bursaries and scholarships,” says Thuli.

For Nkosi it is about having a tough discussion with her son. 

Thuli has also encouraged her children to work and fund their own lifestyles. “My daughter is completing her honours degree and working as an au pair. My son completed his studies last year and is now working. Although he is earning a minimum wage and still staying at home, he is at least self-sufficient. I feel it is important as parents to cut the umbilical cord to our adult children as soon as possible. This will give us space to speed up and focus on retirement planning.”

Planning a 'soft' retirement

Most people do not have enough money to retire at age 60 or even 65 and, because of longevity and relatively good health, most people want to work past this date – just not quite so hard.

Thuli plans to retire from full-time employment at age 65 and work until 70 on a part-time basis as a consultant in her area of expertise. “For me retirement is an opportunity to slow down and work according to my schedule. One of the reasons I am doing an MBA is to ensure that I keep relevant and on top of my game. This will ensure my services and expertise will always be in demand. Working an extra five years will give my retirement funds time to grow.”

Nkosi plans to retire at 60 but will have side businesses to keep her busy and provide some cash flow. “One of the businesses is in the pipeline and it should be stable by retirement. Some businesses need my full attention and that makes it impossible to run them while employed. So, during my employment time, I am making plans to implement efforts when I retire.”

. This is the final article in the Money Makeover series until March 31 when we announce the winners of this year’s Money Makeover Challenge