Can You Save for Education and Retirement?

Few of us have unlimited financial resources — which means that almost all of us need to prioritize our financial goals. Consequently, you’ll have some decisions to make if you’d like to help pay for your children’s post-secondary educations someday while, at the same time, saving for your own retirement.

Your first step in addressing these objectives is to maintain realistic expectations. Consider the issue of paying for education. Right now, the average Canadian full-time student in an undergraduate program paid $6,373 for one year in tuition fees alone, according to Statistics Canada. And these costs are likely to keep rising in the years ahead. Can you save this much for your kids’ education?

Instead of committing yourself to putting away this type of money, take a holistic approach to saving for your children’s higher education. After all, you probably won’t be the only one to help pay for post-secondary school. Depending on your income and assets and your place of residence, you may be eligible for federal and provincial student loans and grants. Also, you should encourage your children to apply for as many scholarships as possible — but keep in mind that most scholarships don’t provide a “full ride.” Here’s the bottom line: Don’t assume you will receive so much aid that you don’t need to save for education at all, but don’t burden yourself with the expectation that you need to pick up the full tab for your children’s schooling.

On a practical level, you may want to commit to putting a certain amount per month into an education savings vehicle, such as a Registered Education Savings Plan (RESP). When you invest in an RESP, all earnings in an RESP (capital gains, dividends and interest) on the investments inside your RESP accumulate tax-free until withdrawn. The government also matches 20% of annual contributions up to a maximum of $500 in the form of the Canadian Education Savings Grant (CESG).

By starting to contribute to your RESP early, when your children are young, you’ll give the investments within the plan more time to grow. Plus, you can make smaller contributions on a regular basis, rather than come up with big lump sums later on. And by following this approach, you may be in a better financial position for investing in your RRSP and your TFSA. Obviously, it’s to your benefit to contribute as much as you can to these plans, which offer tax advantages and a wide range of investment options. If you’re investing in a RRSP, try to boost your contributions every time your salary increases. At the very least, always put in enough to earn your employer’s matching contribution, if one is offered.

And once your children are through with school, you can discontinue saving in your RESP (although you may want to open another one in the future for your grandchildren) and devote more money to your retirement accounts.

It can certainly be challenging to save for education and retirement – but with discipline and perseverance, it can be done. So, give it the “old college try.”