When your future collides with their future – retirement years meet the college years
There was a time when marrying young and having children right away was the norm. But as North American life became increasingly frantic and expensive, more and more couples chose to delay marriage and children. If you're among these 'mature' parents you could be opening the door to your retirement years while your offspring are still in the nest and aiming at a university or college education.
Chances are you've already made progress accumulating savings and setting some aside for retirement. But you still need a plan to pay for that increasingly costly post-secondary education – and you should begin right away. Here a few tips to get you started.
Get registered to save
A Registered Education Savings Plan (RESP) is a terrific way to save for an education and to save on taxes, too. Though contributions are made with after-tax dollars, you do not pay tax on growth in an RESP until money is withdrawn. If the growth is paid to your child while attending an eligible post-secondary education program, you won't pay taxes on the growth; your child will, and will likely be in a low tax bracket.
The government will also kick in some money. Through the Canada Education Savings Grant (CES Grant) program, the first $2,500 you contribute each year to your child's RESP will receive a federal grant of at least 20% of your contribution. With the recent removal of the annual maximum contribution limit and an increase in the lifetime maximum contribution amount to $50,000, it is now easier to accelerate contributions to an RESP.
Get a CLB to save
The Canadian Learning Bond can also help accelerate your education savings plan. It is available to children born in 2004 or later whose parents or primary caregivers are receiving the National Child Benefit Supplement. Alberta residents may also qualify for the Alberta Centennial Education Savings Grant (ACES) which can add up to $800 to your child's RESP. Quebec residents can qualify for the Quebec Education Savings Incentive, which can provide an additional $250 each year to your child's RESP.
Get flexible to save
With the education costs accelerating, it's prudent to look beyond RESPs. The Tax Free Savings Account could be a good choice. Other options are trust accounts and life insurance.
Get retirement-ready
Develop a realistic retirement plan that includes the fact that your children may still be completing their education at that time. Your plan could include putting off extensive travel or exploring alternative work arrangements, like phased retirement, so you can spend more time with your children.
Talk to your professional advisor to learn more about education savings options and what you can do to help put your child through university while still enjoying your retirement.
J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc. His column appears every Wednesday.