The big balancing act – funding education while saving for retirement
17 Jun 2019

Life is full of competing demands, particularly when you become a parent.

Everyone hopes to provide a bright future for their children, and for many this means investing in a private education. But it can be a financial juggling act to cover school fees and stay on target saving for the retirement you want.

Expensive education, retirement or both?

The Financial Times highlighted recently that average private school fees have risen by a staggering 49% over the past decade. Londoners pay the most, with average fees now over £5,500 per term for day pupils.

At the same time, final salary pensions are declining and there are new freedoms around retirement funding. You are now responsible for ensuring there’s enough money for your later life.

How will you manage these conflicting goals? Here are some ideas to help you tackle the challenge.

Start early

If you start saving from the moment your child’s born, you’ll have several years before you need to begin paying school fees. A few more years of compounding returns can make a big difference.

Ask grandparents

Grandparents can support the younger generation while avoiding inheritance tax – their gift is exempt if they live for another seven years after it’s made. They have a tax-free allowance of £3,000 per year – an amount that can be carried forward for one year if it wasn’t used the previous year.

Another popular option for school fees is for grandparents to set up a trust, such as a ‘bare trust’. The money is taxed as if it belongs to the child. There are lots of complex rules around trusts, tax rules can change and taxation will vary depending on your individual circumstances, so make sure you get some professional advice.

Work out how much you need

Do some research into suitable schools, and their fees, to set some reasonable goals. Remember to include inflation in your projections. You should also factor in expenses, such as top-quality uniforms, extra-curricular activities and trips.

After school is finished university might be the next step. Many undergraduate university courses currently charge around £10,000 per year, and living away from home can increase costs dramatically.

Think about your retirement goals

Don’t let your commitment to your children detract from your own retirement goals. Think about when you want to retire and what sort of lifestyle you imagine. Perhaps you’d like to carry on working part time, or as a consultant? Travel? Write a book? Remember – there are no scholarships for retirement!

Speak to an adviser

Dealing with competing financial demands can leave your head spinning. An adviser can help you balance the requirements of your child’s education and your own retirement needs, putting together a plan and a portfolio to achieve both. It’s a balancing act, but if someone holds your hand, you’ll find it much easier.

 

If you’d like some help to plan for competing financial demands, call us on 020 3823 8678 or complete the form below to get some help.

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