Walking the financial tightrope: education vs retirement

With education expenses increasing and our ability to save for retirement coming under pressure from inflation, South African families must tread the financial tightrope carefully to secure both their financial well-being and their children’s aspirations.

“Navigating the financial demands of saving for education as well as retirement is undoubtedly challenging.

“However, this is possible with strategic planning and informed decision-making. As we reflect on the future of our children, let it remind us of the importance of planning, saving and investing,” Lizl Budhram, head of advice at Old Mutual Personal Finance, says.

The cost of education in South Africa is escalating rapidly. Projections from Old Mutual indicate that university tuition fees could reach R176 000 per year by 2030 and R253 000 per year by 2035, marking a 9.5% annual increase.

While education is a vital investment, Budhram emphasises the importance of prioritising retirement savings.

“The reality is stark: many South Africans are not saving enough for retirement. Retirement should take precedence because there are no loans or scholarships for your golden years.”

Finding the equilibrium between saving for education and retirement requires strategic planning and disciplined execution.

“Your financial future is a marathon, not a sprint. The peace of mind that comes from knowing you are prepared for both your retirement and your children’s education is invaluable.”

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Important to set clear financial goals

Budhram says these practical steps can help South African families confidently navigate the financial challenges ahead, ensuring a secure and prosperous future:

Set clear financial goals

Clearly define your retirement and education savings targets and use online calculators to get a realistic estimate of the amounts needed for both.

“Setting clear financial goals is the first step toward financial security. Using tools like online financial planning calculators can provide a realistic estimate of what you need to save.

“This information helps formulate a plan that effectively addresses retirement and education savings.”

Start early

The earlier you start saving for both retirement and education, the better. Time is a critical ally in growing your investments.

“Starting early is paramount. If you start saving for tertiary education when your child is born, you will have at least six years for your investment to grow before they even start formal schooling.

“The same principle applies to retirement savings: the earlier you start, the more you benefit from compound interest.”

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Diversify your savings plans

Consider various education savings options, such as unit trusts and endowments, which offer growth opportunities over the medium to long term. Tax-free savings accounts can also provide significant benefits.

“Diversifying your savings plans can optimise growth. Unit trusts and endowments are ideal if you have 10 to 15 years before tertiary education. They offer medium- to long-term growth potential, and tax-free savings accounts can provide additional benefits.”

Leverage employer contributions

Maximise contributions to employer-sponsored retirement funds if available. If not, consider setting up a retirement annuity. These contributions are tax-deductible, reducing your taxable income.

“Take full advantage of employer contributions to retirement funds. If your employer does not offer a fund, a retirement annuity is a great alternative. Contributions to these funds are tax-deductible, which can significantly reduce your taxable income.”

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Seek professional advice

Engage a certified financial planner to help create a comprehensive savings strategy tailored to your financial situation and goals.

“Consulting a certified financial adviser can make a substantial difference. A professional can help you navigate the complexities of savings strategies and tailor a plan that aligns with your unique financial situation and goals.”

Use scholarships and loans

Explore all available options for funding education, including scholarships, bursaries and student loans, to alleviate the financial burden.

“Do not overlook any viable option. These resources can significantly reduce the financial burden on families, allowing more room to focus on saving for retirement,” Budhram says.