How I combined my retirement, and my kids’ education plans

This post is a third on a series about how to save for our kids’ education.  The first post looked at a savings account as a tool for accumulating savings and the second evaluated education insurance plans.

There is consensus that when saving for the future, you should prioritize your retirement over your kids’ higher education. Why?

• While there are many programs that help students fund their higher education, there is no loan program to fund your retirement. This means that if you want to retire comfortably, you have to make a plan and work towards that plan while you are still young.
• Self reliance in old age is a great gift to give to your children. While many children do it because they have no choice, no child wishes to have his/her parents depend on them financially, and in most cases, this is avoidable.
• Your children may take a different path, that is not education related. If you are financially stable, you are better able to support them through this.

For this post, I spoke to a parent who has been there, done it and is now in semi-retirement. He has a background in finance and a keen interest in stocks, private equity, real estate, and farming, as investments.   His children went to private primary schools, public high schools and private universities. Generally speaking, they got a decent education and the ones that are done with school have done very well in their careers. My question to him was:

“How did you do your planning, to ensure that you had enough money to both educate your children and retire comfortably?”

His response is pasted below with my comments in italics:

1. I used a financial planning tool to estimate what kind of fund I needed, and what savings and investment rates I would need to build this fund. Then I got going and kept monitoring. (The financial planning tool he is talking about is a tool we use to estimate how much wealth you will build in the long term, given an assumed savings and investment return rates. This is an essential part of the personal finance planning process. Message me if you would like me to take you through this exercise). To determine how much you need for university for example, you take what is being charged today (at Strathmore for example), then apply a long term inflation rate to establish how much it will cost you to pay for your child’s education in, say 14 years. For retirement, you establish a monthly income that you would need to live comfortably in retirement, then work backwards, taking inflation into consideration to figure out how big of a fund you will need.
2.  When planning my portfolio, I did not set apart a particular investment to represent the education fund for the kids. I just ensured that I was building up my fund and a portion of it was going to give me some liquidity when needed. For example, my (rental) house was part of my overall fund. Once it started generating rental income, I ploughed it back towards the fund, with the knowledge that this was money available, should I need it for education and later for retirement.
3. It helped a great deal that part of their schooling came when I was still employed, so instead of withdrawing my investments, I plugged their school fees into my monthly budget, while still doing some savings and investment.
4. Ultimately though, I knew that if it ever had to come to that, I could sell the (rental) house to sort out university education, and it would be sufficient.
5. From hindsight, investing in assets that will have cash flow to pay the fees while leaving the asset is intact may be one of the best ways of combining retirement and education. My tea farming is another of them. I could easily pay annual campus fees for one kid at a time from the annual tea bonus and be left with some change. The beauty of such investments like the tea farm and the house is that they double up as retirement fund – once school is out of the way, it is your money to live on.
6. Finally, our choice of schools played a role. We picked schools that could comfortably be paid for from our payslips without compromising our long term investment plan.

I especially love this because it is a real, Kenyan experience which involved just building your wealth, step by step to financial independence. The person didn’t make millions off some revolutionary business idea. My take-out from the conversation:

• Financial independence should be your base goal, no matter how big your dream is.
• Make choices (today) that do not compromise your ability to be financially secure in future. We know of instances where parents pick super expensive schools for their kids during the early years, then later on they are unable to sustain the standard. It is better to go with a modest school that leaves you some slack to save and invest for higher education and your retirement.
• Have cash flow in mind. In your portfolio, plan to have investments that generate regular cash flows, without needing you to sell them. This is the difference between buying land for resale, and building a rental house.

Is your investment plan geared towards a certain figure “X”, which is your retirement figure? Let us discuss in the comments section and on Twitter.

Periodic reminder. We are headed to the end of the fifth month of the #52WeekChallenge with M~Shwari. The #52WeekChallenge is about making savings something a daily thing we do. Join the challenge by printing the worksheet and starting to save little amounts from your daily spending. We are using the M~Shwari Lock Savings function to track our savings and also stash them away.   Do not forget to connect with everyone else on the challenge on our Telegram Group on Twitter where we chat about this constantly using the hashtag #52WeekChallenge .