A reader was trying to convince his friend that retirement planning is the number one priority in investing. All others, including our children’s education, come next. He wrote to me looking for “logical support”, as he put it.
He was, however, sorely disappointed with me for believing just the opposite. So this is my attempt to explain why children’s education is at least equally important, if not more, compared to retirement.
I have mentioned several times that the fear of repeating mistakes drove me to invest in equity and towards financial independence: My journey is driven by the fear of making the same mistakes again.
I have also stressed that “emotional logic” is key to staying investing in equity through ups and downs. That is being emotional about not being financially independent in retirement or not supporting our children enough. See: Worried about a market crash? Use emotions to understand the cost of pulling out.
So I am going to be guided by emotions here and my experience. We are all victims of our experiences. My parents always put my needs over theirs. They supported me with their meagre income for 14 years after school until I got a tenured academic position. They never once thought about their retirement planning.
So in my book, I would be a terrible parent if I did not do the same for my son. Of course, thanks to my parents’ support, I now earn significantly more. So I afford to be logical and emotional at the same time.
Meaning I can plan for retirement and my son’s future simultaneously – this was the state of affairs when I started in Dec 2009. I have accomplished both goals well before their deadlines, although I continue to invest with the same fervour.
If you start a family, when you can plan for both goals, that is the ideal place to be. For those who start a family earlier, it is hard for me to say, “retirement should be your first goal”. I believe our children should not start their careers in debt (education loans). I believe we should do everything in our power to help children follow their dreams and give them the necessary time to hear their calling.
So when I claim, “Our children’s education is more important than our retirement planning”, it means I will not hesitate to dip in my retirement corpus to fund his future dreams (in my case, if I had made a mistake in estimating his needs).
Retirement planning is crucial. There is no question about it. If we start a family without evaluating affordability, I will put the child’s needs first. Yes, I have heard all the arguments to the contrary: “Children can get an education loan, but there is no loan for retirement*”, “children are not your retirement fund”, etc.
* We do have a product for homeowners – the reverse mortgage. Of course, it comes with its issues: Can reverse mortgages be used as an income source after retirement?
As I see it, If your retirement is more important to you, make that choice before you have a child. Once the child arrives, as my father put it, “things change”. Most people would disagree with applying logic about when to have the first child. Fair enough. But we can’t eat the cake and expect to hold it intact too.
Life taught me a hard lesson: it is better to start a family when young, but at least for the second child (assuming we don’t have twins the first time around), I would suggest parent pause and check if that would dent their retirement plans.
If you are having a tough time planning for your children’s needs and retirement, I urge you to do everything in your power to invest right and try and increase your income. See: How to build a second income source that will last a lifetime.
All this rhetoric about why retirement planning is important is fine, but I would never clip my child’s wings to protect my retirement nest egg; this is a no-brainer.
This is why (ideally) the choice should be made before we become parents as long we don’t age too much. I appreciate that this is typically impossible or not practised, but that does not mean retirement takes higher precedence.
Some readers might think, “it is easy for you to say this, as your income is high and your goals are achieved”. If you take my word seriously, I can assure you that my journey was riddled with difficulties and mistakes. If I had to do it all over again or follow an alternative timeline, I am sure I would always put children before retirement.
If this means being financially dependent on children after they start earning, so be it. That is a gamble I would take rather than face the angry fangs of my conscience. Family comes first. Don Corleone would approve.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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