How to plan for your retirement alongside your child’s education?

Starting Early

The key to building a sufficient corpus for your child's education is to start early. If your child is five years old, you have approximately 15 years to prepare for their post-graduation and about 10 years for their undergraduate studies. Begin by estimating the costs for a few potential career paths, choosing the most expensive option as your target. This approach prepares you for the higher end of the spectrum and incorporates a safety margin for unforeseen expenses.

Factoring in Inflation

Inflation, particularly in education, can significantly affect your . An annual inflation rate of 10% is a realistic figure to work with. For instance, if an MBA in India costs Rs 25 lakh today, in ten years, you could be looking at Rs 1 crore and planning for more than one child. It's essential to delineate your financial goals and approach each separately.

Saving Strategically

Knowing your financial target and the time horizon allows you to calculate the monthly savings needed. Investing through Systematic Investment Plans (SIPs) can help you build assets in a structured and less risky manner. Asset allocation is crucial here; for example, aiming for Rs 1 crore over ten years might require a monthly investment of Rs 51,000 if you opt for 100% equities initially, shifting towards debt as you near your goal.

Equities offer the potential for inflation-beating growth, but it's wise to shift to debt as you approach your target to minimize risk. Regular rebalancing towards debt instruments is advisable to safeguard your portfolio as you near the goal.

Separate Planning for Each Goal

It's beneficial to manage your finances in a way that segregates funds for each of your goals, such as retirement and education. This segregation helps in tracking progress and making necessary adjustments along the way. Prioritizing education over retirement might seem instinctive for many parents, but it can jeopardize . Remember, compromising on education quality or relying solely on domestic options due to insufficient funds are risks of inadequate planning.

The Takeaway

Planning for your child’s education while ensuring a comfortable retirement is akin to nurturing a tree. It requires estimating future costs, starting the investment journey early, and embracing equity for growth potential. By following these guidelines, you can make informed decisions that secure both your child's future and your retirement, without compromising on either. This balanced approach to financial planning ensures that you’re well-prepared to support your child's dreams and enjoy a fulfilling retirement.

(Chakravarthy V is Executive Director and Co-founder at Prime Wealth Finserv.)

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)