The great savings debate: Retirement vs education

The retirement landscape in South Africa is not a positive one. Living in a country known for its poor saving habits, South Africans often leave retirement on the backburner in favour of immediate gratification.

Treasury reports that only 6% of South Africans will be able to maintain their current lifestyle come retirement age.

Putting away enough for an emergency fund is a huge challenge for many, let alone saving enough money for retirement. This is further compounded by the need to put enough money away for the education of one’s children – and the rising cost thereof.

“Given the cost of living, saving for retirement and saving for education, there are few who can comfortably afford all three.

Studies are important, but spend the minimum amount possible to achieve studies [if battling to afford saving for retirement simultaneously],” says Ronald King, head of technical support at PSG Wealth.

One of the worst things you can do as a parent is to depend on your child during retirement, he says.

“Your own financial future remains paramount,” says King. “Paying for everything does not teach your child the necessary financial hardship lessons – that is an important part of education.”

Overwhelmed with the cost of living, including the rising cost of education, the majority of South Africans are opting to save for retirement over saving for the educational needs of their children, a trend that has emerged globally. 

However, as a parent, you cannot underestimate the importance of providing your child with a good education.

So, how can one find the right balance and be able to save for both retirement and a child’s education?

“There are no quick-fix tips to solve this problem,” says Lizl Budhram, head of advice at Old Mutual.

“The only way to tackle this is with a detailed financial plan that will highlight any potential financial shortfalls. Then the adviser and investor can discuss possible strategies to address the identified shortfalls.

“This will give a clear indication of how much needs to be saved per month for each goal and whether there will be enough money or not. If not, it will also show exactly how big the expected shortfall will be.” 

This article originally appeared in the 25 June 2015 edition of finweek. Buy and download the magazine here.