Having a child when nearing retirement

WHEN it comes to having a family, we see a trend that the age of marriage or settling down and having the first child through generations (baby boomers onwards) generally increases. There are numerous factors for this trend.

However, we need to look at an interesting possibility coming from this observation: having a newborn when the couple are in their late 30’s or early 40’s. This poses a challenge when it comes to financial planning since the aforementioned situation implies having a child that is still studying while the breadwinner is nearing or has begun retirement already.

A couple or a breadwinner has to acknowledge of the fact that such scenario or situation usually results to consideration of the following possibilities: having to postpone retirement by a few more years; having to redefine the retirement lifestyle desired; or, to look for ways to earn more money.

Postponing retirement by a few more years allows the household to have a continued income source which is essential in providing not only just for the daily needs of the household but for the education fund and the retirement fund. Extending employment is worth considering as company-sponsored HMO plans can now have coverage until age of 65. Reviewing and redefining retirement lifestyle on the other hand provides opportunity to recalibrate retirement investment plan.

When forecasting retirement expenses, consider annual spends for subsistence such as food and shelter, medical expenses such as check-ups, leisure expenses such as travel and hobbies.

Redefining lifestyle usually entails a reduction in projected annual expenses to cover other needs and an excellent activity to support this is gardening. Gardening enhances overall wellness of retirees and is a possible source of cost savings (growing own food) and an income source (selling surplus food). The important thing to remember is that retirement planning should be done in conjunction with education planning.

While more challenging, looking for more ways to earn extra money to fund both retirement and education of child is more effective than just cutting costs as a household can only cut cost to a certain extent and having an extra income will allow a financial plan to be more flexible.

When it comes to funding the education of the child born by parents in their late 30’s or early 40’s, it is more important to have the investments placed in a generally more conservative allocation. We all hear that college usually starts at the 18th year of the child and, as such, investments should be placed in high-risk, high-return assets such as equities or equity funds.

However, we must not forget that by that time the parents are nearing retirement already and the last thing that should happen is for the parents to get a significant amount of money from their retirement fund just because the investment for the child’s education tanked. As such, it is recommended to have the money invested in moderately aggressive funds such as balanced funds and, in doing so, capital appreciation is still the aim while having more protection against market downturn which is likely to happen during the 18-year period.

A final reminder for households in this kind of life situation is the importance of having adequate insurance coverage. Such cannot be further emphasized especially for this case wherein either untimely death or major health issue will eventually cause financial impact for both retirement and education funds.

The ideas above provide a general overview on how to manage such life situation and households are highly encouraged to consult with a financial planner to provide a more in-depth look at their respective financial situations and have a well-prepared financial plan to ensure simultaneously preparing for the child’s education and having a comfortable retirement.

John Hero Salvador is a registered financial planner of RFP Philippines. To learn more about investment planning, attend the 98th batch of RFP program this October 2022. To register, e-mail info@rfp.ph or text at 0917-6248110.