Arguing over money?
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Steve and Jane, 51, Halifax
With three kids in high school, the eldest graduating this spring, this couple are bracing for the onslaught of university tuition bills. He argues they've already got a well-fattened registered education savings plan, and they should start focusing on their retirement. She worries about the rising cost of education, and wants to make sure they've saved enough to cover all three offspring. Who's head of the class?
He says: Save for retirement
Over the past 10 years or so, we've been stuffing cash into our kids' RESP - right now it's at about $110,000, and we're contributing roughly $5,000 a year. We've had some pretty good returns on it, averaging about 16 to 17 per cent a year. With the tuition payments staggered over the next seven years, I think we'll break even with what we already have, even if the returns aren't as great. I say we stop padding the RESP and focus on our nest egg. We both still have room for registered retirement savings plan contributions and the 40-per-cent tax refund is much better than the 20 per cent we'd get from the Canada Education Savings Grant. If the RESP funds run out before we're finished paying for the kids' tuition, we can always come up with extra money from somewhere else, and the kids will be covering some of their own expenses from their summer jobs. I'd rather come up short than have money left over - I've heard getting money back from an RESP is not easy.
She says: Keep saving for school
I think Steve's calculations of the cost of our kids' education are too conservative - some of the schools we've been looking at in Nova Scotia can cost $15,000 or even $20,000 for tuition, books, room and board. We don't know exactly what the kids plan to study, but we're counting on the fact that they'll all want to go away for university. I'd like them all to graduate without debt - and make sure they're well and truly launched - and I don't want the youngest to feel shortchanged. Steve and I both managed to graduate from university without student loans, but things are very different today: The cost of education is so much higher, and it's harder to get well-paying jobs straight out of school. An undergraduate degree often isn't enough. I say we keep funding the RESP at least for another year or two, and then we'll have a better idea of what the costs will be.
Years married: 25
Occupations: He's a telecom sales executive, she's a civil servant.
Kids: Two sons, 17 and 16; one daughter, 14.
Annual household income: $200,000 (evenly split).
Assets: $110,000 RESP; $650,000 in RRSPs; $100,000 in his employer-sponsored pension plan; her defined benefit plan will be worth about $45,000 a year on retirement.
Debt: Mortgage (on a summer house; their principal residence is paid off), $160,000 at 2.24 per cent open, 10-year amortization period, $650 paid biweekly (26 payments a year); line of credit used to buy stocks, $70,000, interest rate 2.25 per cent.
The advice: Max out the RRSP
Financial expert Kelley Keehn says:
First, I must applaud you for building a solid financial foundation for both yourselves and your children. Plus, I'm not sure how you've managed to secure "average" high double-digit returns on your RESP portfolios each year, but I suspect you may be getting some readers' calls for advice.
I have to overwhelmingly agree with Steve. Sure, the pot you've saved for your children may not be sufficient should all three choose a postgrad degree, but there's nothing wrong with them working a little harder while at school to pitch in with costs. If you don't focus on your own retirement, how likely will they be to help you both in your golden years?
You're both likely at your career apex for income-earning years, so as you haven't maxed out your RRSPs, that's a good place to start. Once you've done that and continue to each year, use the tax refund to maximize your tax-free savings accounts annually and pay down the mortgage on your cottage home. But since you both have pensions, you really need to sit down with a tax adviser and/or certified financial planner to figure out your estimated tax liability at retirement and all of your options.
Jane, I understand your motherly desire to fully fund your children's education and ensure their life is as easy as yours and Steve's was coming out of school. But give them the gift of earning their degrees by giving them goals - how much they should contribute each year, what they should be saving now. You need to ensure that you and Steve are heeding the advice repeated by a flight attendant every time you fly: "Ensure you don your own oxygen mask before placing one on your child." It's counterintuitive for most parents but sound financial advice.
Kelley Keehn is the host of W Network's Burn my Mortgage. Her website is kelleykeehn.com.
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