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Robyn Laubscher | Give your child a head start by kickstarting their retirement savings

Robyn Laubscher | Give your child a head start by kickstarting their retirement savings
22-01-24 / Robyn Laubscher

Robyn Laubscher | Give your child a head start by kickstarting their retirement savings

With the new year in full swing, now is the perfect time to set goals and establish positive financial habits for both us and our family members – especially our children.

We are heading towards the end of the tax year - a period in which we once again consider how investors can take advantage of the tax benefits available to them. Much of the focus during this time rightly draws attention to how investors can take advantage of the benefits of retirement annuities (RAs) and tax-free savings accounts (TFSAs). In this article however, I’d like to look at an important consideration that tends to not receive as much of the limelight, namely saving for a child’s retirement.

Focusing on the future

In our world that is increasingly focused on instant gratification, an approach that is not often talked about is saving for a child’s retirement. If you are able to start making contributions to a child’s retirement savings, and thereby increase the period over which their retirement savings can be made, the power of compound interest and growth will help ensure that you can make a meaningful contribution to their financial freedom by the time they reach retirement age. 

Instilling a culture of saving

Whilst there is no tax deduction that parents can make use of when making such contributions, one of the benefits of doing so that it encourages disciplined savings for the parents as well as the child. Once your child turns 18, they can take over the contributions, and the normal retirement funds rules will apply in terms of the deductibility of contributions and access to retirement funds. The only thing that will have changed is that they will have a substantial head start in respect of reaching their retirement savings goals.

The importance of a defined savings strategy

Having a savings strategy in place also assists with decision making. If family or friends want to spoil your child with presents, you could suggest that they consider contributing a small portion of what they were going to spend towards the child’s retirement savings. The numbers tell the rest of the story!

Leaving a legacy for a child

Leaving a legacy is not always as easy as it sounds, especially with the economic challenges we currently face. Many of us would love to leave a legacy for a child and help make their lives a little easier, especially from a financial perspective.

Providing a child with a head start in their retirement savings journey is one such option, but it should not be done to the detriment of your own retirement savings plans. Ensuring that you have planned for your own retirement will not only afford you the privilege of retiring comfortably but is also a legacy in itself. Being able to support yourself in your retirement is something your children will be incredibly grateful for, and it will also serve as an example to them when they are planning their own retirement. In such ways we can begin to educate our children on financial matters and encourage a savings culture in our nation.

Seek guidance from a financial adviser

A financial adviser is best positioned to guide you in making sound financial decisions to help you reach your desired investment outcomes, including retirement savings for yourself and your children.

*Robyn Laubscher is an Advice and Product Specialist at PSG Wealth.

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