Saving for retirement means taking a lesson from the airlines

As August draws to a close—the summer road trips and European vacations over—parents will be drowning in requests for notebooks and pens and first-dayof- school clothes. But amid the academic trappings and new togs, some parents may be wondering whether they ought to invest in a registered education savings plan (RESP) for their children.

The RESP is an education savings account registered with the Canadian government to help families put aside money for their children’s post-secondary education.

A recent BMO Wealth Institute report on education savings reported that a four-year degree (tuition and other costs) could add up to more than $60,000. And the cost is only going to increase. According to Statistics Canada, for a child born in 2012 (with a post-secondary admission in 2030), the four-year tuition estimate alone will be more than $95,000.

In January this year, I watched a CBC News story about a woman who was preparing for that high cost of education: she was putting money into an RESP for her two children. Smart. But here’s the kicker. She wasn’t putting any money into an RRSP for herself.

I was stunned. I’d heard the phrase “pay yourself first” enough to know something was not right. Plus, seven years at Benefits Canada have made me more than aware of saving for retirement. I get it. Many parents do without so they can give their kids more: that new bike or that special prom dress. But giving up your retirement savings for your kids’ education? I have to draw the line. My parents certainly did. Call it their Presbyterian work ethic or, in the words of my dad, “Get out and work.” Pension experts use the three-legged stool metaphor when talking about saving for retirement. Income for retirement, they say, should come from three sources:

  • employer-sponsored plans: Employers can offer a DB plan (based on a formula of an employee’s earnings, years of service and age) or a DC plan or group RRSP with employer-matching contributions.
  • government programs: The Canada Pension Plan (CPP) provides a benefit as early as age 60; the benefit depends on how long you’ve contributed to the CPP and how much you’ve earned in that time. Old age security is available starting at age 65.
  • personal savings: Employees can save money through a variety of vehicles, including RRSPs and tax-free savings accounts.

This three-pronged approach to saving for retirement may seem like an archaic idea (one of the first instances of the metaphor was used in 1949 by Reinhard A. Hohaus, an actuary for MetLife), but it’s clearly needed. In Benefits Canada’s 2012 CAP Member Survey, DC plan participants were asked what they anticipate their biggest challenge to be when they retire: 28% said making sure they have enough money to live.

Each leg of the stool contributes to the retirement income and does so for a good reason. Good governments want to protect and promote the economic and social well-being of their citizens. Good employers want to attract and retain talent with retirement savings programs. And good Canadians want to make more than ends meet in their retirement years.

Starting an RESP for a child is an admirable and smart thing to do, but why do some parents forget themselves, and jeopardize their standard of living at retirement, at the expense of their children? Wouldn’t it be wiser, just this once, to put yourself first? Or, better yet, start both an RESP and an RRSP?

Think about the airlines. If the cabin loses pressure and the oxygen masks drop, the announcement says to put your mask on first before assisting someone else.

Makes sense.

Brooke Smith is managing editor of Benefits Canada.

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