In today’s economic climate, South African families often find themselves between a rock and a hard place when making decisions about saving for the future. What should you save for first? Your children’s education and then retirement? Or vice versa? In the view of Danelle van Heerde, head of advice processes at Sanlam Personal Finance, one financial priority should always take precedence – saving for retirement.

“Many
people delay starting to save for retirement, believing it is more important to
put away money for their children’s education first. They think they will be
able to catch up on retirement savings later, once their children have started
working. Some people even believe that, with a good education, their children
will be able to look after them in their old age,” Van Heerde says.

But
in her view, retirement comes first – and here’s why:

1.You can’t borrow for
retirement. 

You can however, borrow for your children’s education,
normally at very good rates. There are also other options available, including
bursaries. Encouraging your kids to take a gap year to earn some money and
experience the world of work before they start their studies may also be a good
idea. This will also give them a better idea of the career direction they wish
to pursue.

2.Your children are not your
retirement fund. 

“We are already the ‘sandwich generation’. Many people
are providing financially not only for their children, but also for their
parents, who did not save adequately for their own retirement. And you will in
all likelihood live longer than your parents will. Do you really want to place
such a heavy financial burden on your children, who will have their own
families to look after?” asks Van Heerde.

3.You need to let compounding
perform its magic. 

Compounding has been called the eighth wonder of the
world. The earlier you start saving for retirement, the more your money will
grow exponentially until the day you retire. “Our rule of thumb is that if you
start in your 20′s, you will need to save at least 10% of your monthly salary to
enjoy a pension of 60% of your final salary at age 65. This figure increases to
15% if you start in your 30′s, however, and 20% if you only start putting money
away in your 40′s.”

4.People are having children later
in life. 

If you start your family in your late 30′s, your children will
probably be taking their first steps into the world of work at a time when you
want to retire. It will place a huge burden on them to have to look after you
when they may themselves not be earning very much yet.

5. You need to set an example to
your children. 

It is crucial that your children start saving for their own
retirement from the day they receive their first pay check. The best way for
them to learn this important lesson is by following your example. If you have
not made retirement savings a priority, be open about your mistakes and explain
what you should have done and why.

“Saving
for the future means making choices and creating a balance between competing
financial demands,” says Van Heerde. “Retirement savings always come first, and
if you have money to spare after this, you can put some away for your
children’s education. A professional financial adviser will be able to work out
how much you will need in retirement, and structure an investment plan
accordingly,” she concludes. 

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