The sandwich generation: Funding retirement versus paying university fees

You want to have a well-funded retirement, but the kids are off to university, or need your help to get on the housing ladder. How is this going to work?

First-time parents are getting older – the average age of first-time mums in the UK is 30, while the average age of first-time dads is 33.7. According to the Office of National Statistics, one in 25 babies in the UK are now born to mothers aged over 40, representing a four-fold increase in 30 years. Making both funding retirement and university at the same time a plausible crossroads later on.

As you’re approaching the final years of your career and retirement is on your mind, the added financial burden of helping support children through university rears its head. It can seem like an impossible choice. Whether to delay retirement, contribute less to the pension pot or scale back financial assistance to one’s offspring? However, there could be ways to manage the finances so that the choices do not have to be so challenging. 

Building funds

Bill Ryze, a chartered financial accountant, says that “both retirement and college savings are important, so prioritising saving one over the other is impossible.” He says a “consistent cash flow” is important when two big financial commitments collide. Instead of being tempted to dip into retirement funds to pay university fees, Ryze says looking into wise investments could be a relatively stress-free way to make some extra money that could be channelled towards education. 

a “consistent cash flow” is important when two big financial commitments collide

Ryze also advises encouraging grown-up children and parents to save money together in a separate fund and have an open relationship when it comes to money management: “Your children are going to university, so they’re mature enough to discuss finances – you can talk openly with your child about how to manage the financial aspects of college expenses.” 

“For example, you can urge them to apply for scholarships and see if their schedule could allow them to get a part-time job,” Ryze continues. “You can also ask them if they could be willing to attend a more affordable university, like Staffordshire or the University of Cumbria.” 

Creating an income for your child

Anton Lane, a chartered tax adviser and MD of Edge Tax Professional Services, offers a range of options. All taking into account your financial situation. 

“If parents run their own business, they may be able to employ their adult children or make a gift of shares to them to facilitate an income stream for the child,” says Lane. “This could mean the child can utilise their personal allowance and lower rates of income tax rather than the parent suffering higher rate taxes ahead of providing funds to assist their child, or they may be able to similarly structure the holding of investments to benefit the children.”  

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“A business owner has more flexibility and there may be some planning between a business and funding that business with pension funds that might help,” Lane adds. 

Tapping into the bank of grandma and grandpa may not be an option. In this case, Lane says that “depending on assets, there may be some potential structuring to create income sources, such as releasing funds to invest in property, maybe through a family investment company.” 

With some forward planning, funding retirement and university doesn’t have to be the impossible challenge it initially seems.

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