Why An RESP Alone Won't Cut It

Monday, 21 December 2015 09:56 Written by  Published in Money Read 1679 times
Many Canadian parents save in an RESP for the purpose of funding their children’s post-secondary education.

The federal government will contribute up to a maximum $7,200 towards each child’s post-secondary education provided you save $36,000, making the total available $43,200 (assuming your investment doesn't lose any money and growth remains flat)

Like an RRSP or TFSA, an RESP is simply a vehicle that holds investments and not an investment in itself. Growth really depends on what happens with the underlying investments.

According to a recent BMO study, the average cost of a 4 year undergraduate degree will rise to $140,000 for a child born in 2012, so the following questions arise:

Can you predict what the actual cost of post-secondary education will be 17 or 20 years down the road?

Will saving in an RESP alone be sufficient to fund your child’s post-secondary education?

The answers are most likely a resounding “NO” and we would like to suggest that the real reason that all Canadians want their children/ grandchildren to go to college or university is to set them up for financial success. An education is therefore (among other things) a tool for providing financial success and stability.

Maybe you  should be concerned less about only saving for post-secondary education, and more about making smart money decisions (which could include saving in an RESP) for your children today, that will set them up for financial success tomorrow.

In fact smart money decisions today will take care of many future concerns including funding post-secondary education, and with the rising costs, it is likely that RESPs alone will not get the job done.

We recently helped one of our clients use an insurance policy to secure the following financial guarantees for her newborn son:
Guaranteed total she will pay into the policy for 20 years - $22,020
Guaranteed tax-free cash values over child’s lifetime - $100,000

Annual dividends of approximately $35,000 that can be withdrawn at age 30, and he will still have guaranteed life insurance coverage in force and cash values that he can borrow or withdraw. Annual dividends grow tax free.

Potential legacy for her son’s children if he allows dividends to accumulate; and assuming the dividend scale remains the same – up to $1.6 million ( Dividends can never be negative so you can NEVER lose money – GUARANTEED.

Our client in the above scenario actually asked us for this specific financial product (one that pays dividends) because her parents were astute enough to use this very strategy (when she was a baby) to help set her up for financial success today.

She withdrew the dividends to put toward the deposit on her home, and she still has life insurance in force that she can leave for her son when she passes away, plus her cash values which are guaranteed, continue to grow to this day.

You can put money into an account for your children today, and they can withdraw all the money that you put in down the road when they are adults, and still have money in the account, plus life time life insurance coverage and cash values that they can withdraw or borrow – GUARANTEED. No bank account, mutual fund or RESP provides these guarantees.

Insuring your child may seem like a morbid thought but it is actually a smart way to help set them up for financial success years down the road.

Last modified on Monday, 21 December 2015 10:36
Karl Marshall

Insurance and financial services professional with over 20 years experience.

I specialize in helping business owners and self employed professionals protect their business, families and income with the wonder of life, health, disability, critical illness, property and auto insurance, and investments.

I pride myself in helping my clients protect their assets and develop wealth, and most importantly; I love helping them protect the most important asset that is often overlooked - Themselves.

Many business owners tend to overlook that they are in fact the heart and soul of their business, or in many cases, they are the business, and if anything happens to them, their business and families can be devastated financially.

Let me protect what's really important so that you can focus on growing your business.

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