As a family with kids pursuing FIRE, it definitely puts more than a spanner in the works, as opposed to a DINK (Dual Income No Kids) situation. That said, I wouldn’t change a thing about it. Kids are frustrating, tiresome, tedious and frustrating. But they also form some of the best memories in life, and you can only hope, as a parent, that you have imparted your knowledge and values to the best of your ability, and hope they grow up fundamentally good.
I grew up not having to worry about funding my own way to a degree. I feel extremely thankful for that, and it is something I would like to provide for my kids as well. However, I also want them to be able to understand the value of money, and to instil in them a frugality and growth mindset from early age. I still have some time to figure this out, so I think I’ll be able to do that.
On the kids’ education front, when we were pregnant with Oli, we decided to look into providing for him early, so that we can make use of the years to compound his investment returns.
Financial Independence as a way of unburdening your children
I see being financially independent as we age, to be a very important factor, not only in that we can do what we want, with the time that we have, but also so that we don’t have to impose on our children, and potentially be a burden to them fulfilling their potential. Taking care of ourselves is the best way to take care of them.
Limited Pay Revosave
The policy we went with was Income’s limited pay revosave. We took the 5X annual premium over 20 years to take advantage of paying more upfront and letting the compounding do more work.
Limited pay revosave is considered a regular premium endowment plan. Our outlay was $12,000 a year for 5 years (Total of $60,000 capital). The plan will be in effect for 20 years, and upon maturation, we could see projected returns of between $90,000 and $112,000, based on their illustrated returns chart.
We did the same thing for #2. We’ve finished paying for #1 and are midway through for #2.
Hopefully, this sum will provide them with a headstart to succeed in life.
Headstart fund or education fund
Ostensibly, the amount is earmarked for educational purposes. But 20 years is a long time. Hopefully, someone will have completely disrupted formal education for the farce it is, and dramatically reduces the cost for basic and tertiary education around the world.
The amount, therefore, is simply parked aside for when they become young adults, and for them to use, as the times dictate.
Afterall, 20 years ago in 2000, Google was a young startup of 2 years. Facebook, YouTube, Instagram, Twitter, and this very platform, WordPress weren’t even invented. Who’s to say for certain what the next 15 to 20 years will look like? One thing’s for sure. It will look drastically different. Again.
FIRE priorities
For us, our FI priorities are:
- To ensure we don’t have to work for a living, beyond a certain age, and can choose to pursue our likes, whether or not it is a paid venture
- To ensure we don’t end up burdening our children with having to support us in our old age
- To allow our children a running start, and inculcate by example, the need to be self sufficient and financially independent as early as possible, without sacrificing life’s little enjoyments
What are your FI priorities? Oh, and a Happy Father’s Day to all.
Okay. Honestly. Why? If I run your numbers, you’re expecting a 3.75% PA increase to hit the upper band of your forecast ($112k) CPF SA would get you more than that.
Okay, maybe you don’t want your kids to wait until they’re 55 before they can touch the money. But still, why not a simple index fund? That would probably get you more than that as well?
Hi Oken, thanks for the comment. Granted, there are better ways of investing. At the time, I didn’t know about nor had access to index funds, so i just kinda went to Income to seek advice. We were looking at something that forced us to contribute regularly, have a relatively short time period, and illiquid so we wouldn’t use it if we can help it. Something to set and forget for the foreseeable future. The rest of the funds will then be open for me to test out riskier investment strategies.
Hope this makes sense. We were also kinda making it up as we went along, and of course in hindsight, we should have just bought like 500 bitcoin in 2014, amirite? =)
You understand that illustrative returns in insurance is usually based on some arbitrary figure and has nothing to do with actual returns?
In certain cases, it can be very, very far from the actual returns.
Have you considered topping up their SA accounts to give them a headstart in their retirement planning?
Hey Gideon, I haven’t thought about that to be honest, but the permanence of that move, and the fact that they can only withdraw it from 55 kinda makes it very iffy for me. Maybe that’s a sign of me not having the utmost confidence in Singapore as an economy that can maintain current status over the next 5 or so decades, but thanks for the idea! Maybe can consider a bit that can snowball to an OK amount over the long term.