Before we look at education funding per se, education funding options that include endowment benefits and special purpose funds will be of interest to many of our readers. The following Case Study is hypothetical – and borrowed (see acknowledgement below) – but with revision of the relevant sums of money involved to suit individual circumstances, highlights a strategy that will suit many of you.
David and Kate are determined to see that one year-old Nicholas goes to a private school in his secondary years.
They have $2,500 to start their Savings Plan from Kate’s parents, and hope that with their own monthly savings they can finance his school fees, and possibly have some funds left over for a second honeymoon, or perhaps for Nicholas when he turns 23.
Strategy and outcomes:
After seeing their Financial Adviser, Bob, they decide to establish a ChildBuilder Bond.
With Bob, David and Kate work out that they can afford saving $200 per month, and as they expect their savings capacity will increase in the future, they plan to use the Bond’s 125% Add-on Feature. Their objective is to build their Bond to a certain level, and then begin regular draw-downs to finance Nicholas’ school fees.
Given the long investment time-frame, Bob recommends setting up their Bond with a mix of Australian and International share based options from the Bond’s menu. The aim is to generate at least a 7% p.a. after-tax return (net of fees).
By the time Nicholas turns 12, Bob estimates David and Kate’s ChildBuilder should accumulate to $137,089. As this will more than meet their education funding target, David and Kate plan to stop their Savings Plan and set up ChildBuilder’s Regular Withdrawal Facility as a convenient way to pay for Nicholas’ school fees. After allowing for inflation they are budgeting on his fees averaging $20,000 p.a. over the 6 years.
If all goes to plan, when Nicholas finishes school, Bob estimates there should be $55,158 left in the Bond, enough to spend $25,000 on their second honeymoon, and $20,158 left to grow in the Bond. This could grow to $42,298 to vest for Nicholas on his 23rd birthday; to help Nicholas move out of home; or as a first home deposit.
This case study is a hypothetical example and not meant to illustrate the circumstances of any particular individual. It is not based on actual or forecast investment returns for ChildBuilder Bonds. Past performance is not indicative of future performance.
Our appreciation to Austock Life for approval to use this Case Study from their Child Builder ™ Bonds brochure.