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Securing your family’s future using the financial muscle of education bonds
Retirement offers much more than the promise of relaxation and freedom; it also offers an opportunity to leave a lasting impact on future generations. So, many retirees, having healthy levels of disposable income – it’s estimated $3.5 trillion will change hands over the next 25 years – are choosing to invest in their family’s educational future.
There are several options. But one gaining momentum is education bonds, a financial instrument that provides a strategic approach to supporting the education of grandchildren, or even great grandchildren, while offering a host of benefits.
That there is a need for this investment in education is unquestionable. Education costs are soaring. It’s not just private school education that can exceed $500,000 for the elite institutions. Even ‘free’ public schools are costing upward of $70,000 while religious schools are about $250,000. At a tertiary level, the average Higher Education Loan Program (HELP) balance is about $25,000. Little wonder many parents want help, and an education bond is an excellent instrument to facilitate this financial assistance.
Studies show that about one-third of grandparents financially support their grandchildren’s education, so the need for a secure and flexible vehicle to ensure the seamless transfer of funds directly to the intended beneficiaries is critical.
This is why education bonds – a tax-effective, long-term savings plan – are growing in popularity. The capital is divisible between the investor and beneficiary, with the latter being able to receive income from the investment.
These bonds offer tax benefits such as tax-deductible contributions, tax-free investment earnings and tax-free withdrawals for education expenses. Additionally, the bonds are subject to a fixed 30% tax rate, potentially lower than an individual’s marginal tax rate.
This tax-efficient structure, combined with the ability to claim deductions and enjoy tax-free growth, makes education bonds an attractive option for retirees looking to support their grandchildren’s education while maximising their tax savings.Top of Form
Beyond tax benefits, education bonds offer estate planning advantages, allowing grandparents to ensure their investment is solely dedicated to funding education expenses. With flexibility in expenditure, including tuition fees, uniforms, books, and even HELP debt repayment, they cater to the diverse needs of educational financing.
These bonds allow for the nomination of multiple beneficiaries, ensuring that each grandchild can receive an equal share. This flexibility provides peace of mind to grandparents, knowing that their wishes will be honored even in complex family situations.
Additionally, in the event of the policyholder’s death, the Education Bond is excluded from probate and estate processes, enabling funds to be directly disbursed to the beneficiary.
Education bonds also provide investment options. For example, Foresters Financial has four choices ranging from sustainable (conservative) to balanced (default), growth and high growth. You can invest in one, all, or a combination of the four options, with a range of risk profiles to suit your risk tolerance and investment needs.
There is also the ability to switch between these investment options at any time subject to the minimum transaction amount and maintaining a minimum balance in each option.
There is also a sustainable investment option, with Foresters believing considering ESG factors will lead to better outcomes by generating sustainable, long-term returns.
These bonds are still an investment. Although their purpose is full of merit, they are not divorced from risk. This is why investors need to carefully consider their investment strategy, both in terms of their own financial security but how it will meet a beneficiary’s education that could span 13 years and more if they go on to un university.
Get this right and the legacy will be enormous. As black American civil rights activist Malcom X prophetically said, “education is the passport to the future, for tomorrow belongs to those who prepare for it today.”
