How should couples plan their finances when they become parents late in life

Dentists Sadiq and Fatema Ahmed became parents in their early 40s. They are well-settled in their respective careers and lead a fairly lavish lifestyle. They have already bought their first home, own a high-end car and take at least 2-3 vacations in a year.

They have a decent amount of insurance in place. Now they are trying to figure the implications of late parenting on their finances. Does their financial plan need to be very different from that of couples who become parents earlier in life?

For the Ahmeds, there is bound to be some disruption in lifestyle. The biggest challenge would be to balance the major expenses of the family with saving for retirement at a time when their earning capacity is peaking. Retirement is not too far away. Their child will still be in college and dependent on them by the time they retire.

Fortunately for them, they are self-employed individuals and can delay their retirement by a few years. They must save realistically for the child’s higher education and not get carried away because they will always have the option to borrow for education. If faced with a choice between the two, they must give retirement savings the priority.

The Ahmeds also need to decide if Fatema will continue to work. They must cut down on unnecessary expenses like club memberships and luxury vacations. As they need to keep risks at a minimum, they will have to settle for lower returns.

The idea is to focus on increasing the quantum of savings through SIPs. They can afford to save more at this stage in life. However, before they do that, they must focus on putting in place their protection plan—a sizeable contingency fund, adequate life and health insurance, with a disability rider.

The Ahmeds must realise that their child may be too young to take over their assets directly in case of an unfortunate event, which makes estate planning very important. They should set up a trust and designate a guardian as well as a trustee to oversee the trust until the child comes of age.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)