The scenarios presented in Part 2 and Part 3 are mostly just thought experiments to get a general idea of how an RESP account can be used to save and grow investments to fund a child’s education.
In this article, we will create a scenario that makes two important changes. First, we extend the RESP to be a family plan for three children. Second, instead of just demonstrating drawdown into negative balances we will choose a set per-term withdrawal rate that (adjusted for inflation) provides equal funding to each child over a typical four year post-secondary education.
When extending the RESP plan to three children, we assume a contribution sequence for each child that is the same as the “maximizing grants and contributions” scenario in Part 3. We also adjust the stock/bond allocation so each child’s allocation follows the same sequence and the final allocation is blended between the three individual allocations. In the projection data below, we show just the final blended return rate created by this blended allocation and our default stock/bond return assumptions.
For the per-term withdrawal rate, with a little trial and error we came up with $5500 per child per term, in nominal dollars at the start of the projection. As you will see in the final projections, when indexed to inflation by the time of withdrawal this $5500 is much higher.
Projection Results
In this projection, the account value peaks at $165,846.39.
Then, using our $5500 per term indexed to inflation withdrawals, we end up with a small surplus of $3,638.28. This could be capital returned to the subscriber or the subscriber could increase payouts slightly to achieve closer to a zero balance at the end of the plan.
In reality, returns will variable and might be lower or higher than this projection. So a family will inevitably have to adjust their withdrawals anyways from these defaults. Still, this gives us a general idea of what is achievable in terms of educational funding for a family plan under these assumptions. The per term withdrawal of $5500 (again indexed to inflation) would at least cover tuition for a lot of post-secondary educational programs.
| Year | Value | Return Rate | Earnings | Contributions #1 | Grants #1 | Withdrawals #1 | Contributions #2 | Grants #2 | Withdrawals #2 | Contributions #3 | Grants #3 | Withdrawals #3 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 0 | $0.00 | 6.00% | $43.20 | $600.00 | $120.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 |
| 1 | $763.20 | 6.00% | $88.99 | $600.00 | $120.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 |
| 2 | $1,572.19 | 6.00% | $180.73 | $600.00 | $120.00 | $0.00 | $600.00 | $120.00 | $0.00 | $0.00 | $0.00 | $0.00 |
| 3 | $3,192.92 | 6.00% | $321.18 | $1,200.00 | $240.00 | $0.00 | $600.00 | $120.00 | $0.00 | $0.00 | $0.00 | $0.00 |
| 4 | $5,674.10 | 6.00% | $513.25 | $1,200.00 | $240.00 | $0.00 | $600.00 | $120.00 | $0.00 | $600.00 | $120.00 | $0.00 |
| 5 | $9,067.35 | 6.00% | $760.04 | $1,200.00 | $240.00 | $0.00 | $1,200.00 | $240.00 | $0.00 | $600.00 | $120.00 | $0.00 |
| 6 | $13,427.39 | 6.00% | $1,064.84 | $1,800.00 | $360.00 | $0.00 | $1,200.00 | $240.00 | $0.00 | $600.00 | $120.00 | $0.00 |
| 7 | $18,812.23 | 6.00% | $1,431.13 | $1,800.00 | $360.00 | $0.00 | $1,200.00 | $240.00 | $0.00 | $1,200.00 | $240.00 | $0.00 |
| 8 | $25,283.36 | 6.00% | $1,862.60 | $1,800.00 | $360.00 | $0.00 | $1,800.00 | $360.00 | $0.00 | $1,200.00 | $240.00 | $0.00 |
| 9 | $32,905.96 | 6.00% | $2,363.16 | $2,400.00 | $480.00 | $0.00 | $1,800.00 | $360.00 | $0.00 | $1,200.00 | $240.00 | $0.00 |
| 10 | $41,749.12 | 6.00% | $2,936.95 | $2,400.00 | $480.00 | $0.00 | $1,800.00 | $360.00 | $0.00 | $1,800.00 | $360.00 | $0.00 |
| 11 | $51,886.07 | 5.90% | $3,528.56 | $2,400.00 | $480.00 | $0.00 | $2,400.00 | $480.00 | $0.00 | $1,800.00 | $360.00 | $0.00 |
| 12 | $63,334.63 | 5.80% | $4,174.53 | $3,000.00 | $600.00 | $0.00 | $2,400.00 | $480.00 | $0.00 | $1,800.00 | $360.00 | $0.00 |
| 13 | $76,149.16 | 5.60% | $4,788.51 | $3,000.00 | $600.00 | $0.00 | $2,400.00 | $480.00 | $0.00 | $2,400.00 | $480.00 | $0.00 |
| 14 | $90,297.67 | 5.40% | $5,420.39 | $3,000.00 | $600.00 | $0.00 | $3,000.00 | $600.00 | $0.00 | $2,400.00 | $480.00 | $0.00 |
| 15 | $105,798.06 | 5.10% | $5,946.50 | $3,600.00 | $720.00 | $0.00 | $3,000.00 | $600.00 | $0.00 | $2,400.00 | $480.00 | $0.00 |
| 16 | $122,544.56 | 4.80% | $6,435.10 | $3,600.00 | $720.00 | $0.00 | $3,000.00 | $600.00 | $0.00 | $3,000.00 | $600.00 | $0.00 |
| 17 | $140,499.66 | 4.50% | $6,857.08 | $3,600.00 | $360.00 | $0.00 | $3,600.00 | $720.00 | $0.00 | $3,000.00 | $600.00 | $0.00 |
| 18 | $159,236.74 | 4.20% | $6,684.79 | $0.00 | $0.00 | $-7,995.14 | $3,600.00 | $720.00 | $0.00 | $3,000.00 | $600.00 | $0.00 |
| 19 | $165,846.39 | 3.90% | $6,154.21 | $0.00 | $0.00 | $-16,326.07 | $3,600.00 | $360.00 | $0.00 | $3,600.00 | $720.00 | $0.00 |
| 20 | $163,954.53 | 3.70% | $5,301.03 | $0.00 | $0.00 | $-16,668.92 | $0.00 | $0.00 | $-8,334.46 | $3,600.00 | $720.00 | $0.00 |
| 21 | $148,572.18 | 3.50% | $4,147.30 | $0.00 | $0.00 | $-17,018.97 | $0.00 | $0.00 | $-17,018.97 | $3,600.00 | $360.00 | $0.00 |
| 22 | $122,641.54 | 3.40% | $2,988.22 | $0.00 | $0.00 | $-8,688.18 | $0.00 | $0.00 | $-17,376.37 | $0.00 | $0.00 | $-8,688.18 |
| 23 | $90,877.03 | 3.30% | $1,828.02 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $-17,741.27 | $0.00 | $0.00 | $-17,741.27 |
| 24 | $57,222.51 | 3.30% | $991.71 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $-9,056.92 | $0.00 | $0.00 | $-18,113.84 |
| 25 | $31,043.46 | 3.30% | $414.12 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $-18,494.23 |
| 26 | $12,963.35 | 3.30% | $116.23 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $-9,441.30 |
| 27 | $3,638.28 | 3.30% | $120.06 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 |
