Parents can spend 18 years worrying about how to give their kids a head start, then discover they accidentally gave their own retirement a head start in the wrong direction.
University costs, first cars, sports, braces, and eventually housing can absorb almost any amount a family offers. Helping your kids is a good goal. Funding every expense isn’t. The trick is deciding which dollars can do the most work without leaving your future children wondering how to support you at 75.
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Take the free money
For education savings, the Registered Education Savings Plan (RESP) gives parents an obvious first target. The basic Canada Education Savings Grant (CESG) adds 20% to the first $2,500 contributed annually for an eligible child. Contribute $2,500 and the federal government can add $500.
Unused grant room carries forward, allowing up to $1,000 of basic CESG in a later year when enough unused room exists. The lifetime CESG maximum is $7,200 per beneficiary. That doesn’t mean parents should race toward the RESP’s $50,000 lifetime contribution limit.
I’d first capture any employer retirement-plan match. Then I’d consider contributing enough to an RESP to collect available grants. After that, retirement savings deserve a serious claim on the next dollar. Children can use scholarships, work, grants, or student loans. Nobody is offering Mom and Dad a retirement loan at 68.
Split the goal
Imagine a family can invest $10,000 this year. Putting $2,500 into an RESP could attract a $500 basic CESG. The remaining $7,500 could continue building retirement savings through an RRSP or inside a TFSA when contribution room exists.
That isn’t choosing retirement over your child, but funding both. Parents from lower-income households should also check eligibility for the Canada Learning Bond. It can provide up to $2,000 for an eligible child and doesn’t require personal RESP contributions.
Once retirement money is protected, I want it working hard for a long time. And one stock that fits that job is Suncor Energy (TSX: SU).
SU
Suncor operates oil-sands production, offshore assets, refineries, and the Petro-Canada retail network. That integrated structure means the company can earn from producing crude, and refining and selling fuel. It doesn’t eliminate commodity risk, but it gives Suncor more than one way to generate cash.
Cash generation has become the main attraction. Second-quarter adjusted funds from operations (AFFO) reached $5.3 billion, matching a quarterly record. Free funds flow hit a record $3.38 per share. Management responded by increasing planned share repurchases to $500 million per month beginning in August.
That’s useful for long-term shareholders. Buybacks reduce the number of shares dividing future earnings, while dividends provide another source of return. What’s more, Suncor currently pays $0.60 quarterly, or $2.40 annually. At $95.76, the yield is about 2.5%. This isn’t the Canadian dividend stock I’d buy solely for current income. I’d own it for cash generation, buybacks, and the potential for earnings to compound per share.
Bottom line
Oil prices can ruin an otherwise attractive spreadsheet. A global slowdown, rising supply, refinery outages, or weaker crude prices could reduce Suncor’s earnings and cash available for shareholders.
The shares have also surged this year and trade around 10.6 times forward earnings. Strong cash generation didn’t automatically make Suncor cheap even at lower August prices.
Therefore, I’d build the position gradually. Helping your children doesn’t require putting your retirement on hold. Capture available education grants, give the RESP a defined target, and keep retirement contributions moving at the same time.
That creates two useful gifts. Your kids get help building their future. They also get parents who spent decades building their own.
