The Sandwich Generation – Financial planning tips to consider when supporting both parents and children.

How can the sandwich generation successfully manage financial support for parents and children?

Thulisile Nkomo CFP®

Thulisile Nkomo CFP®

Private Wealth Manager

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The Sandwich Generation – Financial planning tips to consider when supporting both parents and children.

Have you taken on the responsibility of caring for your parents who require financial support in their old age? Do you often find yourself juggling the financial needs of both your parents and children? If so, there is a good chance that you are a part of what is called the “sandwich generation”. This is a term that is used to describe middle-aged South Africans who slot between two generations (often parents and children) and who carry the financial responsibility to support both. Owing to several factors, your parents could find themselves on the receiving end of your financial aid despite having planned for retirement. When you have children and this happens, you are often sandwiched between the financial needs of your parents and those of your own children.

The responsibility of navigating the financial needs of parents and children whilst tending to your own can be a tricky task. In fact, without proper financial planning it could cause financial strain, which could lead to burnout.

This article talks about the sandwich generation, who they are and their role in families. It also discusses the important financial planning tips to consider when taking on the responsibility to support your parents’ financial needs.

The need to support two generations at the same time is brought on by several factors. Parents who make plans around retirement but fail to include children in these plans could make poor decisions around the allocation of their retirement funds. This could later warrant the financial intervention of the child or children, who are already supporting their own families. Parents who have not saved enough money for retirement could run short and may need to either apply for a social grant and/or seek financial assistance from their children when the funds run out. With advancing age, comes increased fragility and a growing need for medical attention. Without medical aid, this could become extra tricky to deal with as the rising cost of medical care could exceed the parent’s financial means, requiring an external financial contribution. The rising cost of food and fuel could place strain on the retirement income to a point where financial assistance from children is required. Instances where parents outlive their life savings also require children to assist financially. Although the bulk of these factors come through no fault of the sandwich generation, the necessary steps in mitigating their effects must be observed.

Although allocating your financial resources between the financial needs of your children and those of your parents isn’t necessarily a bad thing, there are several pointers to consider when taking on this responsibility. Firstly, drawing up a monthly budget will assist you in understanding your financial obligations against your income. This will also paint a clear picture of the amount of money that is available to assist your family members. Understanding your parents’ expenditure against their monthly income also gives a clear idea of their monthly obligations. Any financial shortfall can be addressed by either cutting down or eliminating unnecessary expenses. Not only will the outcome of the above exercise paint a realistic picture of your and your parents’ financial standing, but it will also determine what expenses can be cut back and whether you are fit to assist your parents financially.

Encourage open conversations with your parents about their true financial position. Have these conversations earlier rather than later. Find out if there are any existing investments or savings that could assist in cases of financial distress. If there are savings in place, it is advisable to have a discussion with a financial advisor around the pay out of those funds. Parents often cancel their life cover as they get older as it becomes expensive to maintain over time, choosing to save the money instead. In lieu of this, children can take over the monthly premium as this will free up the parents’ cashflow whilst guaranteeing a pay out on death. Not only would this exceed what would have been paid in premiums, it would also allow the parents to save some money in the process.

In an instance where parents do not have money and must be financially supported by their children, it is important to have honest discussions with your siblings around sharing the responsibility. All the details, including the sum of the contributions and the monthly dates must be agreed on to avoid unnecessary confusion or conflict.

It is not advisable to compromise any investments of your own, especially your retirement savings.

People are often tempted to reduce their retirement savings. It is not advisable to do this as it could lead to negative consequences in the future. The same is true with risk planning. Although it is possible to compromise on long term insurance provisions to save cash for the short term, the accompanying consequences can be catastrophic. If an incident occurs which could lead to your permanent disability, without risk planning, you would be left permanently disabled and unable to generate an income for yourself. Under these circumstances, you would not be able to provide for yourself, your children and parents.  

The decision to take on parents’ financial needs must be carried out with sobriety and thorough financial planning. A good basis of the latter is a realistic monthly budget. There must be full disclosure of your and your parents’ financial standing prior to making and agreeing on any monthly financial commitments. This will encourage maximum cooperation from both parties. If your parents are recently retired or are nearing retirement, I encourage you to involve yourself in their financial plans and to provide guidance where required. It is also wise to anticipate the extent to which your financial assistance might be required by your parents in their old age. For example, if your parents are not permanently employed or do not have a stable income, it is likely that you will be required to assist full-time. Considering this, it is advisable to start putting away some money as early as possible. Assisting parents financially can be a huge privilege. However, without the requisite financial planning, it can culminate in stress and burnout. Therefore, if you are in the sandwich generation, I encourage you to start planning your finances accordingly.

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This article features in the 2023 Issue 3 edition of the Proficio, NFB's bi-monthly financial update newsletter. Download the complete newsletter here.


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