Feeling The Squeeze Of The Sandwich Generation
More and more people are finding themselves sandwiched between two generations. Lifestyle coach and financial planner Mary Fourie acknowledges the pressure this puts these individuals under. “Financially you’re paying for the day-to-day expenses of yourself, your children and your parents and you’re also needing to save so that you can break the cycle of financial dependency for yourself and your own children when you stop working one day,” she explains. “The biggest challenge is that often the reality of present day’s needs outweigh the desire or responsibility to invest in your own future, therefore, the cycle is continued and not broken.”
Christelle Louw, advisory partner at Citadel, says that people should prepare for this possible scenario by starting with the financial requirements of the different generations and creating a “firewall” or pool of funds for each of them.
“It may be wise to consolidate expenses like avoiding payment of double household insurance, double maintenance, double rates and taxes and so on for two households. Perhaps adding onto your property to accommodate children and/or parents should be considered.”
Since only eight per cent of the population is able to replace 75 per cent of their final income at retirement, Louw advises that if you find yourself having to care for two generations, but aren’t prepared, “to revisit your personal financial situation first — the last thing you want to do is to burden your children by not being prepared for your own retirement years. Be realistic about how you will be able to support your family and have open conversations about expenses.”
Louw advises people to make sure they have an emergency fund to the value of three times the family’s monthly expenses and, if they have the financial resources to support two generations, to identify separate capital funds for each family as the income requirement per family may differ and, therefore, the investment allocation per family will differ.
Make sure that your core family’s investments and financial independence strategy stay on track. If you support your family from your cash flow and not invested assets, make sure that you accumulate an additional emergency fund from your cash flow to have a capital amount handy.
Louw’s advice is to “be mindful of 7C taxation that has been introduced to loan accounts in trusts. Make use of interest-generating investments as part of the financial support and use the interest rebates per individual on these amounts to provide a stable, tax-free return.”
The juggling act for the sandwich generation is not only demanding on the pocket, but can also wreak emotional and physical havoc according to Fourie. “You’re potentially stretching yourself very thin as you work to balance the needs of three generations. This can cause a strain on relationships as resentments and frustrations build. This could result in health issues and burnout if one needs to work extra hours, or more than one job.”
Fourie cautions that preparing for the future requires taking honest ownership of your life. “Think longer-term than just the present moment, day, week or month. The difficult conversations to be had should centre on the financial facts. It’s important not just to talk about these things, but to act on plans to prepare for the future. It doesn’t serve anyone to dance around the issue, or not confront the reality.”
Louw echoes this and stresses that the entire family must be enrolled in finding solutions. “Encourage small business thinking and earning of additional income. Establish business-like rules, schedule meetings and agendas to address cash flow requirements per family unit requiring financial assistance. Be transparent regarding available cash flow and lifestyle expenses for each family unit.”