Financial advice for the sandwich generation
● Many of us are set to experience the stage where the parent-child relationship tables are turned and we have to care for ageing parents.
Transitioning into these reversed roles can be emotional and uncomfortable for both older parents and adult children.
Older parents may feel shame and embarrassment disclosing that they have insufficient funds for their retirement. Adult children may find it difficult as it usually happens at a time when they are experiencing the demands of children and work.
Paul aged 46, is having to negotiate his new role as caregiver to both his young daughters and his ageing parents. Paul belongs to the sandwich generation which, according to Old Mutual’s Savings and Investment Monitor, makes up 27% of SA’s workforce.
Unfortunately, the journey for Paul and his parents has been fraught with distress and miscommunication.
While going through his divorce and adjusting to the responsibilities of being a single dad, Paul started to suspect that his parents were in financial difficulty.
They didn’t want to add additional stress to their son and due to the parent/child dynamic neither Paul nor his parents knew how to approach the conversation surrounding their financial circumstances.
This impasse prevailed for months, until the situation finally hit a crisis point, resulting in Paul and his parents sitting in his parents’ financial adviser’s office and his father crying throughout the meeting.
Luckily for Linda her family’s experience has been different from Paul’s. Linda and her siblings, like 59% of South Africans according to the Savings Monitor, expected that they would eventually be financially responsible for their parents.
“It was glaringly obvious,” said Linda. “My parents were failed entrepreneurs and had an inability to manage their finances. The writing was on the wall.”
Linda and her siblings are unified in their shared responsibility for their parents.
In 2001 they purchased a flat for their parents and found creative ways to give them money for “helping out” with grandchildren or running errands. Linda’s parents are now in their mid-70s and her mother has been diagnosed with dementia. Linda and her siblings are aware that as their parents get older and as her mother’s dementia progresses that expenses are going to increase.
But despite her siblings being a unified front they still struggle to have open conversations with their parents.
Janet Hugo, a financial adviser with Sterling Private Wealth, says: “Family conversations are challenging at best. It is not that [older parents] are holding it back from [adult children]. It is that they don’t want to admit it themselves.”
Sue Torr, a financial adviser with Crue Invest, says her practice has experienced the benefit of multigenerational financial planning as the best option for facilitating conversations. Torr believes it is important to sit down together as a family as soon as possible as early knowledge can establish the extent of the problem.
The knock-on effect of a multigenerational financial planning approach is that the aged parents can leave a better legacy and adult children can assess the impact of helping their parents with regards to their own retirement savings. Opening the communication channels early also helps with the emotional aspect as there may be feelings of anger and resentment.
As long as you are still healthy, there are many things an older person can do if they suspect there’ll be a shortfall in their retirement funding. If it is at the point of retirement, the best thing would be to remain working and contributing to retirement savings.
If the older person is already in retirement, there are various alternative sources of income. Torr says with participants in the gig economy such as AirBnB and Uber, avenues have opened for generating income which were not as readily available 10 years ago.
Often older parents are sitting on properties they don’t want to sell for sentimental reasons. But selling the property before it becomes a forced sale will make the process more financially sound and avoid unnecessary emotional strain, Torr says.
Both Hugo and Torr say carefully looking at spending patterns is key. Maintain as much medical scheme and gap cover as you can, while reducing expenditure on luxuries, restaurants and subscriptions. Hugo recommends consulting with a financial adviser to ensure that the draw-down on investments, whether from annuities or unit trusts, is being done in the most tax-efficient way.
For adult children, Torr believes the first thing that needs to be done is ensure that all siblings are involved and aware of the extent of the problem. It is important to acknowledge that adult siblings may have different family responsibilities and financial obligations of their own. However not all financial problems can be solved with money.
Siblings’ responsibility to their ageing parents is equal, and discussions pertaining to how financial and non-financial contributions can be made in the care of their older parents are necessary. With regards to their older parents, adult children can pay their parents for their time in transporting grandchildren to school or helping with homework as opposed to expecting this to be done for free.
It is also a good idea for both generations to look at accommodation options together. This may entail building a granny flat on their property with an additional room in case a caregiver is needed in the future.
Keeping money liquid in discretionary savings for additional support and frail care expenses is advisable, Torr says.
Hugo suggests adult children may need to rewrite their wills and amend their life insurance policies, as the term dependent does not only apply to those younger than us.
* Not their real names
In his parents’ financial adviser’s office his father cried