Many South Africans expect that they will need to support their parents as they get older. Looking after the financial needs of three generations takes serious planning
The ‘sandwich generation’ is a term used to refer to the specific struggle facing people who are responsible for caring for their parents and children financially.
Madri Jacobs, a Financial Planner at Sanlam, highlights important considerations for the “sandwich generation” to consider to help alleviate the financial pressure and to avoid feeling like an overstretched ‘sandwicher’.
Are you a ‘sandwicher’?
Since many South Africans are caring for their parents and children, it’s tough to make provision when it comes to saving sufficiently for retirement. When speaking to a financial planner, it’s important that you are transparent about your personal financial demands, i.e. your ‘sandwich position’. This equips your financial planner to give advice that is realistic in making provisions for yourself and your dual-care duties.
Jacobs says: “If you are a family member who provides for your children, parents and/or siblings and the wider family – this could include people in your employment, such as a domestic helper – the question is, ‘How can I make this work?’ It’s vital to plan ahead and to have meaningful conversations upfront.”
Tips to help you get started
Get very practical
Determine the needs of your dependants, then look at how to finance these. Take your own needs into account as well. As an example, a bank could lend you money to pay for educational expenses, but a bank will not lend you money to provide income in your retirement. As advisers, we always caution clients against using their retirement savings to assist parents and children, since it will be almost impossible to make these up, due to the opportunity cost of compound interest and limits to one’s budget for future savings.
Involve siblings in your financial planning discussions
If you have siblings, chat to them about how to share the financial responsibility of looking after your parents. Have frank, loving conversations with your parents too. Sometimes arrangements can be made where you assist your parents but set up an agreement for repayment, for example, out of their estate (given that funds are available). It is grim to think about it but try to look at it objectively. Having said this, ensure that all family members’ wills are up to date. If people are comfortable to do so, discuss the content of the wills to avoid surprises down the line.
Draw up a family budget to nail your finances
- Medical aid and gap cover: for each family member: investigate whether a family plan is cheaper
- Short-term cover for vehicles and household contents: an unexpected claim could be the straw that breaks the camel’s back when your budget is already stretched; utilise insurance for extra protection
- Life cover: if you are the financial provider, other people are reliant on your income. If you should pass away, this would put further strain on the family. Get professional assistance to determine a sufficient level of cover.
- Provision for your children: ensure you’ve stipulated guardians for your children in your will and have enough life cover to care for them
- Lump sum disability and income protection: crucial ways to protect loved ones should you be unable to earn an income
- Provision for school fees: often, you receive your salary for December earlier in the month and it is a long stretch to receiving January’s salary. Set aside funds for school fees and other big obligations as soon as you receive your end-of-year income, or ideally, even earlier.
- Provide for travel expenses to and from work: this is often forgotten but these small sums add up. Perhaps investigate alternatives like carpooling or public transport, if viable
- Limit debt, especially credit cards and short-term loans: be wary of the pitfalls of credit, including fees and high interest rates
- Get assistance with retirement and investment planning: your current situation may last many years, so you need to have a plan for it. An objective professional’s opinion may help.
- Severe illness cover to supplement medical aid: this can be a good idea to bolster finances should a curveball occur
“When it comes to having the best chance of meeting financial obligations, there are multiple considerations to take into account and you need to ensure that they managed in order to survive financially,” concludes Jacobs.