How many of us are prepared for the reality of supporting our parents in their retirement?
Liberty financial advisor Phillip Kassel knows exactly what it is like to be part of the sandwich generation – supporting both his children and retired parents on a monthly salary. “I have a son at university and am supporting my parents, this puts enormous financial strain on any household,” says Kassel who adds that this is the financial situation most of his clients face.
The problem, says Kassel, is that most financial plans are based on the idea that a time will come when your mortgage is paid off, your kids have left home and you can focus on funding your retirement.
The reality, however, is very different. Most parents today are acting as bridging finance between their children completing their studies and finding work, while supporting their retired parents whose retirement funds have dried up.
“When putting together a financial plan, you need to consider factors beyond just meeting the needs of your immediate family, you need to plan on supporting your children for longer and possibly your parents as well,” says Kassel.
Four ways to survive the sandwich generation:
Have the right medical cover: Ensure you have a medical scheme that allows special dependents. This would include your parents as well as adult children.
Review your life and disability cover: Your life cover needs to be sufficient to provide an income not only for your spouse and children, but also any parents who will be financially dependent on you. The same would apply to disability cover should you be unable to earn an income.
Consider life cover over funeral insurance: Rather than taking out funeral cover for your parents, consider a life policy for the same premium. You will receive significantly more payout per rand of premium from the life policy and the proceeds can be used to both pay for the funeral as well as provide some capital for the surviving spouse, easing some of the financial burden on you. Liberty pays out R50 000 of the insured amount within 48 hours to cover funeral costs.
Invest for growth: It is hard enough to fund your own retirement out of your salary without having to provide for both adult children and aging parents. Your money needs to be working much harder for you. You cannot afford to sit in conservative, low-growth investments. If you have a time horizon of more than five years you need to be investing in equities – not cash. It is the only way you will survive the sandwich generation.