Caught in the middle

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Surviving financially in the sandwich generation

Change is inevitable, but not always pleasant. Pre-retirees are finding that they are not only supporting adult children (sometimes even grandchildren) but their parents as well, neither of which was planned for. There are some fundamental changes to the norms and values in society that are causing these changes. Youngsters are waiting longer to marry, but cannot necessarily afford to move into their own home – or would rather live ‘rent-free’ and spend their money elsewhere. Marriages are failing at an unprecedented rate, and these split families can often not go it alone on one income. The incidence of ‘single parents’ is at the highest level ever. There is also the demographic issue that retirees are living longer, often much longer than they ever have and their retirement funds often run out, so they have to fall back on their children for support.

Whatever the reasons, at a time those would-be empty nesters should be ‘accumulating’ retirement funds, and have the mortgage bond paid off, they are having to incur expenses both to look after children and parents, both of which can have a devastating effect on their own pensions. There is no doubt that this trend will continue, and as longevity really kicks in, could get even worse.

This pressure of being financially sandwiched between children and parents needs to be planned for – both financially and emotionally. There are also some ‘soft skill’ changes that you can start implementing that don’t usually fall under the ambit of financial advice, but quite frankly they should.

One of the biggest expenses of keeping a ‘roof over the head’ of yourself, parents and progeny comes from owning your own home. Home ownership is a ‘lifestyle’ asset and its primary objective is to preclude the need to rent in the future, and it usually does not hold much store of value other than that. As we live longer and there is a greater likelihood of ‘extended families’, by necessity and not choice, keeping a larger family home and not downsizing starts to make sense again – if it ever did. The notion that downsizing and moving into a retirement village liberates large sums of capital is a myth. There is always Airbnb when you have vacancies. As much as estate agents will hate me for saying this, ideally buy a home once and never move – you will save yourself hundreds of thousands. Adding Granny flats aka Millenial Lofts are a better investment – keep your sanity by letting everyone have their own space (and pay rent for it… just kidding.)

One way or another, our thinking around how much we should be saving for the long term is having to change. In an environment where we already don’t put enough away for our later years, I know this is a hard ask. I have gone into post-retirement income in more detailed on a blog HERE, if you’re interested, so won’t repeat myself. Assuming that what wealth you are putting away is invested properly and not a DIY mess, you only have a few choices. Earn more, work longer or spend less.

Part of the ‘spend less’ choice comes the management of your progeny, their attitudes toward wealth and work and their expectations of your role in their life once they are qualified. The jobs market is changing so rapidly that it is quite realistic to expect ten or more radical career moves in the lifetime of a future worker. While you still have some influence (because you’re the paymaster) make sure your children get some understanding of what is expected from them out there in the big wide world. (Alex Groenendijk has written a brilliant book on this, required reading at a number of Florida Universities, HERE). Technology has almost maxed out on ‘helping’ workers by taking over the mundane and repetitive jobs, it is now going to take on proper white collar jobs. Unless future workers have a flexible mindset and one of continuous re-education, they are going to get left behind. The much-lauded ‘lowest unemployment rate in the States ever’ hides the true nature of those jobs – they are often at the lowest end of the ‘service’ chain like car/truck/taxi driving, burger flipping or delivery – all of which are under threat of being superseded by automation in the next ten years. In order to keep relevant job seekers are going to have to brush up on the creative, people, thinking and high-level technology skills.

The “Spending less” side of the wealth equation when it comes to supporting parents is more difficult, and if you think you might be put in this situation, then rather plan for it way in advance. The worst case scenario is that you ‘oversave’ and your retirement is more comfortable. Take this possible outcome into consideration when buying a home – rather buy a bigger home in a less salubrious suburb, and look for granny flats/cottages that can be rented out or house additional family.

“Lifestyle creep” is the subtle upgrading of your lifestyle, houses, cars, holidays etc as your income increases. You’ve worked hard for that bump in earnings, surely you deserve some reward? If you can avoid this trap, your future self will thank you profusely. Unfortunately, as your income creeps up, so too does the tax bracket and over time your real earnings could well decline as inflation erodes those increases. Protecting and building wealth is the result of thousands of small decisions made over decades. The sooner you, and your children can question some of the spending norms the sooner you can start building real wealth.

“Making friends with your money” is one skill that will always help you get ahead. For a start, one holds onto fiends and does not throw them away. Know where your money is coming from, going to and staying. Technology on most banking platforms today make it easier and cheaper for you to move money between general transition and savings and this is a good way to ‘make friends’ with your money. Some banking platforms like Capitec allow you open multiple savings pockets, which may help you by having a pocket for each ‘saving objective’. By making friends with your money, you will get on top of wasteful expenditure, unnecessary subscriptions and even fraud. Fraudsters will often dip their toe into your account or credit card and try a small debit, perhaps even with a refund to see if there is money in the account and if you’re awake.

Work with your financial advisor so that you know just how much you should be putting away for the ‘new tomorrow’, and even if you can’t afford it right now, at least you have a direction to work in. Avoid cookie-cutter algos, planners or programs, unless they are flexible enough to change the underlying assumptions – and modify your plan every year as the new paradigms play out. If you can’t get through to your kids, perhaps pay for a coach to help them – it will be money well-spent in the long run. Don’t let your parents give up medical aid – that could result in the doubling of premiums if they stay off for a decade or more, at very least help them with a hospital plan. Again, they might need the help of a coach or financial planner. Add potential financial liability for parents when considering how much life cover you need.

Action: To take the stress out of changing norms, you will need to be financially flexible and keep questioning your long-held assumptions on how the world works.

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