Conservatively, it is estimated that 30% of South African households are now multi-generational and this trend is expected to continue upwards. A weaker economy, rising unemployment, tax increases, coupled with petrol and electricity hikes, have all contributed to this phenomenon often referred to as the Sandwich Generation.
South Africans are notoriously bad savers and their adult children are now quite literally paying for the parents’ lack of retirement planning. At the same time, their Millennial children are struggling to stand on their own feet as a result of heavy student debt and increased costs of living.
Recent studies by Pew reveal that parents have become increasingly involved in providing financial support for their older children. Many parents attest to feeling trapped between caring for their aged parents, trying to support their adult children, while the same time funding for their own retirement.
With advances in medicines and technology, we are living longer with chronic ailments and diseases – another factor which has contributed to the rise in the Sandwich Generation. More and more adults are finding themselves in positions where they need some level of support – whether it be financial, emotional or physical.
Caring for aged parents can put a strain on your own relationships with your spouse and children – and finding the balance between competing priorities can be tough. For those feeling trapped by the demands of multiple generations, here’s some advice:
- Adopt a careful and collaborative approach
- Commit to openness and transparency
- Develop a multi-generation financial plan
- Protect relationships
- Medical aid and gap cover
- Inventory of assets
- Retirement income plan for parents
- Consider alternate sources of income
- Living arrangements
- Take care of your retirement funding
- Children’s education
- Power of attorney
- Advance Directive or Living
- Costs of long-term care
Be deliberate in your approach to dealing with your parents’ financial position by collaborating with them. It is impossible to make a plan without proper and complete information, so make an effort to engage with them by making it clear you want to help. Fear and shame may prevent your aged parents from wanting to engage in financial discussions but letting them know that you want to come alongside them to find solutions may encourage them to open up.
Older generations are generally more guarded when talking about money, so getting your aged parents to start talking about their finances may be a challenge. However, it is necessary to get everyone’s finances out in the open and it may help to start with your own. Be frank about your own financial position and the extent to which you are able to assist them both financially and in other ways.
Consider employing the services of a financial advisor with experience in multi-generational financial planning. An experienced planner can take a bird’s eye view of the financial situations of all generations and map out a plan that works for the benefit of everyone. This process would involve drawing up a budget for each family, setting out goals, laying out ground rules, tax and estate structuring, plans for wealth transferal and ensuring estate liquidity.
Financial stress can cause tension among family members, especially where siblings have different affordability levels and different attitudes to caring for their aged parents. For multi-generational financial planning to be effective, you need to protect relationships and ensure that everyone is committed to the process. Try to put feelings of resentment aside and work hard to bring your siblings alongside you.
Assist your aged parents in choosing the right medical aid plan option for their needs. Medical schemes have become more complex in structure and it is possible that your parents are on an inappropriate plan for their needs. Assist them in registering for chronic benefits and other programmes offered by the medical aid. Check for old medical insurance policies that they may still have in place as these often provide lump-sum payments in the event of hospitalisation, and if the policy has matured there may be a cash value to it. As your parents get older their chances of hospitalisation increase, so consider taking out a gap cover policy for them.
Sit with your parents and make an inventory of their assets. In particular, check for old policies that they no longer need or that may have matured. Understand what assets they own, who owns them and how they are owned. If your parents have a pension fund, establish what the spousal benefit is and how income will be affected if one of them died.
Assist your parents by drawing up a retirement income plan to ensure they don’t spend too much too soon. If they’ve never had a retirement plan developed for them, there is a risk that they are spending above their means and that they will outlive their capital.
If your parents are underfunded for their retirement and still in good health, consider alternative sources of income for them. DIY and maintenance, Airbnb, tutoring and au pairing, transporting school children, and house- and pet-sitting are some options to consider. They may also consider monetising a hobby or passion for extra income.
Many older people are reluctant to sell the family home – often for sentimental reasons – and many delay the decision to sell until it is too late. Living in too much home is not only expensive, but it is also stressful, overwhelming and can put your parents at a security risk. Encourage your parents to seek smaller, more manageable accommodation that suits their lifestyle, meets their budget and will allow them to free up some extra capital.
Make funding for your own retirement a priority and resist the temptation to dip into your own savings. Don’t leave free money on the table by failing to use tax-efficient retirement funding vehicles. Before helping others and to ensure that the cycle of financial dependency is not repeated, taking care of your own financial future should be an absolute priority.
If possible, set aside funds for your children’s tertiary education by using tax-efficient savings vehicles such as Tax-Free Savings Account. Explore all funding options for tertiary education including bursaries, scholarships, student loans, internships, online courses and part-time study. Be transparent with your children about what you can realistically afford and encourage them to find part-time work to help fund their education.
Talk to your parents about their Will. It is important to know where it is located and to ensure that it is valid. Importantly, check who the executor of their Will is as this can cause delays in the event of their passing. If your parents have nominated an executor who is no longer alive or appointed a company that is no longer in existence, this can cause complications and unnecessary stress. Encourage them to update their Will and appoint an executor that the family is comfortable with.
If your aged parent is physically incapacitated, you may want to consider obtaining a power of attorney which will allow you to act on their behalf. Bear in mind that a general power of attorney falls away if your parent becomes mentally incapacitated, and other arrangements will need to be made in these circumstances.
Encourage your parents to sign a Living Will or an Advance Healthcare Directive to give you and your siblings guidance as to their end-of-life wishes. A Living Will is essentially a request to your medical practitioner and loved ones not be kept alive artificially in the event that you cannot speak for yourself and where there is no hope of recovery. An Advance Directive allows you to appoint a medical proxy who is mandated to speak on your behalf if you are unable to. Through an Advance Directive, you are able to communicate your wishes in respect to pain medication, tube feeding, organ donation, blood transfusion and palliative care.
For people age 65 and older, there is a 70% chance of needing some form of long-term care – these costs can be a financial drain on any family. If there is a chance that one of your parents may need care in the future, start investigating the available options which range from costly frail care and assisted living facilities, private nursing, home carers, step-down facilities and homes for the aged.
Having aged parents financially dependent on you impacts all generations and can cause untold family tensions. Breaking the cycle of dependency means taking bold steps to embrace multi-generational wealth planning so that you can craft a different legacy for your own children.