Citadel Advisory Partner, Daryl Coker, shares advice with those in the ’Sandwich Generation’ who feel financially pressured to care for three generations of family, while Director at Citadel Fiduciary, Theunis Ehlers sheds light on who this generation is and what the financial pressures are that they are facing.
It is challenging to be part of the ‘Sandwich Generation’ of economically active adults, who are caring for both their children and parents, but financial security into old age is still possible for this important economic segment if they make a few wise decisions along their wealth journey.
To share advice on how to navigate this tricky financial life phase, we speak to Daryl Coker, Advisory Partner at wealth management specialists, Citadel, and Director at Citadel Fiduciary, Theunis Ehlers, who have case studies and practical advice to share based on first-hand experience and that of clients, friends and family.
DEFINING THE SANDWICH GENERATION
Looking at the different generations that make up today’s society, those considered to be in the Sandwich Generation are typically Gen Xs between their mid-40s and 60s and millennials between their late 20s and early 40s. They are wedged between two generations who rely on them for financial support: Boomers in their 70s and 80s, and Gen Zs in their teens and early 20s, or younger children.
The Sandwich Generation is also experiencing a new challenge of older ‘Boomerang Children’ who are moving back home after years of independent living, mainly due to financial setbacks such as divorce, retrenchment or business failures.
The Sandwich Generation typically has more financial responsibilities than the generations before it, largely because of how society functions today as well as the escalating living costs in South Africa. “Today we pay for everything – schooling, medical care, security and everything else, and fuel costs much more than it did in the 1980s and earlier. We’ve also been paying Capital Gains Tax since 2001, and the financial crashes and recessions of the past 20 years have also had an impact on wealth accumulation,” says Ehlers.
Boomer parents typically earned well and retired comfortably but may not have had access to sophisticated financial guidance in the 1960s and 1970s and ended up not being able to sustain their lifestyles into old age. Employed Boomers typically received “defined benefit” pensions based on their annual salaries and years of service, while most people today are contributing towards a “defined contribution” pension which requires personal financial discipline.
CASE STUDY 1: DIVORCED WITH TWO SETS OF CHILDREN
*John (48) has a distinctive Sandwich Generation family setup. He has older children from his first marriage, and small children from his second marriage. “He’s paying both university and kindergarten fees, and his older children want vehicles and petrol money.”
Coker’s advice? “You must have financial conversations with your children to ensure that they understand your financial situation. Ideally, your adult children need a part-time job so that they can earn their own spending money and contribute towards the household expenses or fuel. Don’t create a culture of entitlement that you will pay for everything. Teach them self-sufficiency early on, and imprint on them to choose a field of study and career that will enable them to take care of themselves one day.”
CASE STUDY 2: BOOMER PARENTS WITH HIGH MEDICAL EXPENSES
“Boomers typically worked for the same company for 40 years, bought their life insurance policies from door-to-door salesmen, and retired with a good pension, but never supplemented their income after retirement. They may or may not have medical aid, are living longer and typically find it hard to pay their medical bills into their old age.”
Coker advises: “If your parents don’t have medical aid, they may need to ensure they have another option, or be aware that they may have to utilise the public healthcare system. I had a client who incurred severe financial stress on his asset base after his elderly parent ended up in a private hospital for an extended period without medical aid.”
Coker believes today’s economically active adults should learn from the retirement mistakes of the generations before them. “Retirement is a concept that was introduced in the 20th century for military veterans, and it’s a challenging ideal for most people in today’s financial reality. If you don’t have enough retirement savings, it’s best to carry on working into old age while continuing to invest your money wisely. Don’t plan to retire in the traditional sense – find a second career that can help to sustain you.”
CASE STUDY 3: MARRYING INTO A FAMILY OF NEW DEPENDENTS
*Mary (55) tragically lost her family in an accident and is now the breadwinner for her new husband, his unemployed children and his elderly parents who lost a chunk of their savings to a scam.
Coker believes transparency is the key: “Have clear and open financial conversations with your dependents to inform them of your financial limitations and boundaries. If you accept the responsibility to take care of everyone, also make it clear that they need to compromise on certain luxuries. It may also mean that you must compromise on large expenses such as a new car every few years or regular overseas trips so that you can make your money last. Regardless of your dependents’ demands, it is essential to keep putting money aside for your old age – no-one can tell you otherwise.”
“Inflation is rising and living costs of all kinds are going up, while people are getting older than ever. You need to have those hard conversations with your dependents on what you can and can’t afford, and you must accept certain compromises in your life, to ensure that you can invest enough for your own old age,” says Coker. “This is the reality of life today.”