New pressures are making it harder than ever to plan for a financially secure retirement, but it remains critical. Understanding the problem is the first step.
By Alex Cook, CEO, GCI Wealth
The sandwich generation generally describes those who fall into the broad age group between 40 and 60. These individuals are at the height of their earning power, just when they should be focusing on building up sufficient capital on which to retire comfortably. But many of them are finding that their ability to do so is greatly constrained by the unanticipated need to support both the generations below and above them.
This perfect storm is the outcome of two parallel sets of trends. On the one hand, many in this age group elected to have their children later in order to concentrate on their careers. Another factor is the fact that tertiary education lasts much longer than it used to. Rising property and school costs mean that contributions from parents are often needed, along with practical help.
The overall result is young people find it harder to attain independence, and often require financial (and other) help much longer than what used to be the norm.
Another set of trends constitutes the other side of the sandwich. People are living longer than they ever expected to, which often means that their retirement savings begin to run out. One reason for this growing longevity is advances in medical technology, which comes at a high price, thus placing additional pressure on retirement budgets.
The funding challenges of increasing longevity are exacerbated by the bitter truth that few South Africans retire with sufficient capital to fund their desired lifestyles in the first place. Most gamble on the fact that they will die before their money runs out, but when they live for 10 or more years than expected, the gamble goes badly wrong.
In short, aging parents frequently require financial assistance from their middle-aged children. Sandwiched between these two sets of needs, today’s sandwich generation can be tempted to put their retirement saving onto the backburner. My experience in this industry has shown me that this attitude really just worsens the problem. The longer one delays, the harder it is to accumulate enough capital on which to retire. In fact, this is the very attitude that led to the older generation finding itself underfunded.
And, as studies are starting to show and what we have all seen or experienced, financial strain is extremely stressful and can contribute significantly to family breakups, and even mental breakdowns. In extreme cases, and this is particularly true of older people, financial problems can contribute to suicide.
The journey begins with the first step
It sounds like a fortune cookie, but it’s nonetheless true that a challenge can only be overcome if it is first confronted and assessed. It is thus imperative that anyone in the sandwich generation should sit down with a reputable financial planner sooner rather than later, and get a realistic picture of their current situation – including their financial responsibilities to children and parents – as well as their retirement goals.
Only once that is known is it possible to come up with an action plan. One should not despair: compound interest is extremely powerful. Putting even a little extra aside now can make a huge difference, and could mean that the backlog that has to be tackled ultimately is less. But, by the same token, just leaving things as they are will make the mountain that has to be climbed later will be too high.
So, members of the sandwich generation, you do face some tough challenges. But make a plan now, and you are more likely to overcome them in the end – if you don’t, you will likely find yourselves in the same position your parents did.
And make sure your children are making retirement saving a priority from the get-go – even while they still need your help!