The sandwich generation and the link to Financial Wellbeing

Our latest blog post comes from David Vallance & David A Smith, Heads of Tilney’s UK Universities team and a Chartered Directors of Financial Planning

Around 1.3 million people in the UK* have the double responsibility of looking after children under the age of 18 and caring for elderly parents. This number mostly includes people between 40 and 50 years old.

Due to the increase in life expectancy and for some, the delay in starting a family as they have chosen to focus first on establishing their career, the numbers in the sandwich generation can only get higher.

The costs involved

Caring for parents comes with unplanned additional costs and a pressure on time to help shop, cook, clean and provide transport for appointments. For many people, this leads to requests for flexible working hours, a permanent reduction in hours or even leaving work altogether. The latter two options would of course lead to a reduced income or their income from employment stopping completely.

Looking after your staff

Just as you’re told to put on your own oxygen mask first in an airline safety demonstration, the same goes for being a part of the sandwich generation – they need to look after themselves before they can look after their loved ones.

It might be tempting to reduce or stop any pension contributions, but where possible, if they can continue, it makes sound financial sense. They could end up caring for their parents for many years and if they are not paying into their pension during this time, it could have a massive impact on their own retirement plans.

Although it’s not always the most comfortable of subjects, it’s vital that where possible, they talk to their parents about their financial situation, as well as their own. Most people’s parents do not want to be a financial drain on their children and will want to pay towards any costs, if not cover them entirely, if they can afford to do so.

It’s also important that they discuss the possibility of setting up a power of attorney for their parents. This will allow them to act on their behalf if they become physically or mentally unable to do so themselves. In order to save themselves from unnecessary additional worry, stress and potential cost, it is essential that the power of attorney is registered at a time when their parents have the mental capacity to make important decisions, in case they become ill at any point in the future and are unable to do so.

Life insurance and critical illness cover

It’s important for everyone to think about how their family would cope financially if they were to become ill or die, but it is even more so for people who are a part of the sandwich generation. In 2019**, those in the 40 to 59 age range, typically the age of the sandwich generation, were twice as likely to experience a critical illness between the ages of 40 to 49, rising to three times for ages 50 to 59, compared to people under the age of 40 or over 60.

In this situation, many people would be unable to work, let alone care for children and parents. It’s important to think about how their family would cover their loss of income. Even if they are not working and instead are focusing on caring for their children and parents, they need to think about how that care would be paid for if they were unable to provide it themselves. A payout from a life insurance or critical illness plan could help to cover the loss of income or pay towards child or adult care. A financial planner can advise them on what type of cover is suitable for them and their family.

Thinking about mental health

In the midst of looking after other people, it is essential that they look after their mental health as well as their physical health. The pressures of being a part of the sandwich generation cannot be understated. Many life insurance providers have helplines available to their policy holders where they can talk about how they feel and get the support they need. When taking out an insurance plan, they should look to see if this is one of the benefits to their policy.

Making provisions for future care

Many people who are a part of the sandwich generation do not want to put their own children in a similar position to the one they are in themselves. If your staff don’t want to rely on their children for their future care, it’s important to think about how they would cover the cost of care themselves. With the cost of care ever-rising, it’s important to start planning how they will pay for it now.

Financial Wellbeing & the cost-saving agenda

Last year a significant number of the Universities Tilney are involved with asked their staff to consider flexible, part-time and / or early retirement.

What are the barriers to this?

• State pension age has been pushed back. Staff feel they need to work on until state pension age to potentially significant detriment to their mental and physical health.
• Pension scheme changes. The shift from final salary to CARE and/or money purchase schemes means people don’t feel they can retire early.
• Actuarial reduction. Going early many don’t feel they can take the hit.

Many people in this situation find it helpful to seek professional financial advice. A financial planner will work to review their finances and see if they can afford to reduce their working hours or retire early without derailing their financial plans through the use of cashflow modelling.

Our work tells us those in higher education often think they need to work on longer than they actually need to. A consultation with a Tilney financial planner can shine a light on their pension provision and provide ways of approaching changing working patterns or early retirement. They can also work with the whole family and steer a productive discussion to establish a way forward that is agreeable with everyone.