Reviewed by Jen Riley
If you’re supporting ageing parents and raising your own children at the same time, that makes you part of the sandwich generation – “sandwiched” between two caregiving roles, and balancing responsibilities for both generations.
The emotional and financial strain of this set-up can be overwhelming, especially with rising living costs and a weakening health and social care system.
Without a solid financial strategy, people in the sandwich generation run the risk of jeopardising their own financial future as career and retirement plans take a back seat, and care costs rise. Mid-life women, in particular, often shoulder a significant portion of elder caregiving responsibilities, which can result in gaps in employment and reduced pension savings.
Here are six ways that can help safeguard your financial wellbeing during this bumpy phase of life.
Disclaimer: This article is for informational purposes only and does not constitute financial advice.
1. Prioritise your retirement savings
While it’s natural to want to help loved ones, neglecting your retirement savings could lead to financial insecurity in your later years. Whether you have a workplace pension or a self-invested personal pension, make sure you’re contributing enough to meet your retirement goals, and if your employer offers matching contributions, take full advantage.
If you are unsure, consider consulting an independent financial adviser to review your pension plans and explore other tools like ISAs (Individual Savings Accounts) to save for the future.
2. Have open conversations about finances
Honest, transparent discussions about money can be difficult, but they’re vital. Talk to your parents about their financial situation, including:
- Whether they’ve set up a Lasting Power of Attorney (LPA) for both finances and healthcare.
- Whether their wills are up to date and reflect their current wishes.
- Whether they’ve money set aside and made allowances for long-term care, and are aware of benefits they might be entitled to, such as Attendance Allowance.
Equally, if your children are in their teens or older, consider speaking to them about how they can contribute to their own financial independence. This might mean discussing timelines for financial support or encouraging them to explore student loans, grants, or part-time work if they’re in education.
3. Protect against health risks with insurance
Unexpected life events, like illness or job loss, can derail even the most robust financial plan. Explore options like:
- Life Insurance: Ensure your family would have financial security if you were no longer around.
- Critical Illness Cover: Provides a lump sum if you’re diagnosed with a severe illness.
- Income Protection Cover: Provides an income if you are unable to work due to illness
- Family Benefit Cover: Provides an income for a set period.
4. Stress-test your financial situation
It’s important to test how resilient your financial situation is under different scenarios. Could you manage if:
- You or your partner had to stop working unexpectedly?
- One of your parents or in-laws needed full-time care?
- Your children needed more financial support than planned?
Regularly reviewing your financial situation and plans can help you identify gaps and make necessary adjustments. A financial adviser can assist you in looking at cash flow modelling to understand how your finances will adapt to life circumstances.
5. Explore tax-efficient strategies
For both you and your parents, careful tax planning can make a significant difference. For example:
- Inheritance tax: Discuss gifting or other strategies or that might reduce future tax liabilities.
- Pension savings: Review whether your parents’ pensions are being drawn in the most tax-efficient manner.
- Benefits and entitlements: Ensure your parents are claiming everything they’re eligible for, such as Attendance Allowance or council tax reductions.
- Income creation: Understand your options for creating income and prioritise/manage your sources of income to be tax efficient.
6. Create a multigenerational plan
Family wealth is often built and preserved through a coordinated approach across generations. This means:
- Holding annual family meetings to discuss finances and estate planning.
- Aligning investment strategies to meet long-term goals.
- Considering the implications of passing wealth down through gifts or inheritance.
In summary
Being in the sandwich generation is a challenge, but it also presents opportunities to strengthen family bonds and create a legacy of financial stability. It’s important to take a multigenerational outlook on financial planning and understand strategies that may be helpful with building generational wealth.
Thoughtful planning, protecting your own financial future, and fostering open communication within your family, will help you better navigate this stage of life towards a more secure financial future. You don’t want to find you have no resources left to stay self-sufficient in later life, and be forced to depend on your children for your care needs.
For personalised advice, consider speaking to an independent financial adviser to ensure your plan is as resilient and tax-efficient as possible.
Common questions
- What is the sandwich generation?
The sandwich generation refers to people who have at least one child who is dependent on them financially and at least one ageing parent who requires support with their health, daily living, or finances. The sandwich generation is expected to keep growing because people are living longer and having children later.
- Is it more important for people in the sandwich generation to pay off debt or pay into a pension?
Both paying off debt and saving for a pension are important financial goals. However, it may be advisable to prioritise paying off high-interest debts first, as this can free up more money for long-term savings and investing in your retirement. Simultaneously, contributing to a pension should not be neglected, especially if there are employer matching contributions that can maximise your retirement savings. If you need help, seek advice from an independent financial advisor.
- How can I prepare for unexpected financial emergencies while caring for both parents and children?
Emergencies like sudden health issues or job loss can be a huge blow to your financial stability, so it’s wise to have an emergency fund that can cover unexpected expenses without derailing long-term goals. Setting aside three to six months of living expenses and maintaining appropriate insurance coverage for health, life, and critical illness can provide additional security in the face of unforeseen events.
