Intergenerational challenges for retirement saving

A potential trap when saving for retirement is to automatically assume that our retirement savings will have to cover just ourselves:

either as a couple or as a single retiree. Yet as many more people nearing retirement or already in retirement are finding out, life and family circumstances can be far more complicated than that.

       

Greater longevity with improvements in medical science and the wave of retiring baby boomers are among the fundamental causes for the apparent growth of what has been called the "dual-retirement" or "common-retirement" phenomena. This is said to occur when two generations of the same family are in retirement at the same time.

The New York Times quoted Phyllis Moen, a sociological professor at the University of Minnesota, earlier this year as saying that it is "historically unprecedented [until now] where you have older people and their still-older parents".

In turn, this is leading to intergenerational demands on retirement savings as retired baby-boomer retirees provide some financial assistance to their very elderly parents.

And to make retirement savings and retirement budgeting even more complicated, there is also the so-called "sandwich generation". Members of this generation - typically in their fifties and sixties - are still providing at least some financial assistance to their adult children as well as their own elderly parents.

Indeed, some members of the sandwich generation are retired themselves.

Several major publications have published articles this month examining some of the inter-generational complications facing countless baby boomers and their retirement savings.

A New York Times personal finance feature, Reopening the Bank of Mom and Dad to Help Adult Children, discusses the case of a 55-year-old teacher who is using some of her retirement savings to provide extensive financial support to an adult child. This means she will have to work longer before retirement or sell her home (already being used as collateral for her daughters' student loan).

The article's author asks several financial specialists about how parents should handle their financial dealings with their adult children. In short, they emphasise that parents should not sacrifice their own financial future to subsidise an adult child's lifestyle. And any loans should be made on a formal basis with a contract providing for the payment of interest and the repayment of capital.  

Also this month, Forbes magazine published an article, A New Generational Struggle: Sandwiched Between Ageing Parents and Growing Children. "Members of the sandwich generation are often unaware of their parents' financial situation and assume that their parents are prepared for their 'golden years'," the writer comments.

Vanguard in the US published a highly practical article two years ago headed Your Investing Life: Helping Ageing Parents, examining how adult children can help their ageing parents while not neglecting their own needs. Its suggestions include:

  • Try to find out about your elderly parents' financial position while respecting their "financial boundaries".
  • Make sure your parents are aware of their government entitlements.
  • Take any necessary steps to protect your parents from financial fraud, which is often targeted at the elderly.

"If your parents are under financial constraints, you may want to tap into your retirement savings to help them," Vanguard's specialists write. But while is an "admirable instinct", it could have long-term financial consequences for you. "Consider any such move carefully before you act."

A skilled financial adviser could be well-placed to provide guidance about how to handle the intergenerational challenges for our retirement savings.

 

By Robin Bowerman
Smart Investing 
Principal & Head of Retail, Vanguard Investments Australia
15 October 2015

 

Any advice contained in this website is of a general nature only and does not take into account your circumstances or needs. You must decide if this information is suitable to your personal situation or seek advice.

Rolanda has been my financial adviser for 20 years. I have always found her to be highly intelligent, knowledgeable and professional in her career. Rolanda is accessible at all times and patiently explains terms that I do not fully understand. I can highly recommend Rolanda and it is a pleasure to do so. I do this with the utmost confidence. Marcia Montgomery (Retiree – home duties and ex-clerk with Water Board)
I retired Oct 2012, and seeking Financial Advice for my retirement funds, I decided to have Rolanda look after my financial affairs, and so happy I did. Since my retirement I am extremely comfortable with Rolanda’s advice, experience and strategies and the returns on my investments. Rolanda is my "Breath of Fresh Air" at this stage of my life and she makes herself available 24/7 should you need to talk with her. Steve Hoad (Ground Engineer, Qantas)
In 1997 I left Energy Australia and decided to join Rolanda Adams Financial Services for the financial support and advice that I would need into the future. That decision has proved a very good one and I am still with Rolanda who has given me advice and friendship over those many years. The advice given has ensured that my investments have been protected and the major losses, of some, during the GFC was not felt by me unduly. Rolanda and her team are very easy to contact at any time and one is always received in a most professional manner. I would be most happy to recommend Rolanda Adams Financial Services to all who need financial services. Graham Fleeton (Manager, Property Insurance Group Energy Australia (Ausgrid))
Rolanda has been my Adviser for the past 18 years. Through her wide industry experience and professional expertise she has ensured the sound development and ongoing management of my investments. Her advice has invariably been sound, timely and entirely tuned to meet my personal needs in retirement. She has a friendly, engaging manner and is always readily available to address any of my concerns. I have no hesitation in recommending her. Neil O'Keeffe (Chief Inspector (retired), Australian Customs Service)

© 2020 Rolanda Adams Financial Services Pty Ltd. All rights reserved. Site by PlannerWeb.