Tips for Sandwich Generation Families

By Lorna Tan and Shawn Lee

If you’ve only got a minute:

• Those who belong to the sandwich generation typically find their finances and energy stretched thin, having to juggle their careers, household duties, and caregiving responsibilities.
• To break out of the cycle, it is important for parents to adopt a two-prong approach of planning for their own retirement while saving for their children’s education, instead of putting off retirement planning till much later.

Those who belong to the sandwich generation typically find themselves stretched thin, juggling their careers, household duties, and caregiving responsibilities. For many years, the term has been applied to those – usually in their 30s and 40s - who were “sandwiched” between ageing parents and young children, acting as their caregiver.

It marks a financial challenging phase as they would be supporting both their children and parents financially. This is because the costs of providing for their children's living expenses, education and supporting their parents, can be overwhelming. Adverse events like retrenchment, health concerns and parents’ medical bills can strain their finances even further.

In 2021, DBS published a report No Storm Lasts Forever that analysed anonymised and aggregated data insights from 1.2 million retail customers to examine the effects of the Covid-19 pandemic on individuals’ financial wellness.

The report indicated that middle-aged workers accounted for the majority share of those who experienced income deterioration. In fact, almost half of those in this age group experienced income decline of more than 30%. A persistent increase was also observed in the unemployment rate of middle-aged workers. These findings suggested that this group will continue to face challenges, and therefore require sustained policy support.

The middle-age group, especially those who are fall in the sandwich class category, will require more help in their financial planning since they would have multiple financial responsibilities toward their children, parents and own retirement.

Here are the 3 pitfalls to look out for when sandwich generation families plan for their finances/retirement.

1.Overspending on kids

Are you struggling to find ways to save? Consider trimming down on what might seem important so that you can invest in your future important goals. Here are some areas you can look into.

Pre-school education: While everyone wants to provide the best for their children, the “best” may not always be the most expensive. Fees for preschools start from S$700 per month and can go up to more than S$2,000 each month. With the current tuition fees of our local universities at about S$10,000 each year (or S$833 per month), that means some preschool fees are 2.4 times the cost of a bachelor’s degree! 

Enrichment classes: Next, carefully assess if extra lessons are necessary for your children. Such classes can easily add up to hundreds of dollars each month. Ask yourself: Does your child really need this class? Are there alternative ways to pick up this knowledge or skill? Would you be able to teach your child? Does your child need to be so proficient in this skill that a class is required?

2. Careless with credit management

Loans or purchases funded by credit can accumulate through interest charges and fees, becoming a constant source of distress. If you find that your debts are spiralling out of control, you may want to consider the Debt Consolidation Plan (DCP) offered by banks or the Debt Management Programme (DMP) from Credit Counselling Singapore.

In addition, as home mortgage payments are likely to make up about a third or more of household expenses, borrowers need to keep an eye on their repayments and take steps to actively manage their mortgage. Homeowners who did not manage to lock in rates before the rise in loan rates may be grappling with a larger monthly home loan repayment.

3. Emotional and physical exhaustion

Those in the sandwich generation face more stress than any other age group, This may result in social withdrawal from friends and family, losing interest in favourite activities, low quality sleep, loss of appetite and depression.

To counter this, exercise regularly and find time to relax. Seek professional counselling if the need arises. Having a robust financial plan will also help to provide a better peace of mind.

Action steps

1.Budget and prepare for emergencies

To manage their various financial priorities, it is essential for sandwich generation families to set up a budget and track their expenses. This allows them to have a good overview of their spending patterns so that they can have positive cashflow.

With regular savings, they can start building an emergency fund which can be handy when something unexpected yet urgent crops up such as home repairs or a loss of income. They should aim to set aside at least 3-6 months' worth of expenses to be ready for emergencies and place these funds in safer and liquid instruments such as T-bills, Singapore Savings Bonds, and/or higher interest yielding savings account. Currently, these tools provide 3% to 4% pa returns which can help to grow their idle funds and still enjoy some liquidity.

2. Protection is key

As a breadwinner or an income contributor to the family, it is prudent to ensure you have adequate insurance to take care of expenses and income loss resulting from hospitalisation, accidents, critical illness (4x annual income), and death & total permanent disability (9x annual income) and severe disability.

3. Plan for retirement early

It is important for parents to adopt a two-prong approach of planning for their own retirement while saving for their children’s education. This important step will enable them to break out of the sandwich generation cycle. Planning for retirement early sets the stage for a secure future for you and your loved ones. By being financially self-sufficient, they would not need to depend on their children to support them financially in the future.

Start early, find a balance, reap the power of compounding, and make informed financial decisions that benefit both generations. If you save S$500 per month from age 35 to 65 with a 6% per year return, you will accumulate S$474,349 at age 65. On the other hand, if you only start saving from age 55, and even if you double your savings to S$1,000 per month, you will only end up with S$158,169 at the same 6% return at age 65. The difference is more than S$300,000!

Invest wisely with positive cashflows in suitable investments to achieve both short and long-term financial goals.

4. Think long-term

Adopting a long-term investment approach will provide more focus on attaining life goals like financial freedom and retiring comfortably. After setting aside emergency funds, sandwich generation families can consider starting their investment journey with Exchange-traded funds (ETFs) and unit trusts. Both ETFs and unit trusts are pooled investment instruments that offer diversification through having a basket of stocks. They can start investing in small amounts and increase gradually over the years.

An investment that is easy to start with is the DBS Retirement digiPortfolio. It is a hassle-free, ready-made investment portfolio that is allocated according to your retirement goals, it grows your investment at the start and stabilises as you approach retirement. It is managed for you by DBS in collaboration with JP Morgan Asset Management. You can get started easily from just S$1,000 without any lock-in or withdrawal penalties. This investment gives you an easy way to diversify your investments and not have all your eggs in one basket. 

5. Leverage Central Provident Fund (CPF)

Leverage CPF Board's attractive guaranteed interest rates of at least 4% in your Special Account (SA), by topping up your SA or Retirement Account (and that of your loved ones) directly via the Retirement Sum Topping Up (RSTU) scheme.

You can potentially enjoy tax relief of up to S$16,000 per year too. By setting aside S$8,000 each year in your SA, you could accumulate S$238,224 in 20 years. You can withdraw your CPF funds in excess of the prevailing Full Retirement Sum (FRS) at age 55, in addition to receiving monthly payouts from the annuity CPF LIFE scheme from age 65.

6. Set up a sound estate plan

Ensure you have a sound estate plan so that dependants can continue with their lifestyle should you die prematurely and/or manage your affairs if you lose mental capacity.

The common tools include a will, CPF nomination, Lasting Power of Attorney, Trust (if necessary) and an Advance Care Plan.

Ready to start?

Start planning for retirement by viewing your cashflow projection on Plan tab in digibank. See your finances 10, 20 and even 40 years ahead to see what gaps and opportunities you need to work on.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.