Even if you have never heard of the sandwich generation, chances are this term describes you. The sandwich generation is a generation, sandwiched between bringing up their own children and caring for their ageing parents. Typically in the 30s and 40s, this generation juggles between work and taking care of parents and kids. Though fairly common in the US, Indians brought up in nuclear families are fast becoming the new sandwich generation.
With life expectancy going beyond 65 years, it’s not surprising that a large population of older adults need more caregivers. The responsibility of taking care of the elderly fell on the shoulders of female family members. More women are entering the workforce and this responsibility is now shared between middle-aged adults called the sandwich generation.
Delayed parenting which is couples starting families in their mid-to-late 30s and living longer because of better healthcare, necessitates a thought on the financial burdens of the sandwich generation.
Issues which plague the sandwich generation are stress, financial hardship and depression. Giving up a job or working fewer hours to take care of parents, affects finances. The trick is to work hard and get value out of every rupee, through sound financial planning.
To break the cycle of the sandwich generation, parents of the sandwich generation must be financially strong. You need to plan finances for retirement to avoid depending on your children in old age. Invest right from the first salary of your first job depending on risk profile.
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Conservative investors invest in fixed deposits, PPF, NSC and Post Office Savings Schemes to save in a steady way for retirement. The investments are safe and earn interest across your working life. A lock-in period implies staying with these investments till retirement. Many of these investments enjoy tax benefits increasing the corpus at retirement.
Aggressive investors may look at equity mutual funds, National Pension System and Equity Linked Saving Scheme or ELSS, a tax saving mutual fund. Equities deliver higher inflation-adjusted returns over most other investments, though at higher risk. Stay away from thematic and sectoral funds, including mid- and small-caps. This generates stable returns, rather than focusing on high but volatile returns. Debt funds must be a part of the portfolio to bring in stability.
Senior Citizens, who have the money and want to be self-sufficient, may consider Senior Citizen Savings Scheme or SCSS. Once invested, the rates remain fixed for the entire tenure. With a current interest rate of 8.7% for January-March 2019, payable quarterly, senior citizens can use this money in an emergency. SCSS enjoys tax benefits under Section 80C and also allows premature withdrawals.
Fixed deposits with their safety, fixed returns and ease of operation are an excellent choice. Interest rates are around 7-7.25% for tenures ranging from 1-10 years. Banks offer senior citizens a higher interest and laddering provides liquidity and manages re-investment risk. Laddering is spreading the investment across different maturities and re-investment risk is the risk of loss from reinvesting principal or income at a lower interest rate. Senior citizens could opt for immediate annuity schemes from insurers. Annuity payments begin immediately and help maintain lifestyle post retirement.
Health care costs are high and getting higher. Senior Citizens health insurance plans take care of hospitalization in an emergency. Co-payment is the amount of hospital bill you pay out of pocket. Co-payment is a mandatory feature, so get clarity before opting for senior citizens health insurance.
The sandwich generation must handle the following:
Hence, to manage such finances its essential to prepare a budget which includes every rupee earned and spent. This squeezes value out of every rupee, encouraging saving and investments. A contingency fund must cover at least 6 months of living expenses to meet any emergency. Avail health insurance for parents or create an emergency fund for them.
The sandwich generation must protect wealth with insurance. Term life insurance is pure risk protection capable of replacing income and repaying liabilities. It protects against an unexpected demise of the breadwinner within the term of the plan. The family maintains current living standards and loans are paid off. Family floater health insurance covers hospitalization of the family, reducing out of pocket expenses and protecting wealth.
Investing for children’s higher education and wedding involves choosing an investment which gives high returns over a longer time frame. An investment in diversified equity mutual funds through SIPs beats inflation over the long term. Consider an investment in PPF or even child endowment plans which offers protection as well as savings or an investment benefit. Opt for waiver of premium rider where on untimely death of the parent within the tenure, the sum assured is paid. Insurer waives off future premiums with continuation of the policy.
SEE ALSO: Tips to Manage Finances
Ignoring retirement is not an option for the sandwich generation. Set aside small amounts regularly in PPF, Mutual Funds, NPS, Post Office Schemes and Fixed Deposits depending on risk profile. Invest in real estate as rental income can be a stable source of income in retirement. Investing for retirement ensures the sandwich generation is financially strong, avoiding the continuation of the sandwich generation.
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