Financial Planning for the Sandwich Generation in Singapore

Key Takeaways

• 1. The Sandwich Generation refers to working adults who have the financial burden of caring for aging parents as well as themselves and their children.
• 2. Numbers are important – estimate all monthly costs, including how much you need to ration every month for unexpected expenses in the future, especially for healthcare. Track your actual monthly costs, compare them against your plan, and communicate these numbers with your family to make it a team activity.
• 3. Be defensive in general. Purchase insurance and low-risk retirement plans. Assume black swan events will occur and set aside funds in low-risk interest-rate accounts for them.
• 4. Do not forget about your own retirement so that your children will not be another sandwich generation again. Strive to teach them financial literacy from a young age.

The Sandwich Generation refers to working adults 35 to 60 years old today who are financially and emotionally ‘sandwiched.’ They have the responsibility of caring for aging parents while managing the financial and emotional needs of themselves and their children.

Maintaining two households may seem daunting, but proper financial planning today will go a long way to ease your financial burden over the long term. We give you tips in this article on some essential line items in your financial planning that need your attention.

Note: In this article, “parents” refer to the sandwich generation. “Children” and “grandparents” are to be interpreted relative to “parents”.

Estimate your average monthly costs of being in the sandwich generation

Estimate the average monthly cost of taking care of everyone. For one-off items such as childbirth, amortize it over ten years (i.e., divide by ten years and then 12 months). This gives you a perspective of how much you will have to earn, spend, and save every month from achieving your financial goals.

Below is an example of the holistic monthly cost for a family of two grandparents, two parents, and two children in Singapore.

Note: Most of the amortized values above have an annual 3% interest rate applied.

Monitor and communicate your financial plan with the family

After you have made this estimation, track the actual costs incurred every month vs. your household income on a simple spreadsheet. Discuss this with your spouse, grandparents , and children (if they are of learning age) every month to make it a team activity. Communicating in numbers proactively can be very effective as it prevents family members, including yourself, from accidentally overspending.

Let’s look at how to plan defensively for some of the line items in detail.

Hospitalization and life insurance

Try to purchase the best hospitalization insurance you can afford for the grandparents and yourself. As the family's sole breadwinner, it is essential to have a contingency plan in the event of poor health. On top of insurance, keep yourself healthy through regular exercise and a well-balanced diet.

However, there is always a chance of an accident or illness resulting in a partial or permanent disability or even death. Research into term and life insurance and budget for it so that if the worst happens, the grandparents and children have a lifeline to rely on.

You can work with a financial advisor or through Citi on the types of protection for different needs and life stages, from medical protection to coverage for temporary or permanent loss of income.

Outpatient medical expenses

In Singapore, health insurance typically begins coverage only when you are hospitalized. It rarely covers elective procedures or exploratory diagnostics. The grandparents may have discomforts and minor illnesses, which you may be concerned is a symptom of something bigger. Similarly, young children may have unexpected injuries, such as falling from a bike or contracting chickenpox. None of these may warrant a hospital admission but are costs that add up over time.

To cover these costs, set aside savings every month to ensure you can afford fees for services such as visits to your General Practitioner, annual medical checkups, vaccinations, dental checkups and more. You can also consider purchasing health insurance that covers some outpatient procedures as well as accidents. Depending on your employment benefits, you might be eligible for inpatient and outpatient insurance coverage which could extend to your spouse and children.

Mortgage

Paying down a mortgage when you are in the sandwich generation can be the biggest source of financial stress. Whether or not you are co-living with them, you should discuss extensively with the grandparents from both sides on how to defray their cost of living. Some options would be to share the grandparent’s home equity (if any) or explore co-living to minimize expenses. Here are several options to explore:

• 1. Right-sizing the grandparent’s home and channeling the cash proceeds into a new retirement plan or long-term, low-risk interest rate fund . The Singapore government, for example, has special public housing schemes with thirty-year leases (typically, it is ninety-nine years for all other public housing) specifically pre-renovated for senior living.
• 2. Living together as a big family by moving the grandparents into your house. You may have to perform some renovations for privacy for everyone. This may not be optional, as the grandparents’ mobility or physical health deteriorates over time.
• 3. Selling the parents’ and the grandparents’ houses and purchasing a larger place to live together as a big family. This can be for all the reasons stated in point number two above, in addition to your plans to have more children or that your children are becoming young adults and need their own space.
• 4. Unlocking the home equity of the grandparents via a home equity loan and placing all or some of the proceeds in a low-risk retirement annuity. This is like point number one above and may have benefits from not having to pay buyer and seller stamp duties through the sale and purchase of additional property.

These may be one of many options available to you, and it is definitely a complex topic to think about and discuss. It may be a good idea to consult an advisor to put a concrete number on all the potential opportunities and associated risks.

Work and commute

If you can find a career that allows you to work from home, that is 2 hours of commute every day you can spend on housework or helping children with schoolwork instead. This could defray the cost of domestic help as well as the cost of daycare significantly .

You could also spend the time communicating and ask for help from the grandparents to split the chores and childcare as necessary.

Unexpected life events

Having the discipline to budget for unexpected life events above and beyond health issues will go a long way. If nothing negative happens, you can save and invest this capital to build a margin of safety for retirement.

Retirement funds

There are two potential retirement funds to consider when managing your budget as the sandwich generation:

• the grandparents who may be receiving annuities from their retirement fund
• your own retirement fund that you should be contributing towards

In both scenarios, the sandwiched generation must be empowered to lead and manage each family member’s finances. As such, if you are closely supporting the grandparents who are receiving payouts from their retirement funds, it is important to communicate and support their financial plans in relation to your own. You should help review and monitor the various policies they may have purchased and help restructure the policies as needed.

Concurrently, remember to work towards your personal retirement while taking care of your family’s expenses. Doing so will halt the cycle of the sandwich generation to avoid perpetuating financial burden for the next generation. You will have to strike a delicate balance between providing more for the children today and setting aside sufficient retirement funds, as their financial future lies in your hands.

Empowering the Next Generation: Financial Literacy for Kids

Educating the younger generation about financial planning, how much the household expenses are and how to manage them can help reinforce good spending and saving habits in your household. Having all members of your household on the same page regarding your family finances can ease the process of financial planning for you.

Citigold understands everyone has different goals and needs. Whatever yours are, we’re here to support you on your journey to living a meaningful life. Learn how Citigold can help you pursue your financial goals, tending to today and securing tomorrow for you and your family.

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