Wednesday, July 31, 2013

The Sandwich generation- are you one of them?

  The Sandwich generation- are you one of them?

Sandwich generation is a financial planning term for an individual with financial dependents on both sides of his family i.e. his/her parents & children. We are seeing a lot of individuals in India today in this situation. Changing demographics & a rising middle class give rise to this scenario. On one side parents are retired & are fully or partially financially dependent on the middle-aged son while on the other hand are the children who obviously are dependent on the parent. The situation is similar to a sandwich & thus the name!

One of the main reasons this situation has risen recently is due to lack of  Retirement planning in earlier generations

With large joint families, retirement planning was actually not a big concern but with families having one or two kids, this situation becomes critical. Where earlier several children would stay together & take care of parents, now only one child does it. If you are one of the people in the sandwich generation, financial planning is extremely important for you. A few basic guidelines would ensure that things are smooth for you.

Keeping a good 
contingency reserve. The importance of this cannot be underestimated. With financial dependents around you, loss of income for a short while can also cause a lot of stress. You need to keep aside 3-6 months of household expenses, dependent expenses & EMI’s. This fund should be kept only liquid instruments like savings bank, short-term Fixed Deposits, Liquid mutual funds, etc.

Medical insurance a must for all members. Medical insurance ensures that in case of any medical contingency, you don’t need to break your assets to pay off medical bills. With so many family members the risk is higher. You need to ensure all have atleast a minimum cover for their age. For children this can be atleast Rs 1 lac, for you & your spouse Rs 2 lacs & for your parents the higher the amount you can afford to pay for the better. 

Even the Government of India understands the importance of this & has given tax benefits for the Premium paid. However if any of the members cannot be insured for any reason, you need to increase your contingency reserve to account for any unforeseen medical contingencies. This is true especially in case of very senior citizens.

With several financial dependents, life insurance is a must for the bread-winner. Ensure you get the right coverage. A
 term plan is the best way to get the same. A personal accident policy can be bought for the bread-winner. This ensures that in case of loss of income due to an accident, the family does not suffer. Buying critical illness policies for all members is also a good idea.

Your parents may also have assets. Ensure that they have their 
nominations in place so that transfer of assets is smoothly done. Advise them to make a will so that there is no problem in transfer of assets when they are no more.

One of the advantages of being in the sandwich generation is of having your parents pass on their wisdom & teachings to your children.

Though there is no immediate financial benefits in that, but the same has long term financial rewards. Encourage your children to listen to their grandparents. They have seen all phases of life & this experience if passed on to your children ensures they are wiser in making choices in life. Also do Remember that if you & your spouse are working, your parents are helping you take care of your kids. Making your parents their financial guardians in case of your untimely demise is one point you can keep in mind.

Tax-planning is another advantage. If certain assets like property, fixed deposits, etc are owned by your parents, then the income accrued from it is taxed in their name. Thus your tax liability does not increase. With high interest rates on Fixed deposits currently it is a good idea for your parents to invest in them. Also for senior citizens the interest rates offered are higher.

Do remember that the most important thing at the end of the day is having your loved ones around you. Gradually as society is moving towards nuclear families you are one of the lucky few who have your parents guiding you & your children along

Vcare Investment Services Pvt ltd
201 Sai Sadan 76/78 Modi Street, 
Fort, Mumbai 400001


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