The Financial needs of the Sandwich Generation

The recent Old Mutual Savings Monitor, a bi-annual survey of metro South Africans’ savings behaviour and attitudes, shows that many South Africa are part of the “Sandwich Generation” – the generation squeezed between ageing parents and children, having to support both of them. This is because parents are living longer, families are having children later and children are staying at home longer or even coming back to live with their parents after embarking on their careers. Research shows that about 69% of South Africans between the ages of 18 and 24 live at home, while 45% of those between the ages of 25 and 34 live at home.

In fact, 23% of South Africa’s working metro population belongs to this Sandwich Generation – significantly higher than people in First World economies like the US/Canada (around 14%), the UK (10%) and Japan (6%).

Financially, saving for retirement and supporting both children and parents is placing a huge burden on this generation and is reducing savings and investments.

Old Mutual says, quite correctly, that the Sandwich Generation needs assistance and it has offered the following advice:

  • Adopt a careful and collaborative approach to financial planning, taking a generational view of the whole family’s needs. The approach should be ‘what’s good for the family”, not just “what’s good for me.”
  • Don’t dip into your retirement savings, no matter how tempting this may be. Rather than stretch your finances to assist your teenager with education, suggest they take out a small loan. This is not to plunge them into debt, but to teach them responsibility and encourage them to think of what is best for everyone.
  • Become an Organiser. Organisers, as opposed to Procrastinators, are better prepared for the future because they plan and seek knowledge. Organisers are found in both higher and lower income brackets and are not linked to higher LSM tiers, so don’t despair if you’re not a high earner – you can still put a good savings plan in place. It’s been proved that those people who plan ahead manage to save more and, even if they have debt, they manage to service their debt better than Procrastinators.
  • Awareness of the need to save doesn’t necessarily drive positive savings behaviour; neither does the fear of not having enough. Only a willingness and ability to organise and stick to a financial plan ensures wealth and financial freedom. If you need help with this, enlist a financial adviser who can assist you with managing your money.

Being part of the Sandwich Generation makes it even harder to make adequate provision for retirement. Most retirement investors believe that if you save 15% per annum for 35 years in an appropriate retirement savings structure, compound interest will ensure you achieve the required replacement ratio upon retirement.
South Africa’s average net employee and employer retirement saving contribution is around 10% of salary. Employees should consider increasing their monthly retirement fund contribution to at least 15% of their salaries and maintaining this premium for as long as possible, ideally 35 to 40 years! Unfortunately, many of us defer retirement saving until it’s too late.

Behavioural finance studies single out short-term thinking among retirement savers as the main problem. We’re simply not geared to plan our financial needs 30 or more years into the future. One of the biggest problems is that few people benefit from continuous employment spanning three or four decades. The upwardly mobile middle and upper income groups tend to hop from one job opportunity to the next. And they fail to preserve their pension fund payouts.


The average pension fund will not deliver sufficient capital to maintain living standards after retirement, even if fund management costs are relatively low. The most cost- and tax-efficient option is to increase pension-fund contributions towards the maximum tax-deductible limits (7.5% employee contribution and 20% employer contribution in a pension fund) before considering other forms of savings. Savers, particularly those who get a late start, can use supplementary savings vehicles such as unit trusts, direct equity investments or fixed property.

If you go outside the retirement space, your best plan of attack is to acquire growth assets, preferably in the equity or property line. Equities and property offer the most consistent real returns over periods spanning 20 years and longer.


The key information, with explanations, that your retirement fund should on an ongoing basis provide to you, as a fund member, includes:

  • An annual projection statement that shows whether or not you are on track in terms of your net replacement ratio (NRR). This statement should also state how much, by way of additional contributions, need to be made to your fund or to a retirement annuity fund, or the extent to which you will need to postpone your retirement, so that you will meet your required or an adequate NRR.
  • An annual death benefit needs analysis that shows the level of death benefits provided by the fund compared with the amount that is required for your dependants to be provided with sufficient income.
  • Telling you if you are expected to have a shortfall in your NRR. This will allow you to make plans to save more.
  • Telling you if, relative to a reasonable benchmark, you are expected to have a shortfall in your death, disability or other benefits. This information will alert you to the need to make up any shortfall by buying additional risk assurance.
  • Telling you how your financial security in retirement will be affected if you do not preserve your retirement savings if you leave the fund before retirement ideally based on your actual information.
  • Telling you, long before your date of retirement, what pension you can expect based on actual quotations from the market (showing pensions under different options).
  • Telling you if your investment option may be inappropriate. For example, you may have chosen a cash portfolio while you are relatively young or have switched to a high-risk investment in the hope of earning better returns, particularly when you are close to retirement.