The Sandwich Generation refers to the growing number of working Australians that need to juggle the caring needs of children and elderly parents.

There are a few parallel issues that are exacerbating this issue. The first is the cost of living and housing in Australia, keeping many younger people in the family home for longer. The second is longer life expectancies for Aussies. Longer lifespans are positive but it means than many people face years of living with chronic illnesses.

This leads to pressures at work from juggling several responsibilities. It also leads to financial stress. There are suggestions that many younger people are opting not to have children given financial pressures. The OECD predicts that in the next decade, these decisions will become more prominent and deaths will outpace births for the first time in at least fifty years.

Addressing this issue will be a challenge for future governments. However, when it comes to personal finance, it is an enabler to make the best of the circumstances that you have. There are a few steps that can be taken to help ease the financial pressures of caring responsibilities from younger and older dependents.

Members of the sandwich generation have limited ways to improve their circumstances now but have the opportunity to access resources that will ensure they are doing as much as they can to utilisie the available government resources. For those that anticipate facing the caring responsibilities in the future there are preventative measures that you can take. This episode goes through the available resources and the preventative measures.

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The full transcript of the podcast can be found below:

Shani Jayamanne: Welcome to another episode of Investing Compass. Before we begin, a quick note that the information contained in this podcast is general in nature. It does not take into consideration your personal situation, circumstances or needs.

Mark LaMonica: All right. So, Shani, we talk about generational divides a lot on this podcast and probably because there are like eight generations between the two of us.

Jayamanne: I agree. This is true, Mark. But we recently hired a Gen Z news starter to our team, Sim. So, if you'd like to read some of her stuff, it's on Morningstar.com.au.

LaMonica: Yes, Thursday now. She started on Monday. She's shown up all four days.

Jayamanne: That's great.

LaMonica: Yes, breaking stereotypes around Gen Z. But yeah, I mean, maybe she can keep us young and hip, Shani. And she can teach us all the lingo.

Jayamanne: I think the first thing is like, you shouldn't say young and hip, but I feel like you're very good at keeping up to date with the lingo. And I think it's because every so often, the New York Times, which you read every day, will do like a public service article. And it lets all their readers know what the new lingo is that the kids are using. So, I've got a test for you.

LaMonica: Oh, great.

Jayamanne: So, I've got two Gen Z terms. And you've got to tell me what they mean.

LaMonica: Okay.

Jayamanne: All right. So, we're going to start with beige flag.

LaMonica: I mean, I've definitely heard that. And obviously, I know what a red flag is. So...

Jayamanne: What's a red flag?

LaMonica: Well, red flag is like, particularly if you're dating somebody and very early on in the relationship, you see something that you're like, that is a red flag. I should stay away from that person. So, I assume a beige flag is something that kind of bothers you, but doesn't cause you to break up with them.

Jayamanne: Yeah, it's like -- it's not a red flag, but it's not a green flag. So, do you want some examples?

LaMonica: Okay.

Jayamanne: Okay. A beige flag would be when someone might ask for a fork at Yum Cha. Like, that's a beige flag.

LaMonica: So, somebody can't use chopsticks. Okay. That's probably...

Jayamanne: I'm just taking this from an article. This is from Mamamia.

LaMonica: Okay.

Jayamanne: Because I couldn't think of any beige flags on my own. Then there's someone who always asks someone their astrological sign when they meet them for the first time.

LaMonica: What's your sign? That's like a pickup line from the 70s.

Jayamanne: Okay. What do you say after that?

LaMonica: I don't know. I was not alive in the 70s.

Jayamanne: All right. Your other term is mother. So, someone is mother.

LaMonica: I have no idea. I know daddy.

Jayamanne: Mother is like -- she's an icon. She's a legend.

LaMonica: Okay.

Jayamanne: So, like some people say like Lana Del Rey is mother. Taylor Swift is mother.

LaMonica: Okay. I think we should start with the episode.

Jayamanne: Okay.

LaMonica: All right. So, today we're going to talk about one of Shani's favorite subjects, sandwiches. But in this case, we're going to talk about the sandwich generation.

Jayamanne: And the sandwich generation refers to the growing number of working Aussies that need to juggle the caring needs of children and elderly parents.

LaMonica: So, there are a few parallel issues that are making it worse for the sandwich generation. The first is the cost of living and housing in Australia. So, that's of course keeping many younger people in the family home for longer. The second is longer life expectancy for Aussies. So, longer life spans are positive, but it means that many people face years of living with chronic illness.

Jayamanne: And overall, this burden is being carried more by women than by men, as they take on more of the caring responsibilities. And this is according to the 2022 Household Income and Labor Dynamics in Australia Survey figures.

LaMonica: Yeah. And you wrote an article on this.

Jayamanne: I did.

LaMonica: You did not interview me because I could have given you...

Jayamanne: Do you have children?

LaMonica: I don't have children, but to avoid situations, you move very far away from your parents.

Jayamanne: From your parents, so you don't need to care for them.

LaMonica: Exactly. So, I mean, that is one solution.

Jayamanne: That's one solution.

LaMonica: Exactly. But you wrote this article and you have all these graphs from that report that you just mentioned that illustrate the data. So, we'll put that in the episode notes, of course, and on the resources pages on our website.

Jayamanne: So, what this situation leads to is pressures at work from juggling several responsibilities, and it also leads to financial stress. And there are suggestions that many younger people are opting not to have children given these financial pressures.

LaMonica: So, maybe that's me.

Jayamanne: Maybe that is you.

LaMonica: I move far away and opted not to have children...

Jayamanne: And now you have no responsibilities.

LaMonica: None whatsoever.

Jayamanne: And the OECD predicts that in the next decade, these decisions will become more prominent and deaths will outpace births for the first time in at least 50 years.

LaMonica: Well, that's cheery news. But addressing that issue will be a challenge for future governments. But when it comes to personal finance, it is an enabler to make the best of the circumstances that you have. So, there are few steps that can be taken to help ease the financial pressures of caring responsibilities from younger and older dependents.

Jayamanne: So, members of the sandwich generation have limited ways to improve their circumstances now, but they have the opportunity to access resources that will ensure that they're doing as much as they can to utilize the available government resources. And for those that anticipate facing the caring responsibilities in the future, there are preventative measures that you can take. So, we're going to go through both.

LaMonica: Yeah.And we're going to start with if you are currently caring for children and elderly parents. So, why don't we start with income protection insurance?

Jayamanne: So, when you have several dependents and you are experiencing financial stress, you want to protect yourself from anything that would exacerbate this. So, losing your job and income source under these circumstances would really just not be great for this situation and make it worse.

LaMonica: That's really not great for any situation. Particularly in this situation. And you can get protection in a couple ways, either by taking out adequate income protection insurance or you can self-insure through savings. And self-insurance is really hard because if you're young, you've got a long way to go until retirement and you're not going to be able to save and self-insure properly for that whole period. So, income protection insurance will usually last until the age of 65.

Jayamanne: The other one, and we always talk about this one, is ensuring that your emergency fund contains enough for three to six months of expenses as a priority and enough to cover any waiting period before you can access any benefits. So, for example, if you have to wait four weeks for loss of income to access your insurance payments, ensure that you have that bridge.

LaMonica: Okay. The other resource that we're going to call out is the Financial Information Service. So, when it comes to elderly parents, part of caring is starting to be more involved with lifestyle decisions. So, part of caring is starting to make decisions about and sometimes for your loved ones. So, lifestyle decisions include home care and health decisions.

Jayamanne: And these decisions can be emotionally charged and it can be helpful to get a second opinion and a good understanding of the resources and options that are available. The government provides a Financial Information Service through Financial Information Service offices.

LaMonica: Which makes sense.

Jayamanne: Yes, it does. Appropriately named. There's plenty of information on their website and you can ask them questions, but they do regular webinars as well on these topics and you can access the past ones on YouTube.

LaMonica: All right. So, let's switch a little bit and talk about what if you're anticipating caring responsibilities in the future. And that means you'll need to start looking at preventative measures where you can avoid as much financial stress as possible.

Jayamanne: So, if you're in a situation where you don't have caring responsibilities or only have caring responsibilities on one side, so either children or elderly parents, there are measures you can take to ease the financial stress that comes with caring.

LaMonica: And the first is to create a goal to have a financial buffer. So, it's easy to foresee if you'll have children and caring responsibilities in the future. You have time until you reach the situation, prepare by creating a financial goal to reduce the pressure on your future self. What I will say though is that it's difficult to know when and how much you will need to access when it comes to caring for elderly parents. But it is easier to determine what costs will increase once you have children when it comes to education and just general increases in living costs.

Jayamanne: So you can start by preparing for the financial knowns. When it comes to the financial unknowns, a yardstick is better than an unknown. So we'll talk a little bit about the average costs that come with chronic illnesses and care. And this will give you a rough outline if you'll bear the financial costs for elderly parents or relatives.

LaMonica: And then we've got plenty of resources where you can use the information to outline and plan for investing for this financial goal. So we'll pop a link to the article on the sandwich generation, Shani's article, in the bio. And there will be resources linked there. But you can always go back and listen to our How to Construct a Portfolio episode as well.

Jayamanne: Okay, so let's move on to the next preventative measure for financial stress. And that is to not let your financial future suffer. And part of caring is career breaks. And Vanguard have done a study on the impact of career breaks on super balances at retirement in their How Australia Retires report. So a couple of examples here. If you take a break of two years at 35, you will lose $22,600 in retirement. If you take a two-year break at 45, it's $18,700. And again, the full table can be found from the link in our episode notes.

LaMonica: And when we think of career breaks for caring, we automatically think about children. And there's a reason for this. Around 40% of working-age Aussies expect to take an extended break from work and one in two under 35 expect to take parental leave. But it can also be the case for the other side, which is to care for elderly parents. With caring for elderly parents, there's less structural support and government support for these types of breaks. That means that it's particularly important to create a plan that accounts for the impact of missed retirement savings and the potential for unpaid leave.

Jayamanne: And career breaks can come in all shapes and sizes. A break can be used to care for elderly family members as parental leave for extended travel or for study. So regardless of the reason, it means that your super contributions will stop. And the exception to this is parental leave, where the government mandated contributions do come from your employer.

LaMonica: Yeah, and it is important to know that the government mandated parental leave contributions may not be adequate. So many women take a longer period off work to care for new children. So on average, 32 weeks leave and the mandated parental leave benefits are 22 weeks.

Jayamanne: So the issue with career breaks, especially earlier in life, is that your contributions have less time to compound. The impact of longer career breaks is significant for super balances and therefore your retirement balances. So ensure that you're taking care of your future self and not delaying financial stress into your retirement.

LaMonica: So for career breaks that are planned or unplanned, extra contributions in the lead-up or upon your return to work can ensure that you do not end up with lower retirement outcomes.

Jayamanne: And this can be done in a few ways. Planned career breaks are relatively straightforward. It's important that you financially plan for these breaks. A plan will enable you to replace your contributions that you'll miss.

LaMonica: And of course, unplanned breaks are a little more difficult because they are unplanned. And these breaks mean that you will often be dipping into savings or emergency funds to support yourself and will not have the resources to also contribute to your retirement. And a good tool to use, and Shani loves this tool, is the Moneysmart Superannuation Optimizer.

Jayamanne: I just love Moneysmart. I love what they're about. All of the tools are really good.

LaMonica: So should I worry that you're going to get a job?

Jayamanne: With the government?

LaMonica: Yeah.

Jayamanne: Probably not.

LaMonica: Okay. I'll remove that from my list of worries. So regardless, and if you go to Shani's tool, regardless of career breaks, it gives you a general idea of how to optimize your contributions into super while taking your take-home pay into account.

Jayamanne: Another way to do this is if you have a spouse, contribution splitting into your super. And contribution splitting allows you to split the super contributions that have been made. And this can include up to 85% of the contributions in that financial year. So if you are taking time off to care for children or elderly parents, this ensures that you're still preparing for your retirement.

LaMonica: And then lastly, of course, there is asset allocation. So if you have a while left until retirement, you're able to take a more aggressive asset allocation to account for missed contributions. And we did an episode on this, Shani, portfolio review episode. So you can certainly listen to that to get a little more detail on how to think about asset allocation and any changes you might want to make.

Jayamanne: All right. So the last scenario we're going to go through is being on the receiving end of future care and what you can do to reduce the burden for your children.

LaMonica: So if you are looking to reduce the caring burden on your children as you age, there are ways to do that. So this will help children to focus on making the decisions with you and give you the best quality of life possible in your later years without having to worry about the financial aspect of it.

Jayamanne: We've spoken about chronic illnesses before on the podcast, but it is something that we're more than likely going to have to deal with. So let's cost it. We have no idea how much it's going to cost us individually as the future is unknown, but the average gives us a good starting point.

LaMonica: Okay. So Shani, of course, found a bunch of research and it shows that individuals with multiple chronic illness can spend up to six times more than those without a chronic illness. Those on lower incomes are 15 times more likely than those on higher incomes to incur catastrophic health care costs. And that's defined as more than 10% of household income.

Jayamanne: Another study from UTS surveyed 800 women with osteoarthritis. The study showed that on average, these women aged between 53 and 94 had more than seven specialist care appointments in one year, and that was for one single condition. After Medicare rebates, that $673 that was required to cover the appointments, therapies and medications.

LaMonica: And there are over 1 million Aussies that have multiple chronic conditions. And that, of course, is a heavy financial burden. So the Grattan Institute found that they pay more than $1,000 each year on out-of-pocket expenses. And the same study found that over the past decades, out-of-pocket costs have increased by 50%.

Jayamanne: And some chronic illnesses are more expensive than others. For example, Alzheimer's would require full-time care for developed cases. So how do you account and prepare for it? The first step is to understand your full costs in retirement, including health.

LaMonica: And the general rule is that expenses increase at the beginning of retirement as many retirees decide to travel and pick up hobbies. These costs tend to decrease over time and then surge due to the specialist and end-of-life care. However, there may be a significant reduction in spending if you're making a big change in your life or if you paid off your mortgage.

Jayamanne: As retirement progresses, this is where you may need to consider more costs going towards chronic conditions. You may also need professional care. Like retirement in general, the duration and extent of care is difficult to predict, but the whole point of planning is to address potential contingencies.

LaMonica: Okay, so we'll do a little baseline retirement planning, Shani. Do you think is your beige flag if somebody doesn't have a retirement plan?

Jayamanne: No, that's a red flag.

LaMonica: That's a red flag. There you go. Okay, that's good. So let's talk about retirement planning. So really, the baseline is you want to take your current salary and continuing your current lifestyle into retirement. Then you can make some adjustments. So your expenses may differ from your pre-retirement salary for several reasons. The first is that there could be less incidentals that are associated with work, for example, transport to and from work and lunches that you may buy most days. However, you'll have free time in retirement. That could mean increased leisure costs and travel costs. This will depend upon how you envision your retirement and what is achievable with your retirement savings.

Jayamanne: An ASFA's retirement standard detailed budget breakdown outlines that the average cost per year to cover medical and health related costs in retirement is $5,880 for a single person and $11,018 for a couple.

LaMonica: That's of course a general guideline, so it's difficult to know how much to put aside as the future is, of course, unknowable. However, having a goal instead of simply trying to maximize your wealth will allow you to manage the risk in your portfolio and increase the likelihood that you will achieve your retirement goals.

Jayamanne: So now that you have a general guideline of expenses, you can use this to understand how much you need to retire as well as is, have a care plan.

LaMonica: I think that that is important. Just make your intentions clear. It makes it easier for your children to make decisions on your behalf when the time comes and verbalizing this as well as having a physical copy of your plan will help your children in the future with those difficult decisions.

Jayamanne: Okay, so whether you're currently in the sandwich generation expecting caring responsibilities or expecting to be on the receiving end, planning for these circumstances can reduce the financial stress that comes with an emotional and stressful time in your life.

LaMonica: And taking a step back and preparing will give you more time to compound your savings and help with the financial stress will also allow you to spend more time with your children and parents in those years. So that is the sandwich generation. For anyone who's interested, by the way, Shani's favorite sandwich in Sydney, is it the Lucky Pickle?

Jayamanne: It's the Lucky Pickle.

LaMonica: It's a good spot. It's very close to my apartment.

Jayamanne: It is. If you do go and get a sandwich from the Lucky Pickle. It's got to be the chicken katsu sandwich and you've got to ask for extra sauce and they'll ask which one and you've got to say both.

LaMonica: Well, there we go. Very, specific instructions from Shani. But thank you guys very much for listening.

(Disclaimer: Any advice in this podcast is general advice or regulated financial advice under New Zealand law prepared by Morningstar Australasia Proprietary Limited and/or Morningstar Research Limited without reference to your financial objectives, situations or needs. You should consider the advice in light of these matters and any relevant product disclosure statement before making any decision to invest. To obtain advice for your own situation, contact a financial advisor.)