Experts guide these strained souls on how to manage their finances to care for their parents, support their kids and tide over for themselves too.
“Generation S or the Sandwich Generation is perhaps living in the most precarious of financial conditions; as they are encumbered with taking care of their ageing parents, and children. Another major concern that weighs them down is the worry of outlasting their savings or wealth that they have created,” says Anup Seth, Chief Distribution Officer, Edelweiss Tokio Life Insurance.
“I personally feel that Generation S is on the opposite spectrum of the DINKS (Double Income, No Kids), and many find themselves caught up in the ultimate juggling act—playing caregiver to ageing parents on one side and raising their young children. It’s a real-life circus, leaving them feeling frustrated and overwhelmed,” notes Harsh Gahlaut, Co-founder and CEO, FinEdge.
For Gen S, nailing the whole money game is about being on point with the details.
First off, get everyone – parents, kids, the entire family, to lay down what they want – Education, health, retirement. Clear goals make for effective financial plans.
Next, consult a skilled investment expert as they not only assist in selecting the right investment plans but also act as a counsellor.
Personalised plans are non-negotiable. “We’re all unique, after all. Build resilience against market volatility. With the right mindset and a solid plan, you can ride those waves without losing sight of the big goals,” says Gahlaut.
Do remember, life changes. So, keep your plans dynamic. Adjust as needed. Flexibility & customization are crucial in this ever-changing financial world. Do not fall into the recommendation trap where products are positioned ahead of the people. A product that is great for one person might be disastrous for the next.
“Given this context, there are certain factors that should steer their financial planning process – health and expense planning for their parents, education planning for their children, and asset creation as well as income replacement for self,” says Seth.
Tip – here taxes the bane of most financial strategies may work in your favour.
“The needs of ageing parents and growing children are different. Parents need mostly medical care and children need financial resources for education, professional growth etc,” says Sujit Sudhakar Bangar Founder, TaxBuddy.
Thus, as per section 80D of income tax act, one can claim deduction of ₹25k for self and another ₹25k for parents for the health insurance premium paid. If a parent’s age is more than 60 years, an additional ₹25k (i.e. for self 25k & for parents 50k) deduction can be claimed. Getting your family and parents adequately insured by health insurance can help in managing financial requirements of ageing parents.
There is one major tax deduction for interest on education loans. Nowadays, professional education like engineering and medical has become very expensive and loan is the common solution. The interest paid on such an education loan can be claimed as deduction. Best part is it’s beyond 80C and there is no upper limit, says Bangar.
“Make your money work smarter for you!,” says Gahlaut. Don’t sleep on Section 80D – it’s your golden ticket for deducting health insurance premiums you’re shelling out.
Additionally, there’s Section 80E, a lifesaver for those footing the bill for their kids’ education loans. If you’re 60 or above and are looking for a tax-friendly investment with a good interest rate, SCSS can be considered.
NPS also allows for a further 50 K of tax-saving investment under section CCD.
“Do not fall into the life insurance trap lured by tax savings. Mixing insurance and investment is detrimental to your portfolio’s health,” advices Gahlaut.
Gen S can avoid financial stress by creating a detailed budget covering personal expenses, children’s education, and ageing parents’ healthcare. Prioritise like their financial life depends on it—because, spoiler alert, it does, says experts.
Allocate resources wisely and build an emergency fund to handle unexpected expenses, safeguarding long-term plans. Ensure comprehensive family health insurance for financial security in unforeseen circumstances. Additionally, advocate for a diversified investment portfolio to balance risk and return.
“Big dreams? Break them down. Think macro, execute micro. When you invest with a purpose, you’re not just playing with numbers—you’re converting dreams into action, one smart move at a time,” ends Gahlaut.
Mistakes that we make while balancing between parents and children
“Many in the sandwich generation ignore their retirement while juggling the now,” says Gahlaut. It’s easy to forget, but planning for those golden years is of utmost importance to dodge financial strain later.
Gen S also hesitates to seek financial advice. It would be strongly advisable to consult an expert and get customised goal-based investment plans unique to their family’s needs.
Prioritising tax savings makes them rush into insurance products at the last minute for short-term gains without planning for goals.
Don’t underestimate healthcare costs. Many forget to factor in potential medical expenses and regret later. And here’s a pro tip – keep a close eye on your parents’ post-retirement funds.
The various and differing financial needs
Parents: Parents, who are most likely to be living a retired life, will need financial support for everyday expenses and for health expenditure. So, the primary focus must be on instruments like pension or annuity plans or income products that can provide a consistent and constant stream of income to their parents. Additionally, one might consider health insurance, specifically products that offer protection for certain critical illnesses which often threaten to wipe out one’s savings.
Opting for debt options such as senior citizen savings schemes and fixed deposits, along with government schemes like Pradhan Mantri Vaya Vandana Yojana, can also offer a good way of ensuring a steady income stream. Consideration of low to medium risk mutual funds or other equity tools that promise regular income are also advisable.
Children: A big aspiration that most children have these days is foreign education. This requires early investment to not only fund the education but also creating a corpus that can help them tide through the non-working years in a foreign country. Incorporating systematic investment plans to counteract inflation in education costs is paramount.
Self
Term and health insurance: Given that two generations rely on them and their income, buying a term insurance is an absolute necessity for someone belonging to the sandwich generation to ensure financial continuity for both, their parents, and the kids. Apart from term insurance, health insurance is also important as a sedentary lifestyle is leading to increasing incidence of health issues. Any potential loss of income must be protected.
Servicing debt: Sandwich generation is saddled with some form of liabilities, be it a home loan, car loan or even the simplistic credit card debt. It is, therefore, important that one creates a second income stream so that any such debts are taken care of even in case of loss of income arising out of events like job loss, temporary disability and more.
Retirement planning: It is never early to start retirement planning. Start with a small SIP or an NPS investment which can silently keep compounding over the years. Apart from this, guaranteed products offer a great way of locking in the current higher interest rates for a longer period of 25 – 30 years.
Comprehensive tax strategy
- Utilising schemes like the Senior Citizens’ Saving Scheme for tax exemptions and Section 80C benefits for children’s investments can enhance your tax strategy. Senior citizens in India can avail various tax benefits under different sections of the Income Tax Act.
- Section 80TTB allows those aged 60 and above to claim a deduction of up to ₹50,000 on interest earned from deposits with banks, co-operative societies, or the Post Office.
- Section 80D provides deductions of up to ₹100,000 for medical expenditures incurred on the health of senior citizens. This includes expenses for self, family members, and parents, with a maximum claim of ₹50,000 each. Additionally, Section 80DDB permits a deduction of up to ₹100,000 for medical treatment of specified diseases for senior citizens.
- Lastly, Section 10(10A) allows tax benefits for any payment received on account of commutation of pension from an approved fund under a pension scheme offered by an insurer. These provisions aim to ease the financial burden on senior citizens and promote their well-being.
In conclusion, adopting a holistic and goal-oriented financial plan is essential for the sandwich generation. This includes diverse and strategic investments, early retirement planning, emergency fund creation, and tax optimization strategies that cater to the unique needs of both ageing parents and children. (Source – Edelweiss Tokio Life Insurance)
Manik Kumar Malakar is a personal finance writer.
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Published: 28 Feb 2024, 04:12 PM IST
