Intergenerational challenges for retirement saving

A potential trap when saving for retirement is to automatically assume that our retirement savings will have to cover just ourselves:

either as a couple or as a single retiree. Yet as many more people nearing retirement or already in retirement are finding out, life and family circumstances can be far more complicated than that.


Greater longevity with improvements in medical science and the wave of retiring baby boomers are among the fundamental causes for the apparent growth of what has been called the "dual-retirement" or "common-retirement" phenomena. This is said to occur when two generations of the same family are in retirement at the same time.

The New York Times quoted Phyllis Moen, a sociological professor at the University of Minnesota, earlier this year as saying that it is "historically unprecedented [until now] where you have older people and their still-older parents".

In turn, this is leading to intergenerational demands on retirement savings as retired baby-boomer retirees provide some financial assistance to their very elderly parents.

And to make retirement savings and retirement budgeting even more complicated, there is also the so-called "sandwich generation". Members of this generation - typically in their fifties and sixties - are still providing at least some financial assistance to their adult children as well as their own elderly parents.

Indeed, some members of the sandwich generation are retired themselves.

Several major publications have published articles this month examining some of the inter-generational complications facing countless baby boomers and their retirement savings.

A New York Times personal finance feature, Reopening the Bank of Mom and Dad to Help Adult Children, discusses the case of a 55-year-old teacher who is using some of her retirement savings to provide extensive financial support to an adult child. This means she will have to work longer before retirement or sell her home (already being used as collateral for her daughters' student loan).

The article's author asks several financial specialists about how parents should handle their financial dealings with their adult children. In short, they emphasise that parents should not sacrifice their own financial future to subsidise an adult child's lifestyle. And any loans should be made on a formal basis with a contract providing for the payment of interest and the repayment of capital.  

Also this month, Forbes magazine published an article, A New Generational Struggle: Sandwiched Between Ageing Parents and Growing Children. "Members of the sandwich generation are often unaware of their parents' financial situation and assume that their parents are prepared for their 'golden years'," the writer comments.

Vanguard in the US published a highly practical article two years ago headed Your Investing Life: Helping Ageing Parents, examining how adult children can help their ageing parents while not neglecting their own needs. Its suggestions include:

  • Try to find out about your elderly parents' financial position while respecting their "financial boundaries".
  • Make sure your parents are aware of their government entitlements.
  • Take any necessary steps to protect your parents from financial fraud, which is often targeted at the elderly.

"If your parents are under financial constraints, you may want to tap into your retirement savings to help them," Vanguard's specialists write. But while is an "admirable instinct", it could have long-term financial consequences for you. "Consider any such move carefully before you act."

A skilled financial adviser could be well-placed to provide guidance about how to handle the intergenerational challenges for our retirement savings.


By Robin Bowerman
Smart Investing 
Principal & Head of Retail, Vanguard Investments Australia
15 October 2015