Squeezed household incomes mean that more and more of us are relying on family members for financial support, but with both parents and children feeling the pinch, a 'generational financial tug of war' could be brewing.
Many children end up inheriting money from their parents, which can be a helpful boost to finances. However, it now appears that many adult children are actively relying on that inheritance in order to keep things on an even keel.
Research carried out by SunLife found that older generations are much better off than younger people: those aged 55 to 77 have less than half (46%) of their income dedicated to fixed costs, compared with 57% for those aged 18 to 24, 53% for 25 to 44-year-olds and 51% for 45 to 55-year-olds. As a result, one in six respondents (17%) are now relying on the promise of future inheritance to bolster their bank balance. However, with more disposable income and a growing trend towards an active retirement, some retirees are intent on enjoying their savings – something that has led to one in 10 respondents worrying that their parents are 'blowing' their longed-for inheritance.
However, it is not only adult children who are finding themselves relying on familial funds to keep them afloat – aging parents are also beginning to lean on their family for financial support. The survey results showed that one in six (16%) parents are expecting financial support from their adult children when they retire – a finding that suggests many retirees could find themselves facing a financial gap in the future.
"By assuming we will get financial support from our families rather than making financial plans of our own, many of us are leaving our financial futures uncertain," commented Ian Atkinson of SunLife. The key to avoiding this problem is therefore to set yourself up so that you don't need to rely on others.
The best way to do this is to generate decent savings and then manage them effectively. It may be tempting to take advantage of the recent pension freedoms and blow all of your life savings on holidays, but your children won't necessarily be able to foot the bill when your pot eventually dries up. Similarly, it may not be a good idea to delay making any savings in the hope that your inheritance will provide the cushion you need later on – with life expectancy increasing, you may be near retirement yourself by the time you inherit!
Getting into the savings habit now will help you to build the funds you need for the future. A regular savings account can be a great starting point, as this will encourage you to put away a sum of money every month. Taking advantage of the tax-free nature of cash ISAs can also be beneficial. It's also a good idea to start saving into a pension, if you're not already. By saving into a scheme you can get tax benefits and profit from contributions made by your employer – it's a win-win situation!
If you're close to retirement and you're unsure about how to spend your pot or provide an income during retirement, get help! Pension Wise is a free service that can help to point you in the right direction, after which you can get more detailed help from an independent financial adviser, who can explain the tax benefits and costs of annuities, income drawdown and lump sums.
Whatever you do, don't stick your head in the sand! Get prepared financially and then you may be able to avoid a wrestling match in the future.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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