As we move forward into the technological revolution and continue to receive services and products in dynamic and innovative ways, it’s important to also realise that technology is extending our lives like never before. A bi-product of extended life expectancies, although sometimes forgotten, is the increase of intergenerational risk that family units may be exposed to.
Intergenerational risk can be described as the set of risks that different generations may place on other members of a family as a result of living longer. These include illness or injury which create a drawdown of time and resources and impact the ability of children, parents or grandparents to achieve their goals and objectives.
I’ll use two examples to demonstrate my meaning.
Example 1 – There is already proven evidence that elderly parents are impacting the ability of their children to build appropriate retirement wealth due to the cost of their care needs. Simply put, if a child is caring for elderly parents, they lose capacity to earn income.
Furthermore if retired parents are living longer and are drawing down assets for longer periods, the inheritance they pass onto their children, who in some cases also act as their carers, will decline. You can see how this is a real community concern moving into the future.
Example 2 – Recently I met a prospective client whose 18 year old grandchild had been significantly injured. The injury was so severe that there is likely to be need for lifetime care for the grandchild. Since this incident two things have happened to the child’s parents, leading to them taking significant time off work to care for the child. The grandparent’s retirement savings have also been impacted due to the parents being off work for a period of time.
Intergenerational risk can work both ways, although children of retired parents seem to be the meat in the sandwich, having to deal with ageing parents as well as their young adult children, as they enter a high risk period of their lives.
It is becoming harder and harder to build wealth for retirement with governments chasing revenue due to massive debt obligations, changing legislation and tightening of once generous retirement savings schemes.
So how do we minimise the impact of intergenerational risk on family units? We believe the answer lies in Professional Timely Advice (PTA). Crowe Horwath’s parent company, Findex, has harnessed modern technology and developed the “Family Office”, which delivers PTA in a way that may help to reduce intergenerational risk if utilised by our clients.
The below diagram illustrates the “Family Office” structure:
How does the Family Office reduce intergenerational risk?
You may be retired with a nice nest egg, living comfortably and using wealth management as your only service line at Findex.
- Do your middle aged children have appropriate risk protection?
- Do they have a mortgage?
- Do they need help minimising tax bills?
- Do they need wealth creation advice?
- What about your 18+ year old grandson who’s just started work?
- Does he need a tax return to be completed?
- Could an insurance policy for the young person be considered to protect against injury or illness?
- Are they considering their first mortgage?
The point here is that intergenerational risk is likely to be reduced when you have a team of professionals under the one roof looking after your family’s needs and ensuring that they get PTA at the right time, as well as the advisers having structured oversight of the whole family unit.
Some of you may have experienced the “Family Office” by means of regular review with your advisers, however I urge you to consider this option for the rest of your family to reduce the risks on you and the rest of your loved ones.
If you would like to learn more about the Family Office, and how it can help you minimise your financial risk, please contact your local adviser.