Financial Planning Tips for the "Sandwich Generation"

How to Balance Caring for Children and Parents

Middle aged daughter with elder father
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The term “Sandwich Generation” is used to describe a growing group of people who are caregivers for their young children and aging parents. Usually, this applies to people in their late 30s, 40s, and 50s.

While family caregivers in America are diverse, a 2015 study says that the "typical" caregiver has the profile of a 49-year-old woman who takes care of a relative. Some caregivers provide at least 21 hours of unpaid care per week, and almost 25 percent of caregivers are now Millennials (between ages 18 and 34 years old).

In addition to caregiver and support roles for aging parents, many Sandwich Generation adults are also feeling the pressure related to increased financial support for their own children. According to a 2013 report from The Pew Research Center, parents have become increasingly involved in providing financial support for their adult children. This support often extends beyond college, and just under half of adults 60 years old and over (49 percent) provided some type of financial support for their kids.

To minimize the stress and anxiety during this difficult time in life, it is important to prepare early and have plans in place if you need to care for aging parents while also trying to launch your children into adulthood. The alternative is to face the risk of a major family crisis right around the time you're taking the car keys from your parents and giving them to your teenager.

The biggest danger for those stuck in the middle is the risk of neglecting your own self-care while attempting to help everyone else. Here are some steps you can take to protect your financial and emotional health while continuing to provide support and be available for your loved ones.

Help Your Parents Develop a Sustainable Retirement Income Plan

Having the “money talk” isn’t something most of us feel comfortable with. Having the talk with your parents can be challenging, especially if they have traditionally been guarded when it comes to talking about money. Only half of baby boomers surveyed had engaged in talks with loved ones about topics such as medical treatment, wishes, plans should they can no longer take care of themselves, or how to pay for care. It’s important to bring up the topic to avoid the risk they will outlive their retirement nest egg. Longevity concerns are real and there is a 45 percent chance that at least one member of a married couple will live to be 90.

A retirement income plan can help avoid one of the biggest retirement mistakes people make – spending too much too soon. Various factors have an effect on retirement income such as your rate of return on savings and investments, how long retirement is anticipated to last, inflation, taxes, spending, part-time earnings, Social Security, pensions, etc. 

Continue Saving Money for Your Own Retirement

The National Retirement Risk Index from the Center for Retirement Research at Boston College found that over half of working-age households are at risk of not being able to fully meet their retirement income needs. That’s why it is critical to take care of your retirement first. Contributing enough to at least get the maximum employer match possible is a good place to start. This will help make sure you aren’t leaving any free money on the table. But don’t feel like you must stop there. Continue to go above and beyond any matching contributions to get the most out of tax-advantaged accounts such as a 401(k), 403(b), Roth IRA, or Health Savings Account (HSA).

Have you taken time to run a basic retirement calculation to see if you are on the right track? If you aren’t sure how much you need to save for your own retirement you aren’t alone. As a rule of thumb, most people want to shoot for replacing at least 70 percent to 90 percent of income in retirement, but if you’re worried about medical bills and/or plan to travel a lot, you may want to shoot higher. Bottom line: continue saving and avoid the urge to raid your own retirement nest egg to support others.

Review Ways to Pay for Long-Term Care

For people age 65 and older, there is a 70 percent chance of needing some type of long-term care. Extensive nursing home stays or in-home care costs can be a significant drain on a family’s wealth. One way to fund long-term care is through insurance — but these policies are not cheap and can be difficult to qualify for depending on certain medical histories. You can also check to see if your state offers a long-term care partnership program. If you purchase a policy through one of these programs and use up all the benefits, you can keep a number of assets equal to the insurance coverage you purchased and Medicaid will pick up the rest of the bill. Long-term care insurance isn’t for everyone and may not be affordable. However, it should still be part of the financial planning conversation.

Consider Setting Aside Funds in a College Savings Plan

If you thought the rising costs of health care costs and long-term care were a problem, you probably don’t need a reminder that it doesn’t stop there. Tuition and fees have risen significantly over the last couple of decades. If you are on the right track to reach your retirement income goals you can begin thinking about saving for your children’s college. Education planning means more than just saving in 529 college savings plans. Other ways to reduce college expenses include attending a two-year college or a public college. Scholarships, grants, and work-study programs are other ways to encourage your children to independently contribute to their own college education.

Create and Review Important Estate Planning Documents

It’s natural for adult children to feel uncomfortable asking parents about their estate plans. If positioned properly, this conversation is more than just a “who gets what” discussion. Everyone needs a basic estate plan, and it’s also important to recognize how to create an effective estate plan that accomplishes more than just a plan to transfer wealth. Estate planning helps pass along important family values or stories. A well-designed plan also chooses an executor to carry out important tasks. Important documents such as wills, trusts, advanced health care directives, medical and durable powers of attorney can provide parents and loved ones with peace of mind knowing their intended wishes and goals will be met.

Get Organized and Take an Inventory of Assets

The pressure of providing care for aging parents and children at the same time will often leave very little wiggle room in the daily schedule. Rather than neglect your own personal finances, get organized and create some efficiencies in your own planning. There are numerous financial apps to help you get your financial life organized. You will also want to help aging parents go through the same routine and identify where important documents are located. It isn’t that difficult to accumulate multiple savings, checking, investment, credit card and retirement accounts across a variety of different financial institutions. Without proper guidance, the process of tracking down these accounts and determining how to access important information could become a stressful endeavor.

Seek Both Personal and Professional Support

Explore alternatives such as sharing caregiving responsibilities with another family member or loved one. Even a simple 1- or 2-day break can make a huge difference and reduce responsibilities. Professional support may be necessary in many cases. In-home care and home health care services are just a few examples of assistance available. Attorneys can help create crucial estate planning documents. Financial planning services can help you stay on track with a personal financial plan and help guide you towards finding some balance between life’s competing priorities. Talking with an architect to help determine ways to retrofit your parent’s home to make it more accessible is another example. Finding a Medicare or Medicaid consultant may also prove beneficial. If your children are younger, finding help running kids to and from school or practices can be a small win.

Keep Saving for Short and Long-Term Goals, While Providing Care for Parents and Kids

Finding a balance between competing priorities that require time or money may seem like a constant challenge in our financial lives. Staying on top of the mortgage, car payments, children’s activities, saving for retirement and assisting with the costs of aging parents can make it difficult to stick with a budget. The balancing act gets more complex when your time and energy is primarily devoted to caring for others. It may appear to be a challenge to see beyond the current caregiver role, but you should still focus on saving for your own long-term financial goals. Retirement is one obvious example of a long-term goal. But it’s likely not the only priority. Create a budget or spending plan that helps you focus on increasing your savings for important life goals while reducing or eliminating problematic high-interest debt.

Final Thoughts

The best way to cope with financial obligations facing the Sandwich Generation, whether a current priority or a future possibility, is for everyone to have a financial plan (aging parents, children, and those stuck in the middle). Open and honest communication is the key to navigating the challenges of the Sandwich Generation. Proactive planning will help reduce your financial stress if you are already dealing with the balancing act or you simply have concerns you may be in this spot in the near future.