Practical Financial Tips for the 'Sandwich Generation'

Many people are stuck in the middle, caring for parents and children at the same time ... and they are getting squashed, emotionally and financially. Here are some proactive steps that can help.

(Image credit: SOL STOCK LTD (SOL STOCK LTD (Photographer) - [None])

If you’re trying to balance the needs of your own children along with your aging parents, you’re part of the “sandwich generation.” Twelve percent of parents fall into this category, according to the Pew Research Center. The coronavirus outbreak has likely put additional stress on your finances.

The pandemic has highlighted just how tangled family finances can get across generations. Some parents are upset that their millennial children aren’t working due to COVID-19, but not for the reasons you might think. When parents rely on their kids for financial support, they see their children as their “retirement plan.” Parents are nervous about whether their own financial needs will be met if their children are out of work.

Being caught in the middle of caring for your parents and children simultaneously can feel overwhelming. But achieving your goals is possible. You don’t have to sacrifice pursuing a career, raising your family or saving for retirement.

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Advanced planning is key to making it work. As you plan for the present and future needs of three generations, here’s what you need to know about financial planning for the sandwich generation.

Talk to your parents early and often

Parents rarely enjoy talking to their kids about their finances. In this situation, the lines of communication must be open. The earlier you talk, the more you’ll know about any retirement plans they may have already made.

Pick a time to start a conversation when everyone is relaxed and your parents are mentally alert. If Alzheimer’s or another life altering disease has set in, taking a direct approach is generally best.

You could also ask big-picture questions to get your parents to open up about their finances. You might ask, “Have you given much thought to what your retirement will be like?” or “Because you took such good care of me all my life, I want to be able to take good care of you if you ever need it.” Asking general questions can lead to conversations about whether they have a will, powers of attorney for health care and finances, or other estate documents in place.

Discussing your parents’ retirement income and expectations for long-term care is essential. Otherwise, you could be blindsided by a life-altering diagnosis. It’s better to prepare ahead of time to assume financial responsibility.

Include your kids in financial discussions

You might feel uncomfortable involving your kids in your own personal financial discussions, but kids play a significant role in how parents allocate their money. Setting clear expectations now can help to avoid awkward conversations in the future.

Your child might expect you to help them buy their first car, pay for college or cover the cost of their wedding. Not every parent is willing to — or can afford to — pay for those expenses.

The best course of action is to discuss financial expectations with your kids. Set boundaries now to avoid the temptation to sacrifice your own financial goals in the future. For instance, in my own family, I set a boundary of how much I’d contribute toward my children’s education. My older daughter was very proactive in securing scholarships. In addition, as a STEM student, my son qualified for grants. My kids took out student loans, but they will not be burdened with crippling student loan debt.

Don’t neglect your savings

A 2019 Planning & Progress Study by Northwestern Mutual found that 22% of Americans have less than $5,000 saved for retirement. Neglecting your savings can seem like a quick fix when money gets tight. But your financial goals are an essential piece of your future stability, especially when it comes to retirement savings.

You don’t want to rely on Social Security or be a burden to your children because you used your cash to help others. If the company you work for offers a 401(k) or other retirement savings plan, contribute at least enough money to get the maximum employer match possible. Set up additional savings for short- and long-term financial goals and review your plan regularly to make sure you’re on track.

Revisit your spending plan often

A spending plan gives every dollar a purpose. That way, you can have peace of mind knowing your money is being spent in a way that supports your financial responsibilities. The way you spend your money can change as your children and parents get older. For example, you may need to create room in your budget to pay for caregiving costs for your parents or college expenses for your children so that you can continue to fund your retirement savings.

Depending on your situation, you may need to revisit your spending plan often to make adjustments as new costs arise.

Create financial safety nets

Despite your best efforts, some situations are out of your control. Creating financial safety nets can ease some worries you may have about supporting your children, your parents and yourself.

Consider asking your parents to purchase long-term care insurance if you’re concerned about the cost of care. It could pay for nursing home care, which isn’t generally covered by Medicare.

Life insurance is another financial safety net. Some policies have a chronic illness rider that allows you to accelerate the death benefit to pay for long-term care. Besides life insurance for your parents, look at your own policy, too. It could help pay for your kids’ college costs or provide additional funds for retirement for a surviving spouse.

Keep your emotions at bay

Emotions can drive your financial decision-making. Decisions made from a sense of obligation or guilt can be problematic. To make the best choices, you must remove emotions from the equation.

It’s easier said than done. But even the best intentions can’t protect you if you don’t consider the financial impact of your choices. Before you emotionally commit to paying for caregiving or college, for example, analyze the numbers to ensure it is a feasible option for your finances.

Put it in writing

Document your plan and prepare necessary legal paperwork to make sure you’re covered — and make sure your parents’ paperwork is in order, too. If your parent suffers memory loss, they may not be able to tell you where their important financial documents are located.

Have powers of attorney for health care and financial issues to create a legal record of your rights and responsibilities. If you have siblings, communicate with them, as well. The more open and honest everyone is, the better your plan can be for handling the financial and non-financial pieces of caring for your aging parents.

Don’t wait to ask for help

Being put in the middle of the sandwich generation can add a significant amount of stress to your life. Not only are you worried about making ends meet for yourself, but you have your parents and your children’s future to think about, too.

If you wait to ask for help, two things can happen: A health crisis such as a stroke or dementia could catch you off-guard, in which case it could be too late for your parent to sign the legal papers that are essential to estate planning. Or you could discover that you’ve sacrificed too much of your own finances and are now forced to work longer than you had planned to fund your retirement savings.

Remember that the support you’re providing for your children and parents can be emotional and financial. Although you’re used to balancing everything on your shoulders, it’s OK to ask for help.

Waiting to reach out to a financial planner is one of the biggest mistakes you can make as part of the sandwich generation. Don’t wait until you’re pushed to the limit. A financial planner can help to manage the monetary needs of your parents and kids while ensuring your own financial stability.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Marguerita M. Cheng, CFP® & RICP®
CEO, Blue Ocean Global Wealth

Marguerita M. Cheng is the Chief Executive Officer at Blue Ocean Global Wealth. She is a CFP® professional, a Chartered Retirement Planning Counselor℠ and a Retirement Income Certified Professional. She helps educate the public, policymakers and media about the benefits of competent, ethical financial planning.