I'm a Financial Planner: Here's My Survival Guide for the Sandwich Generation
People in their 40s can find their finances stretched as they care for their children and their aging parents, leaving their own retirement plans in limbo. Here are some strategies to help navigate these competing priorities.
Much has been written about the so-called sandwich generation, which refers to American adults in their 40s who are caring for both their kids and one or more aging parents.
A recent Pew Research Center study found that 54% of adults in this generation have a living parent age 65 or older and a child younger than 18, for whom they've recently provided financial support.
The percentage is substantially lower among adults in their 50s or 30s, indicating that those in their 40s are more heavily affected by this demographic trend.
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As investors and savers, sandwich generation adults could be pulled in multiple directions, possibly needing to support an aging parent or child financially while also saving for their own futures.
We'll explore key considerations and planning strategies for navigating these competing priorities.
Document assets and income
If you're in the sandwich generation, I suggest doing a detailed assessment of your financial situation. This would involve quantifying income sources, savings (cash and long-term investments), debts and expected changes over time.
Because of compounding returns, investors are rewarded for saving and investing as early as possible — which might mean prioritizing their retirement savings.
If you're already financially stressed by caring for children, you should take stock of any benefits you receive through your employer, such as a match in their workplace retirement plan.
If your 401(k) plan matches the first 3% of your retirement plan deferrals, contributing at least that much earns you a 100% return on that first 3% of your contribution, subject to any vesting requirements you need to meet.
That can double your retirement savings rate, so it's important not to overlook boosters that offer a good bang for your buck.
If contributing more to retirement savings is unrealistic, a move such as this can at least help you take advantage of benefits you might otherwise overlook.
Second, allocation is important.
Making sure your retirement savings are invested correctly is also critical — if you contribute to a 401(k) but the assets are invested in something very conservative, such as cash or short-term bonds, this can make a huge difference in your wealth at retirement compared with a more growth-oriented investment.
Making important decisions about debt will also provide benefits over time that aren't immediately noticeable.
Rather than thinking about your monthly payment when purchasing or leasing a vehicle or a home, think in terms of total dollars paid on the debt and make smart decisions accordingly.
For example, there's a tendency for car dealerships to try to sell you a car based on the monthly payment and stretch out the debt over longer terms (i.e., a seven-year car loan).
If you take a second to look at the details and think about how much you're paying in interest on that debt vs the actual purchase price itself, you might be amazed.
Likewise, if purchasing a home, consider how much home you truly need, vs the maximum you can afford.
Things such as home insurance and maintenance have increased fast with inflation in the last few years, and some homeowners are surprised by how much homeownership costs when everything is considered.
Considering these types of details might lead you to more modest choices when selecting a place to live.
You can do a similar analysis for your parents' finances. Perhaps their home is paid off or will be in the future. If so, that means their cash flow needs might be less in the future, or alternatively, that home equity might be available for other needs.
If the aging parent is approaching retirement, help them locate their Social Security statement to estimate future income and consider other income sources, such as a workplace pension or their own retirement assets.
If they need more income than their assets can provide, it's better to know about this gap earlier, when it's easier to address.
Address any shortfalls
If your aging parent is geographically distant, part of the long-term plan could involve some family members moving to support them or, alternatively, long-term care benefits might be needed.
Traditional long-term care policies are normally expensive, and if not purchased early in someone's life, they become much pricier the longer you wait. We typically only see clients with long-term care policies who purchased them much earlier in their lives.
If these policies are in place, adult children should review them to determine which events would trigger the benefit and what options are available. One of these events could be if the insured is unable to perform a certain number of daily activities.
Some policies are flexible about whether care is provided in a dedicated facility or in the home. If care can be provided in home, the aging parent might be able to remain long-term where they're more comfortable.
Alternatively, some parents might prefer a care facility with other residents of a similar age and where they can receive more prompt care and resources.
In cases in which purchasing a new long-term care policy is either impossible or unaffordable, specialized insurance professionals might be able to shop for hybrid options — which could be either life insurance or annuity vehicles with long-term care features.
The overall long-term benefits might not be as rich as with a traditional policy but can provide limited-term coverage at a lower cost, which could still be preferable to no coverage.
Further, as parents age, their adult children might want to become familiar with their medical coverage to determine whether their health insurance and/or Medicare coverage is sufficient to meet future needs.
Medicare is a complex system, and it's best to consult an expert during annual open enrollment periods.
Pay attention to estate planning
An important element throughout all this is that without the appropriate estate documents, even a great plan could fail if adult children aren't authorized to make important decisions for their parents in cases of incapacity or medical emergencies.
Estate planning involves drafting important documents such as powers of attorney, medical directives, trusts, wills and beneficiary designations.
If there is a single aging parent living alone, the financial power of attorney is frequently important so an adult child can be authorized to directly fund distributions as needed.
This is important in cases of medical emergencies or potential mental incapacity as parents age.
Without appropriate documents on file, aging parents and their children might not have easy or timely access to their financial resources when needed.
Financial institutions (such as banks and brokerage platforms) won't accept trade or money requests from adult children unless they're properly authorized on their parents' accounts.
Depending on the scenario, setting up a trust for an aging parent and naming a trusted adult child as a co-trustee or successor trustee might be one way to address this challenge long term, but allow the aging parent to retain control until they're unable to manage on their own or are ready to give up control.
Even if these documents are in place, periodic reviews are critical as language might need to be updated over time to ensure documents are accepted by the financial institutions with which you work.
An out-of-date power of attorney, for example, might be rejected by the financial institution with which you work.
Timing is critical, as well. In cases in which an aging parent is living alone and starts developing issues with mental incapacity, it could be too late for them to get a new estate plan in place.
Drafting documents early and with input from adult family members is vital.
According to Pew Research Center, 66% of U.S. adults age 70-plus have created a will, and 64% have a living will or advance directive, meaning a significant portion of families might be unprepared when decisions need to be made most.
Aging in place vs continuing care options
Nursing care or continuing care facilities are pricey and a luxury for many, but in some cases, families might want to plan for scenarios in which an aging parent might need to consider a move into these facilities.
If financial resources aren't available, the alternative is either to plan to age in place or potentially move in with adult children.
Keep in mind that homes are typically not optimized for aging in place for many older Americans, and setting aside funds for home upgrades might be required, such as stair lifts, wheelchair ramps or other accessibility features.
Some adult children might need to plan home upgrades to have their parents move in — perhaps buying a new home with space for that parent or modifying the existing home to accommodate them.
For adult children, this requires advanced planning to model future savings and costs. Working with a wealth planner and identifying an estate planning team is key.
There's no one-size-fits-all solution for every family. As with wealth planning in general, every family has unique needs and will navigate both expected and unexpected changes over its lifetime.
By taking a proactive approach to wealth, estate and care planning, members of the sandwich generation can better support their aging parents while protecting their own long-term financial security.
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