Many people doing their best to prosper financially in today’s ever-evolving economy are faced with yet another challenge – helping care for both their children and their aging parents. People who find themselves in this situation are commonly known as the “sandwich generation.” It can be a tough spot to be, but there are planned financial services that can help.
One study reports that as much as 13 percent of Generation X (the generation following the baby boomers) finds itself providing financial support for at least one adult, whether a parent or an adult child. Those in the sandwich generation include people who are raising kids of their own while helping care for their parents, as well as those who are providing some form of financial support to adult children and their parents.
The challenging market for young people seeking a first-time job means that it often requires more time than has typically been the case in past generations to find a good job. As a result, many parents find themselves providing support for their young adult children, commonly in the form of room and board. Another factor playing a part is the recovering real estate market. With home prices having risen strongly in recent years, it can take younger adults some time to amass enough funds to buy a house, providing further motivation to live rent-free (or rent-reduced) with Mom and Dad.
On the other side of the sandwich, a variety of factors can result in working adults finding themselves in the position of providing support for their parents as well as their children, whether minor or adult. Such factors can include poor financial planning by their parents, a medical emergency or a lack of ability on their parents’ part to deal with the financial and health challenges facing them as they get older.
Meeting your financial planning goals in such circumstances can be difficult to say the least. The following suggestions are designed to help you cope with the challenges of being in the sandwich generation and keeping yourself and those you are caring for on track financially.
Look Into Long-Term Care Insurance and Government Benefit Programs
With people living longer than ever these days, the need for long-term assisted-living care can be a major financial risk. Typically, the cost of staying in a long-term care facility is not covered by Medicare – paying for this type of care can exhaust an individual’s or family’s financial resources if steps are not taken to prepare for such a stay in advance. Because it may be difficult or impossible to care for elderly family members at home while still holding down a full-time job, even for those working at home, you may want to investigate whether it makes sense for your parents to have long-term care insurance. These policies provide the financial wherewithal to pay for either in-home care or a skilled healthcare facility. They are less expensive if you purchase them prior to the occurrence of any major health events, so the earlier you look into them, the better.
Long-term care insurance policies are not the answer for everyone, so it’s also a good idea to see if your parents qualify for healthcare and other benefit programs offered by various governmental agencies. You can check for them here. Another source to scout for various benefit programs that your parents may be eligible for can be found here.
Help Your Parents with Retirement Income Planning
When taking responsibility for your parents’ care, it can pay dividends to evaluate their retirement income plan to look for ways to maximize the income they receive. If your parents aren’t financially sophisticated, they may not have taken all of the actions necessary to get as much income as possible from their retirement income sources. Some areas to investigate are:
- Social Security income: Make sure that your parent or parents are pursuing the optimal claiming strategy. For instance, if a surviving spouse received a lower Social Security benefit payment than their deceased spouse, as long as they were married for at least 10 years, they are entitled to receive the higher payment upon their spouse’s death.
- IRAs, 401ks and other employer-sponsored retirement plans: These plans typically offer monthly, quarterly or yearly distribution options to provide your parents with retirement income. In addition to helping them set up these distributions if necessary, you should also look into their asset allocation in such plans. Sometimes people forget to adjust their allocation to a more conservative posture as they get older and their risk tolerance decreases.
- Annuities and life insurance: If your parents have cash value life insurance such as universal life or whole life, you should look into how much of this amount they can access free of any surrender fees. While withdrawing funds from such a policy will reduce the death benefit amount, older individuals often don’t have the same need for insurance protection as younger people who may be raising minor children or trying to pay off a mortgage.
- Examine expenses as well: Outside of medical expenses, other costs of living often drop once a person retires. However, you should go over your parents’ expenses as well as their income to make sure they aren’t spending more than they should be.
Talk With Your Parents About Estate Planning
While it may not be the most comfortable subject to discuss, if you are caring for your parents, it makes sense to discuss their estate planning preparations with them. Given how daunting the subject can be, some people delay planning for the disposition of their assets as long as possible, and sometimes fail to take any action at all in this regard.
If a failure to engage in estate planning results in a person passing away without a will, any assets they leave behind can be tied up in probate court for some time, leading to expenses that could have been avoided with proper planning. To ensure this doesn’t happen to your parents, urge them to take the time necessary to draw up a will or set up a trust to ensure their assets are distributed in accordance with their wishes. You should also consider having them set up a durable power of attorney as well as a health care directive so you can make decisions for them if they become unable to do so.
Consider Setting Up a 529 College Savings Plan
The cost of attending college has exploded in recent years, making it important to plan ahead in order to help your children finance a college education. The earlier you begin the planning process the better, given the significant expenses involved. One method of setting aside funds for a college education is to set up a 529 college savings plan. These plans allow money to grow tax-free and be withdrawn free of federal (and sometimes state) taxes if the withdrawal is for the purposes of paying qualified higher education expenses.
Other resources are available to help defray the out-of-pocket expenses of paying for college, including a variety of grants and scholarships. Student loans are also available, although you should warn your children to take out such loans with caution, as they can’t be eliminated via bankruptcy if your child encounters financial difficulty after graduating from college.
Don’t Neglect Your Own Financial Planning
While caring for your parents and children at the same time can be challenging from a financial standpoint, it should not prevent you from continuing to work toward meeting your own financial goals. Dipping into your own financial accounts to support your parents or adult children should be avoided if at all possible. Your discretionary income may take a hit while you find yourself in the position of supporting your children and parents, but you should only dip into your retirement and other long-term funds as a last resort.
Your financial solvency is the rock that enables you to help support both your parents and your minor or adult children. To avoid jeopardizing your solvency, make sure you continue to focus on your overall goals, even while helping your family. This includes setting aside money in an employer-sponsored 401k plan or an IRA account you establish yourself.
Ask Your Adult Children to Contribute
Members of the sandwich generation may find themselves helping support children from the “boomerang” generation. This term refers to the children who return to live at home after college or after a time living on their own – typically while they are looking for a job or trying to save enough money for a down payment on a home.
While your adult children may not be able to contribute financially in a major way, it is still a good idea to ask them to assist somehow while they are living with you. This could involve helping care for your parents as needed or taking over certain household tasks. Asking them to pay some of their expenses, such as food and utility costs, is a good way to both defray some of the costs of supporting them and to help prepare them for paying their own way once they leave your residence.
The important thing to remember is, there are planned financial services that can help you if you find yourself in a touch situation. Contacting a financial advisor and planning ahead is always a smart decision. Don’t wait until you need help; plan ahead.