Raleigh NC Financial Advisor: The Sandwich Generation

As people strive to make ends meet while also saving for their future and their children's education, many are now also having to take on the responsibilities of caring for elderly or disabled parents. The "sandwich generation" is a term used to describe the growing number of people experiencing financial strain from both their children and their parents.

Why are so many feeling this financial squeeze? People are living longer. They are having children later. Meanwhile, many young adults are finding it too expensive to live on their own.

Hence, the "boomerang kids" phenomenon. Add in rising health care expenses for older Americans, and you have the makings of today's sandwich generation.

Pump up your planning

If you're one of the millions of Americans facing this challenge, a good way to cope is to plan. Begin by funding your emergency cash reserves, avoiding or paying down high interest debt, and doing what you can to make your own retirement saving a top priority.

Here are some strategies to take control of your sandwich finances.

Know more

Even though it can be difficult to talk with your parents and kids about financial realities, try to do so early on. If you wait until a financial or medical crisis forces you to act, you may not have the time or flexibility you want or need.

Over time, try to get a clear view of your parents' total financial picture, from expenses to sources of income and insurance. That way you can better understand what they can afford and if you need to fill in any gaps.

For expenses, talk with them about their essential living costs (housing, food, transportation, insurance) as well as their discretionary costs (lifestyle choices like where they live and how much they travel). Help them match essential expenses to steady sources of income, such as Social Security, pensions, or annuity income, if they have any.

Finally, check into their health care plans. To better manage their care, make sure they have a health care proxy and a living will in place. To see if they can pay for health care expenses, get details on their health and long-term care insurance, as well as any other available resources.

Save more

If you're in the sandwich generation, it's even more important to save as much as possible. This is especially true if you have to take time off from work—and lose income—to care for parents. So be sure to take advantage of any and all tax-advantaged saving vehicles.

Put your retirement first. If you're already contributing the maximum to your workplace savings plan, consider funding an IRA if you're eligible. A health savings account (HSA) may be another tax-advantaged way to save for retirement as well. You do need to have an HSA-eligible health plan (more on that in the health care section). Even if you're only able to save a portion of the funds in your HSA for the future after covering current medical expenses, these accounts can be a tax-efficient way to save for Medicare premiums in retirement.

If you can, avoid tapping into your retirement funds to help your children or parents. Doing so will reduce the chance for your savings to grow tax-free, and may result in taxes or fines. This could lead to you needing to rely on your offspring for money in the future.

Prep for college costs. If you aren't already saving for college, you may want to consider starting. The College Board puts the average cost (tuition, fees, and room and board) for a 4-year, in-state public college at $22,690 for the 2021–2022 tuition year, and $51,690 for a 4-year private college.

While there are several ways to save for college—such as opening a custodial account (Uniform Gifts to Minors Act [UGMA]/Uniform Transfers to Minors Act [UTMA] account), a Coverdell Education Savings Account (ESA), or even setting money aside in a taxable account—the potential advantages of a 529 savings plan may help you save for your child's education.

529 college savings plans are flexible, tax-advantaged accounts designed specifically for education savings. You can take withdrawals from a 529 plan to pay for qualified education expenses at the elementary through high school levels, or for college-level and beyond.

To help boost college savings, encourage the gift of education by asking grandparents and those close to you to redirect money spent on toys and other gifts to your child's 529 savings plan account.

It can be helpful to consider the level of financial support you may be able to provide and what level of college costs make sense for your family. Addressing that question early as a family can reduce stress in the future.

Save on health care. If you are enrolled in a high-deductible health plan and meet eligibility requirements, you can contribute to a health savings account (HSA). HSAs let you save pre-tax, and withdraw principal and earnings free from federal taxes for qualified medical expenses. In addition, any money you don't use, you can save and invest for the future, including for health care in retirement.

For 2023, the IRS contribution limits for HSAs are $3,850 for individual coverage and $7,750 for family coverage. If you're 55 or older during the tax year, you may be able to make a catch-up contribution, up to $1,000 per year. Your spouse, if age 55 or older, could also make a catch-up contribution, but will need to open their own HSA.

Your employer may also offer a health care flexible spending account (FSA), which is another tax-advantaged account that lets you pay for eligible out-of-pocket health expenses with pre-tax dollars. The 2022 annual contribution limit for FSAs is $2,850.

Health savings accounts (HSAs) are not "use-it-or-lose-it," unlike most flexible spending accounts (FSAs). The money in an HSA rolls over automatically each year, and you can take the money with you if you change employers or move to a different state. Some HSAs are also investible, unlike FSAs, and any investing growth is free from federal income taxes.

Protect more

Don't choose care in crisis

Find out your parents' long-term care preferences now, in case the day comes when they won't be able to participate in the discussion. Doing so can help you estimate costs and understand your options. Having your parents live with you might be a way to defray these expenses.

Make sure you and your parents have adequate health care insurance now, and for your retirement. Remember, Medicare does not cover everything. For example, long-term care is not covered by Medicare, and can be pricey. The average annual cost for a private nursing home room is $108,408, and assisted living facilities average $54,000.

Do you and your parents need long-term care insurance? The answer depends on your age, the cost of coverage, how long you might need coverage, and the types of benefits you want. So carve out the time to weigh your options.

Finally, with the needs of multiple generations on your shoulders, protecting your family from the risk of your disability or death may be more important than ever. Disability and life insurance can help make sure that your loved ones are cared for in the event that you are unable to work.

Bottom Line

There is no escaping the reality that managing the competing financial priorities of children, parents, and yourself can be stressful. So, take control by planning more diligently, saving more carefully, and keeping your retirement saving a top priority.

For all concerned, that may mean adjusting expectations—from when you retire to where your kids go to college to how your aging parents spend their golden years. But that's what families do. You're all in this "sandwich" together.

Sources

https://www.fidelity.com/viewpoints/personal-finance/sandwich-generation-financial-planning

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This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.