Inflation in recent years has worsened the bad situation for many households. Financial dependence now leaves aging parents living with their adult children and their adult children footing the bill for their parents’ poorly planned retirement. While also trying to raise children, buy a house, pay off student loans and save for their own retirement. The result? A continuous cycle of financial dependence, based on generative possibilities.
Below we look at what is being called the ‘sandwich generation’, how the financial burdens of parents and children are putting pressure on this group and how a financial advisor can help you break the cycle.
What is the sandwich generation?
The sandwich generation consists of adults who care for their own children under the age of 18, while providing care and/or financial support to their aging parents. This is usually in addition to their own financial responsibilities, such as paying off debt (student loans, mortgage, etc.), saving for their child’s college education, and putting money away for their own retirement.
The result? A continuous cycle in which the adult children who cared for their parents often become burdensome aging parents who also need financial assistance during their children’s retirement.
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The statistics behind the sandwich generation
Here are some facts about the generation of adults who are ‘sandwiched’ between caring for their children and their aging parents (65+).
People live longer: By 2060, life expectancy for the total population is expected to increase by about six years, from 79.7 in 2017 to 85.6 in 2060 (Census.gov)
The sandwich infliction does not discriminate. Everyone, both men and women, is equally part of the sandwich generation. There are also no trends in racial or ethnic demographics showing that one profile of the person is more likely to join the sandwich generation cohort. (Pewresearch.org).
1 in 5 adults between the ages of 40 and 50 helps a minor and an adult child at the same time. About 17% of these adults provide financial assistance to their children, at least one of whom is a minor and another 18 and older. About 54% still support a child under 18, while 29% still support an adult child (18+). (Survey of US adults).
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The result: In years past, the sandwich generation has tended to be one-sided, in that you had an adult in their 40s supporting their aging parents 65 and older while supporting children under 18. Nowadays, with the cost of living, children are dependent on their parents to supplement their lifestyle for much longer. This results in a longer overlap with adults in their forties financially supporting three generations of adults from one family income.
How to plan ahead
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Communicating: To plan for an aging parent’s future, sandwich adults must gather information about their income, expenses, lifestyle and financial status. This requires that conversations be had with the parent now.
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Analyze your financial situation: Organize account information, including retirement, banking, investment, credit card, insurance, trust and other accounts. Budget for long-term care costs by discussing all revenue sources and essential/discretionary expenses, including federal/state benefits and tax implications.
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Estimate the costs for future disability. Assisted living costs an average of $50,000 per year, while nursing home care can exceed $100,000 per year, potentially reaching $135,000 by 2028. Plan now to cover these costs.
What to do if you can’t move forward
Planning ahead requires you to be proactive with your finances, which is not often a luxury for many. If you’re past the point of no return and are in the sandwich generation cycle, there are some guiding principles to follow to keep you on track.
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Don’t interrupt your retirement savings. The best thing you can do for yourself and your future generation is to prevent the cycle from continuing. This means making sure you are self-sufficient in retirement and not burdening your adult children with financial needs.
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Take advantage of tax credits. Those who provide care for dependents and earn less than $438,000 are eligible for the child and dependent care credits.
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Talk to a professional. A financial advisor may be able to help you soften the blow of supporting multiple family members financially at the same time. You can probably find one who has experience with sandwich generation adults and their most pressing concerns.
The bottom line
It’s never too early to talk to your parents about their retirement and what help they expect from you as an adult child. By having the difficult conversations now, you may save yourself and future generations from financial hardship.
Tips for investing
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Consider talking to a financial advisor about how to manage your financial plan if you care for parents and children. SmartAsset’s free tool can match you with up to three local financial advisors, and you can choose the one that suits you best. If you’re ready, get started now.
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An important part of financial planning in the sandwich generation concerns Social Security and Medicare. In concrete terms, this means helping your parents decide when to take Social Security if they aren’t already receiving benefits, while also thinking about your own Social Security plans.
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Have an emergency fund on hand in case you encounter unexpected expenses. An emergency fund should be liquid – in an account that is not at risk of significant fluctuations like the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But with a high-interest account, you can earn compound interest. Compare savings accounts from these banks.
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