Sandwich Generation Financial Planning
Can people in the sandwich generation have a financial plan?
Absolutely Yes! According to Bienvenue Wealth, “set healthy money boundaries. Decide what you will and won’t pay for, and don’t be afraid to communicate those guidelines to your family. Consider the short- and long-term impact of these decisions and prioritize your goals first so that you can help those around you.”
Who is the Sandwich Generation?
Let’s step back and define the sandwich generation. According to John Pilkington of Caregiving.com, “Members of the Sandwich Generation are raising and supporting children while also caring for aging parents.” Investopedia explains: “The sandwich generation is named so because they are effectively sandwiched between the obligation to care for their aging parents—who may be ill, unable to perform various tasks, or in need of financial support—and children, who require financial, physical, and emotional support.”
Each family has unique emotional and financial situations with this increasingly common experience. Before COVID-19, a Pew Research Center study estimated that “about one in seven Americans between the ages of 40 and 60 are simultaneously providing some financial assistance to both a child and a parent.”
And the New York Times more recently states about 12% of parents are in the sandwich generation. People in the sandwich generation have added pressure to manage their own careers, deal with personal issues, and contribute to their own retirement. Words like stress, pressure, and exhaustion abound for sandwich generation folks.
Investopedia defines two additional subsets of the sandwich generation. The club sandwich generation refers to people in their 50s and 60s who care for their parents, adult children, and grandchildren. It can also be used to describe younger adults who care for their parents, grandparents, and children. The open-faced sandwich generation refers to anyone else involved in elder care.
“I’ve learned many things since I began caring for my 85-year-old grandmother. I know which supermarkets offer senior citizens’ discounts on which days of the week. I know which drugstore has the most helpful pharmacist and which beautician will fix my grandmother’s hair just the way she likes it. But one of the most important things I’ve learned is the value of true friendship.” — Marlene Pyle
Pew Research names people in the sandwich generation multigenerational caregivers. They may provide care to anyone who needs it, be it a relative, friend, or neighbor. Caregiving can include an array of activities. Adult care may consist of hands-on assistance with dressing, bathing, toileting, eating, medical care, transportation to appointments, or helping with housework or finances. Childcare may also include hands-on assistance with bathing, toileting, eating, reading, playing, attending children’s events, or helping with homework.
What is the financial burden on the sandwich generation?
According to XYPN Financial Experts, “the sandwich generation has several financial commitments, to put it mildly. Between taking care of their personal finances, supporting children, and caring for aging parents, the money seems to go out quicker than it came in.”
According to a nationwide Pew Research study, nearly half (47%) of adults in their 40s and 50s have a parent aged 65 or older and are either raising a young child or financially supporting a grown child age 18 or older. Among those who are providing financial support to an aging parent and supporting a child of any age:
- 28% say they live comfortably
- 30% say they have enough to meet their basic expenses with a little left over for extras
- 30% say they are just able to meet their basic expenses
- 11% say they don’t have enough to even meet their basic expenses
“The financial burden can be as heavy as the time commitment. Many estimate they have lost more than $10,000 caring for their children and parents. This is not what has been spent caring for them; rather, it is what they have lost (.e.g., missed work, promotions, etc.) in caring for them,” according to Investopedia. The negative impact on a caregiver’s retirement fund is approximately $40,000 more for women than for men. More intense caregiver responsibilities tend to impact the odds of retiring. Women who provide assistance to multiple family members or friends have 50% higher odds of retiring than non-caregiving women. Caregiving reduces paid work hours for middle-aged women by about 41%.
Consider the example of Laura, age 56, who left a $70,000-a-year job to care for her mother for three years. It cost her $216,000 in lost salary and $67,000 in lost Social Security benefits, for a total of $283,000. She also lost the opportunity to contribute to a 401(k) plan and receive contributions from her employer. — Fidelity.com
The club sandwich generation also includes baby boomers (born between 1946-1964) who postpone their retirement because of the added financial obligations, including caring for parents in their 90s or caring for grandchildren. For example, our client Michelle (age 64) was in a position none of us would envy. She was caring for her husband Ron, who was diagnosed with advanced-stage cancer, while also responsible for providing care to Esther, her 95-year-old mother, who had suffered multiple strokes. Read more in our smart strategies case study.
According to the most recent Genworth Cost of Care Study, the median cost for in-home care was $61,776 annually, up from $54,912 the year before. The median cost for a private room in a nursing home was $108,405 annually. Meanwhile, the hourly rate for a home health aide in 2021 ranged from $19 in West Virginia to $36 in Minnesota. “Knowing real-world financial data from Genworth may help multigenerational caregivers think about their own future needs and encourage them to buy long-term care insurance or use other planning tools that forecast needs decades later,” according to Kimberly Foss, CFP, CPWA, CFT-I, of Empyrion Wealth Management in Rethinking65.
What are financial planning steps for the sandwich generation?
Here are nine steps people in the sandwich generation can take to make a financial plan.
- Have a family conversation with your elderly parents about their finances to see what money is available for their care. If you learn that your parents have assets, pensions, 401Ks, and LTCI insurance policies, meet with a financial advisor specializing in post-retirement decumulation to learn the best way to spend their funds and save on their taxes. SEIA Senior Partner Tom West advises families, “the longer you wait, the fewer options you have.” If your parents are struggling to accept the help they need, here are pointers for before, during, and after the conversation.
- Have a conversation with an elder law attorney to ensure your parents’ wills, trusts, power of attorney (POA) forms, healthcare proxy forms, and beneficiaries are correct and updated within the last ten years. For example, “if you find yourself squarely in the middle of planning for an aging parent and college-bound child, bring up your own finances with the elder care attorney. Potentially the solution is as simple as naming a sibling as trustee,” advises Quentara Costa, CFP®.
- Have a conversation with your siblings. “It’s really appropriate to help all family members define early what roles and responsibilities they have right now and what they might be in the future when things change,” says Tom West in Barron’s. Sometimes one sibling takes on most of the care for an elderly parent. It’s important to discuss estate planning so that the caregiver sibling can be financially compensated, and resentment isn’t fostered when mom or dad dies.
- Have a conversation with your parent’s neighbors and friends. Get to know them, especially if you do not live nearby. They are a source of information and support. Glenna Crooks shares, “Friends can do a wellness check without involving the police or other social services whose check in may be embarrassing or stressful. It’s always better to have a neighbor stop by than the police to show up.”
- Have a conversation with a financial advisor who is a fiduciary to help juggle competing priorities. For example, if your parents don’t have the resources to support themselves, do you have the resources to support them while also saving for your own financial goals like retirement and your children’s education? Since the implications of long-term care—and how to fund it—are less frequently associated with people in the sandwich generation, you need to consider your needs with a financial advisor. Also, continue to save for your retirement in your 401(K) and get your employer match.
- Have a conversation with your employer. Liz O’Donnell, the author of Working Daughter, suggests these topics for discussion: set personal priorities, work remotely, ask for flexibility, embrace technology, and consider your well-being. According to Pew Research, 72% of multigenerational caregivers have paid jobs. However, about 20% of female caregivers switch from full- to part-time work, according to the Family Caregiver Alliance, almost 30% pass up job promotions or new assignments, 22% take leaves of absence, 16% quit their jobs, and 13% retire early.
- Have a conversation about money with your adult children about contributing financially and moving towards independence. Set the expectations that they will pay for the room and board at near-market rates, instead of the mom & dad discount.
- Have a conversation with your therapist about your money personality and how it impacts caregiving for your parents and children at the same time. Amy Cameron O’Rourke is a fan of therapy for unresolved issues. It may bring you closer to your parent or leave you feeling okay even if the relationship remains broken.
- Have a conversation with yourself about if you will stop working in retirement. Ken Dychtwald, psychologist, gerontologist, founder and chief executive of Age Wave, says for Baby Boomers and GenX, “we have to remove the belief that everyone should stop working at 65 for three reasons. Number one, we can’t afford to. The second reason is that I think it’s good for us to work a bit. And I don’t mean it has to be hard work. But so much of the work today is not physical labor. And the third reason is that I think it keeps us modern and keeps us socially connected with people of all ages.”
Whew, that’s a long list of seemingly tough love conversations!
While you may feel overwhelmed thinking about having all eight conversations, you only need to start with one. As a bonus, July is Sandwich Generation Month, so perhaps this can motivate you to have your first tough love conversation.
We’d be happy to help you create a plan that addresses these and other common financial and healthcare mistakes. Schedule some time with our team today and see how we can help craft a strategy that brings confidence and clarity to your life.
How can The Lifecare Affordability Plan empower the Sandwich Generation?
“The training that we have had in the financial services industry doesn’t translate easily to some of the more psychosocial needs that families have when parents are becoming more frail or dependent,” shares Senior Advisor Tom West of Signature Estate & Investment Advisors (SEIA). However, in his practice, Tom has developed a novel compensation model that offers a limited financial plan for seniors’ greatest unknown: healthcare. He has developed a fee-only service to help clients create long-term healthcare and housing financial plans with the flexibility to adapt as circumstances change.
The Lifecare Affordability Plan is priced at $4,000. It is available to complement a client’s other financial services relationships, meaning “we do not require families to buy any investment or aggregate any accounts with us. Families shouldn’t need to commit to an investment or commit to moving their money to a new custodian to get better financial fiduciary-level advice in this space,” Tom West says in Market Watch.
What is some additional advice for the Sandwich Generation?
Leslie Moon in Sixty and Me writes, “Many of us (in our 60s) are still working. We are often caring for our own aging parents and helping with grandchildren. We continue to juggle and try to balance our various roles throughout our entire lives, but you’ve got to remember your priorities and what is important. When you are saying ‘yes’ to something that is not a priority, you are saying ‘no’ to something that is.”
Know when to get involved. “On average, children step in when parents are 75 years old—often after a loved one has made a direct request for financial assistance, when the parents’ health becomes a significant factor, or when you notice a change in your parent’s ability to handle daily living tasks,” explains Ann Dowd, vice president at Fidelity.
Amy Cameron O’Rourke, a certified care manager, says, “Approach caregiving as a partnership. If you see it as a form of role reversal, you’ll be unsuccessful because you’re not reversing roles. You don’t talk to your parents like they’re six. It’s a collaborative effort with joint decisions.”
John Pilkington of Caregiving.com suggests starting with these questions:
- What is the current cost of care for your parents? How might that change over time?
- Do your parents have healthcare benefits from an employer or otherwise?
- Have you reviewed your parents’ eligibility for government benefits such as Social Security, Medicare, and Medicaid?
- Who is managing the coordination of benefits?
- Do your parents have a pension, 401(k), or other retirement assets?
- Where are your parents’ non-retirement assets, and how are they accessed?
- Who is listed as the beneficiaries of all assets?
- Which family members are positioned to lend financial support, if necessary?
- Who is empowered to make financial and healthcare decisions if your parents are unable to do so?
Want to learn more about financial planning for the Sandwich Generation? Read our additional resources.
- Caring Across Generations
- Eldercare Locator
- Family Caregiver Alliance
- National Association of Area Agencies on Aging
- US Administration on Aging
- Working Daughter
- Podcast with caregiving expert Liz O’Donnell. Caring for Aging Parents While Making a Living (and Having a Life)
- Book by Amy Cameron O’Rourke, a certified care manager. The Fragile Years: Proven Strategies for the Care of Aging Loved Ones
- XY Planning Network. 12 Common Mistakes GenX Makes With Their Money and How to Fix Them
- Sandwich Generation: How Do You Decide Whose Needs Come First
- How to Take Care of Aging Parents and Yourself
- Circle Around. Sandwich Generation: Yeah, Me Too
- The New York Times. ‘It’s Pretty Brutal’: The Sandwich Generation Pays a Price