The Sandwich Generation: Financial Planning for Dual Responsibilities

Generational divides have been continuously contested throughout time. One group facing unique challenges that is often overlooked is the sandwich generation. Although the sandwich generation is not a specific age group, it encompasses multiple generations faced with the responsibilities of both raising children and caring for aging parents. This creates complex challenges as meeting these responsibilities often conflicts with their personal goals from emotional, time, and financial perspectives. While this generation often prioritizes others, it is imperative that a balance is struck between themselves, their children, and their parents.

What is the Sandwich Generation?

The sandwich generation is comprised primarily of adults between the ages of 40 and 60. Middle adulthood is referred to as the sandwich generation because they are still caring for children while caring for at least one parent at the same time. The nickname results from them being “sandwiched” between these two responsibilities and their extensive duties. This phenomenon can be attributed to having children at an older age, children staying at home longer, and continuously increasing lifespans. While caring for their children and parents, this generation is trying to balance focusing on their careers and preparing for retirement. Financial planning for the sandwich generation can feel daunting. It can be extremely stressful attempting to manage the financial impact, mental toll, and time obligations.

How Do I Juggle My Finances While Caring for My Parents and My Kids?

Put yourself first: Whether it is your emotional or financial needs, you should put yourself first. Prioritizing yourself may feel counter to the needs of your family, but self-care enables you to be a better caregiver. Taking care of kids and parents can be challenging. Don’t let that take a toll on your health; make sure you seek help when necessary. Try to avoid burnout or having your health take the backseat. Burnout, stress, and deferred routine health screenings could lead to costly medical conditions which, in addition to being harmful to your health, can set you back financially. You will not do anyone else any good if you don’t meet your needs. You need to be in a good mental and financial space to support others.

Set financial boundaries: It is important to be open and clear with both your parents and children about the financial support you can offer. They should understand that your own financial goals come first, and you can’t jeopardize your own financial security for them. Establishing these boundaries early can help prevent unrealistic expectations in the future.

Focus on your finances: There is no better time than the present to focus on your finances. Now is a great time to update your financial plan and determine your progress on your financial goals. You should make adjustments to position yourself on the right path to achieve your goals. Only then will you be able to determine what, if any, resources you have to support others. You can clearly define how any financial adjustments you make to help your loved one will impact your personal plan. Focus on and plan for your own retirement, as this must remain your priority.

Consult a financial advisor: A financial advisor can help put your finances and goals into perspective. They can help you establish a path to achieve your financial goals. When it comes to the sandwich generation, a financial advisor can help develop strategies for you, your parents, and your children. A financial advisor can assist all three generations with their needs and endeavors.

Take advantage of a Health Savings Account (HSA): If you are able to contribute to an HSA account, it can offer significant tax benefits. Deposits made into HSAs are tax deductible, and any growth is tax-free. Additionally, qualified withdrawals for healthcare expenses are tax-free. At a time when the cost of your parents' healthcare is likely top of mind, you can plan for your own immediate and future healthcare costs.

Explore tax benefits: You are probably familiar with the Child Tax Credit and Dependent Care Credit for your children. However, you may also be able to claim your parents as dependents on your tax return if they meet the income and support requirements. Additionally, you may be able to deduct medical expenses you paid for them as an itemized deduction on Schedule A.

Update your estate plan: By now, you probably understand the importance of a solid estate plan, based on your experience with your parents’ plan, or lack thereof. There is no better time to review, update, or draft your estate plan to ensure your wishes are met. Your financial planner can provide guidance, but you will need to consult an estate attorney to prepare these documents.

Protect your income: It’s important to ensure your income is protected, especially with so many people relying on you for support. You will want to make sure you have appropriate disability coverage in place in the event you become disabled and are unable to work. Life insurance is essential to provide for your family in the event of a premature death. Finally, you may be experiencing the costs of long-term care for your parents; now is the time to consider long-term care insurance for yourself. While it is cost-prohibitive for some people, it is worth exploring long-term care insurance options or alternative ways to fund care if you need it later in life.

Learn from your parent’s mistakes: You are probably involved in your parents’ finances at this point. While helping them, you will notice things they did well, and maybe some areas where they could have done better. Use these experiences to learn from their mistakes and incorporate their successful strategies into your own financial life.

Take Family Medical Leave (FMLA): If times get too difficult, you may be entitled to FMLA. If you meet the qualifications, FMLA will provide up to 12 weeks of unpaid time off per year while protecting your job during the leave.

Bucket Expenses: It is a good idea to categorize your expenses into three buckets: yours, your children’s, and your parents’. This will help you track and manage your spending more effectively. It will also help prevent you from overextending from any of the buckets.

What Should I talk to My Aging Parents About Their Finances?

Take inventory: Create a list of their assets, liabilities, and insurance policies. Make sure you know where they are located and how to access them. This may be a good time to simplify and consolidate assets. Additionally, it’s important to discuss a secure way to share usernames and passwords for accounts. Open and honest communication is key here. Always remember to to consult with a financial advisor before making any significant changes to accounts, such as adding yourself as an owner, as this could potentially pose negative consequences. This will ensure that everyone's needs and concerns are understood and addressed.

Create a budget: It is important for your parents to manage their income streams and expenses. Help them create a budget, develop a plan for the present, and identify how it might evolve into the future.

Get access: It is imperative to update power of attorney and trusted contacts early. If you wait too long, you may be unable to change or add these roles. These documents will ensure you can fully assist them with their finances. Being listed as a trusted contact may even help you detect a mental decline early, as a financial professional can notify you of any irregularities they notice. Waiting too long could prevent you from accessing their accounts when they need it.

Update estate documents: Estate documents are crucial in ensuring wishes are carried out appropriately. They are vital at death, often facilitating many powers while alive. It is essential to have the correct documentation in place so that you can continue to assist with both financial and healthcare decisions.

Review healthcare coverage: Review your parents' healthcare coverage and spending with them to understand how those costs impact their finances. Now is a great time to analyze their health insurance needs and determine if better options exist for them. It is good practice to revisit this regularly, especially as their healthcare needs evolve.

How Do I Prepare for My Kid’s Financial Needs?

Pass on lessons: Too often, people say, "I wish I knew that years ago," especially regarding finances. Now is the time to instill good financial habits. Teach them lessons from you and your parents so they can potentially avoid the financial mistakes and pitfalls you had to endure along the way. Make sure they see and appreciate the value of saving early.

Involve your children in your experience: This is a unique time when your child can experience every stage of the financial life cycle through themselves, you, and your parents. Use this as an opportunity to teach and let them experience finances at different stages of life.

529 plans: If you can financially support your kids with a college education, a 529 plan can be a great vehicle to save for education expenses. Growth in 529 plans is tax-deferred, and withdrawals for qualified education expenses aren’t taxable. Some states even offer tax deductions on contributions. Providing the account meets the 15-year holding period, you can roll up to $35,000 of unspent 529 plan funds into a Roth IRA.

Conclusion

While a broad range of duties and responsibilities are involved in caring for children and parents, it is important to continue to care for one’s own financial and emotional needs. Being in the sandwich generation provides a unique opportunity to assist your parents with their finances, solidify your finances, and help your child embark on their financial journey. Remember, you don’t have to go through this alone; a financial advisor can help you navigate this experience.

Sources:

• Sandwich Generation: What the Term Means, How to Manage (investopedia.com)
• Sandwich Generation Financial Tips | Mercer Advisors
• The Sandwich Generation | Pew Research Center
• The Boomerang Generation | Pew Research Center
• The Sandwich Generation | Pew Research Center
• Sandwich generation financial planning | Fidelity
• Financial Planning for the Sandwich Generation - SmartAsset
• Family and Medical Leave (FMLA) | U.S. Department of Labor (dol.gov)
• Steps to Claiming an Elderly Parent as a Dependent - TurboTax Tax Tips & Videos (intuit.com)

Author: Benjamin Grom, CFP® | Allegheny Financial Group | August 2024

The information included herein was obtained from sources which we believe reliable.

Allegheny Financial Group is a Registered Investment Advisor. Securities are offered through Allegheny Investments, LTD, a registered Broker/Dealer. Member FINRA/SIPC.