Tips for today’s Sandwich Generation
More people are finding themselves caring for aging parents while raising or supporting children. Here’s how to deal with the financial pressures.
HEADS UP, GEN X, Y AND Z: Someday you’ll likely be part of another generation, the Sandwich Generation, if you’re not already feeling the squeeze. Nearly a quarter of U.S. adults — and 54% of those in their 40s — find themselves caring for aging parents while raising or supporting their own children, according to Pew Research Center.1 And with longevity increasing2 and people delaying having children,3 it’s very likely those numbers will grow.
“You’re not doing family members any favors if you ignore your own financial well-being in order to help them.”
People in this situation can feel incredible financial stress, says Aubrey Lee, a Merrill financial advisor based in Farmington Hills, Michigan. “You’ve built a nest egg, but then Mom or Dad becomes ill and you also have a son or daughter trying to get on their feet.” While the desire to help comes from the best of places, it’s easy to underestimate the potential cost to your own future.
To manage the competing demands, Lee suggests, try separating everyone’s needs into three buckets — yours, your parents’ and your kids’. That way you can better understand what you can (and can’t) do based on the resources you have. Then talk with your advisor about ways you can structure your help.
Prioritize your future first
“You’re not doing family members any favors if you ignore your own financial well-being in order to help them,” says Cynthia Hutchins, director of financial gerontology for Bank of America. “We encourage people not to stop contributing to their 401(k) plans,” adds Mary Mullin, a Merrill financial advisor in Boston. Try to contribute at least enough to earn any matching contributions from your employer and ramp your contributions back up as soon as you’re able, including taking advantage of the “catch-up” provisions for people 50 or older.
Though your parents’ health may be top-of-mind, don’t forget yours. Contributing to a health savings account (HSA) now could help you weather your own healthcare expenses later on. And consider long-term care insurance, Hutchins advises. “People greatly underestimate their chances of needing such care at some point in their lives.” Planning ahead can help you manage the costs later on.
STEPS YOU CAN TAKE TO
Firm up your finances
Women who leave the workforce to provide care for aging parents give up an average of $324,000 in salary and benefits,4 notes Nevenka Vrdoljak, managing director, retirement strategies, in the Chief Investment Office for Merrill and Bank of America Private Bank. If your spouse is working, ask them to create a spousal IRA, building tax-advantaged savings on your behalf.
Next, focus on your parents’ needs
“Get siblings involved in sharing costs and responsibilities of caring for your parents.”
Become familiar with your aging parents’ financial situation and discuss ways they might bolster it before the need becomes critical, suggests Lee. He recalls a Michigan couple who worried that the husband’s mother, also a client, in her 80s and experiencing cognitive decline, would run out of money to cover her care. Lee suggested ways to adjust her portfolio to a higher percentage of bonds, which could potentially provide income for the remainder of her life. “They were wise to be proactive,” Lee says.
Explore local resources to help ease the strain of running errands, suggests Hutchins. Helping parents use a ride-sharing app or public transportation could save you time and allow them to maintain their independence. Grocery and meal delivery apps and medication management services are also useful time-savers for caregivers. Check your local agency on aging for more tips and useful resources.
STEPS YOU CAN TAKE TO
Help support parents
Also, “get siblings involved in sharing the costs and responsibilities,” says Hutchins. To help fill any gaps, the family could bring in a geriatric care manager — a professional who can help with in-home needs, coordinate medical services and even recommend assisted living or continuing care communities, if that becomes necessary.
Teach your kids financial independence
“Be open with your kids about what you can and can’t afford. Then loop them into a ‘family budget’ — a plan that everybody agrees on and is comfortable with.”
Just as with your parents, you want to help your kids without jeopardizing your future — remember, they have time on their side. “Teach your children the basics of budgeting, saving and investing — especially the power of compounding — early on,” suggests Vrdoljak.
Having a clear strategy for your own finances can help you set boundaries, Mullin adds. Mullin worked with a single mother who for years contributed just enough to a 529 education savings plan to pay for about half of her daughter’s education, with the understanding that the daughter would take out student loans for the rest. “It worked well because the arrangement wasn’t sprung on the child,” Mullin says. “That was the expectation all along.”
If you’re helping grown children with expenses — maybe they’ve asked you to contribute to a mortgage down payment or bills coming due — be sure those conversations include their own spending habits, Vrdoljak suggests. And use those discussions to encourage your children to build up an emergency fund and start saving for retirement. If you’re pitching in with ongoing expenses, come up with a timetable for how long you’ll help.
STEPS YOU CAN TAKE TO
Help your kids succeed
Love doesn’t mean an endlessly open pocketbook. “Be open with your kids about what you can and can’t afford,” she suggests. “Then loop them into a ‘family budget’ — a plan that everybody agrees on and is comfortable with.”
A private wealth advisor can help you get started.
1The Pew Charitable Trusts, “More Than Half Of Americans In Their 40s Are ‘Sandwiched’ Between An Aging Parent And Their Own Children,” September 20, 2022.
2U.S. Census Bureau, “Living Longer: Historical and Projected Life Expectancy in the United States, 1960 to 2060,” February 2020.
3U.S. Census Bureau, “Fertility Rates: Declined for Younger Women, Increased for Older Women,” April 2022.
4Chief Investment Office, Bank of America, “Financial Security for the Caregiver,” Winter 2022.
This material should be regarded as educational information on health care considerations and is not intended to provide specific health care advice. If you have questions regarding your particular situation, please contact your legal or tax advisor.
Please consult with your own attorney or tax advisor to understand the tax and legal consequences of establishing and maintaining an HSA plan account and how it could impact your particular situation.
While you can use your HSA to pay or be reimbursed for qualified medical expenses, if you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% federal tax. Contributions made by your employer or contributions that you make on a pre-tax basis through an employer plan are subject to certain non-discrimination requirements that may limit contributions for highly compensated employees and/or key employees. Bank of America recommends you contact qualified tax or legal counsel before establishing a HSA.
Participants can receive federal income tax-free distributions from their HSA to pay or be reimbursed for qualified medical expenses they, their spouses or dependents incur after they establish the HSA. If they receive distributions for other reasons, the amount they withdraw will be subject to federal income tax and may be subject to an additional 20% federal tax. Any interest or earnings on the assets in the account are federal income tax-free. Amounts contributed directly to an HSA by an employer are generally not included in taxable income. Also, if participants or someone else make after-tax contributions to their HSA the contribution may be tax deductible. Contributions made by your employer or contributions that you make on a pre-tax basis through an employer are subject to certain non-discrimination requirements that may limit contributions for highly compensated employees and/or key employees. Bank of America recommends employees contact qualified tax or legal counsel before establishing an HSA.
You can take tax-free distributions for qualified medical expenses for you, your spouse and any dependents at any time, including after age 65. The Internal Revenue Service publishes a list of qualified medical expenses in Publication 502, Medical and Dental Expenses available at irs.gov. If you use distributions before age 65 for non-qualified medical expenses, those withdrawals are subject to ordinary income tax plus an additional 20 percent federal tax (although the additional 20 percent tax will not apply under certain circumstances). At age 65 and thereafter, you can withdraw funds that are not for qualified medical expenses without paying the additional 20 percent federal tax. However, you’ll still pay ordinary income tax on withdrawals used for non-qualified medical expenses. If you die and your spouse is your HSA beneficiary, your HSA balance can be transferred to your spouse without taxes due. If your HSA assets transfer to a beneficiary other than a spouse the account will cease to be an HSA on the date of death, and the beneficiary must report those HSA assets received in his or her gross income. However, the beneficiary can reduce their income from the assets by any qualified medical expenses of the decedent paid by the beneficiary within one year of the date of death. If no beneficiary is named or still living, HSA assets transfer to your estate.
Long-term-care insurance coverage contains benefits, exclusions, limitations, eligibility requirements and specific terms and conditions under which the insurance coverage may be continued in force or discontinued. Not all insurance policies and types of coverage may be available in your state.
All guarantees and benefits of the insurance policy are backed by the claims-paying ability of the issuing insurance company. They are not obligations of, nor backed by, Merrill or its affiliates, nor do Merrill or its affiliates make any representations or guarantees regarding the claims-paying ability of the issuing insurance company.
The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”).
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