Tips to Avoid the Sandwich Generation Squeeze

Some Baby Boomers may find themselves caught in a new financial paradox. How to retire while caring for both elderly parents and young adult children who still need financial assistance?

If you are in your prime working years and moving toward retirement, while faced with supporting both aging parents as well as adult children who may be in college or have moved back home, you are a part of the Sandwich Generation.

As life spans increase, so do the number of Baby Boomers who fit this description. A 2013 Pew Foundation survey found that half of the Baby Boomers have aging parents and are raising a young child or supporting a young adult. And at least 15% provide financial support for both their parents and children. This new trend threatens to squeeze Boomers’ finances and put their retirement nest egg at risk—unless they learn how to navigate the looming pitfalls.

Here are five of the most important lessons for the Sandwich Generation:

  1. Protect your retirement assets— put yourself first
    Don’t sacrifice your own financial health by raiding your retirement savings to cover college tuition or your parents’ long-term care. Consider student loans and ways to stretch parents’ assets. For example,  as income from the sale of a family home dwindles as a source of financial support for parents’ care, subsidized care giving may become an option.
  2. Anticipate your financial needs
    Plan ahead for the possibility that kids may move back home and aging parents will require financial help and increase your monthly reserve.
  3. Consider long-term care insurance for your parents and you
    Price policies and learn what’s covered—it may help defray some of the enormous expense of nursing homes. (Insurance policies contain exclusions, limitations, reductions of benefits, and terms for keeping them in force. Your financial professional can provide you with costs and complete details.)
  4. Research tax breaks for caregivers
    If your parents live with you for half the year, you may be able to pay for caregivers and other expenses by claiming the dependent-care credit on your tax return or contributing to an employer’s dependent-care flexible spending account.
  5. Set clear financial limits when kids move back
    Encourage them to pay rent and contribute to household expenses. Try to set a timeline for them to live independently again.

    Being a member of the Sandwich Generation is complex for Baby Boomers, both financially and emotionally. Seeking the support of a group of advisors who have expertise in different areas – geriatric counseling, family counseling, financial, legal and tax preparation – can help you to navigate successfully through this challenging time. If you're already saving for college, you've probably heard about 529 plans. 529 plans are revolutionizing the way people save for college, similar to the way 401(k) plans revolutionized retirement savings. Americans are pouring billions of dollars into 529 plans and contributions are expected to increase dramatically in the coming decade.

This is not an actual client or client experience. This is a hypothetical example and is not representative of any specific situation. Your individual circumstances and results may vary. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. 

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