The Sandwich Generation's Financial Slog to Retire
There's a rock and a hard place, and then there's the place those in the sandwich generation American find themselves in when trying to pay for three generations of family financial needs.
To millions of Americans aged 45 through 64 (aka the sandwich generation), a rock and a hard place seems highly preferable to their predicament - paying for their kids' college, saving for their own retirement and helping with their senior mom or dad's long-term care needs.
"Individuals who fall into the sandwich generation are often financially stretched, extremely busy and find that time comes at a premium," states a new report from BMO Harris Premier Services. "As it's not uncommon for them to prioritize the needs of others above their own, these individuals pay a toll emotionally and financially."
BMO reports that 50% of Americans aged 45 to 65 are juggling the demands of caring for their children or aging relatives. Another 10% really have it rough, balancing the financial needs for their kids, themselves and their parents (another 17% expect to be doing the same thing soon, BMO states.)
Those scenarios pose challenging financial consequences: while 92% view retirement as a top priority, only 16% of the sandwich set are confident in their ability to afford their ideal retirement lifestyle, with those closer to retirement age less than halfway towards achieving their savings goal.
"As a result of longer life expectancies and the trend we're seeing among couples of having children later in life, it's possible many may find themselves in the unique position of caring for two generations at once," says Mike Miroballi, president of BMO Harris Financial Advisors. "For those currently in the sandwich generation, caring for children and aging relatives can take a toll emotionally and financially and it's not uncommon for them to prioritize the needs of others above their own."
That's really hammering sandwich Americans in the pocketbook, as consumers in that situation have only saved an average of only $291,297 versus the $938,529 they expect to need, while just 16% are 'very confident' in their ability to afford their ideal retirement lifestyle.
There are, however, some solid, creative ways to get ahead of the problem. In fact, the sooner you address "sandwich" issues, the better, experts say.
"Have a plan," says Lynn Ballou, managing partner of Ballou Plum Wealth Advisors in Lafayette, Calif. "For starters, buy long term care insurance for your parents, or set up a sibling/family member funded trust. If you and your siblings see that your folks have limited means and won't have enough assets if they need care later in life, perhaps you pitch in and purchase a long-term care policy while they are in good health to protect your assets later on."
Keeping secrets from family members won't help in dealing with financial issues.
"The first thing we try to always emphasize is openness and transparency amongst the generations," says Devan Robinson, owner of Fairlead Financial Group, an asset-management firm in Dayton, Oh. "Oftentimes in our experience we see these issues come to light much too late, when there is a lot that can be done with proper planning ahead of time."
One tough conversation to have with aging parents, for example, is downsizing. "In our view, the sandwich generation should have a real conversation with their parents about downsizing," Robinson adds. "This can be a difficult topic because many people become attached to their homes over time, but there can be significant savings to selling the family home and moving to a condo or apartment. By avoiding the costs associated with home ownership such as home repair and higher property taxes, the parents can realize significant cost-of-living savings."
Lena Haas, senior vice president of retirement, investing and savings at E*TRADE Financial, says that sandwich generation members have to prioritize. "Develop a plan that buckets out things like day-to-day expenses, money reserved for paying down debt, and investments," Haas says. "Consider cash-flow needs and make it work for you. Having readily accessible cash is important, so investors in this generation should keep some money in a highly liquid account. Beyond that, if you are sitting in cash, you aren't making your money work smartest for you. Asset allocation tools can help investors determine appropriate cash allocation for their risk and goals."
It really is an uphill climb for your average 50-year-old Main Street American trying to pay for his kids' college, his own retirement and his parents' care.
The good news is that if you plan ahead, the only sandwich you'll care about is the one on your plate at lunchtime.