The Sandwich Generation: Financial Guidance to Consider

Members of the Sandwich Generation — adults who are tasked with caring for aging parents and dependent children at the same time — face many challenges. United Capital’s Vice President of Risk Management shared her own experience with planning for these challenges in a recent blog post.

These middle-aged adults face financial pressures as well as emotional stresses and time-management issues. They are having to plan for the present and future needs of three generations, with all the uncertainties involved. How much will parents’ health care cost? How much will be needed for children’s college needs? How much will they need to fund their own retirement? The more uncertainties involved in a situation, the more critical planning can be. There are tools to help cope with all of these issues, but which ones are best for each family and how can they be used most effectively?

Talk to Your Parents About Their Retirement Planning

If you need to care or help care for aging parents, you should be aware of any plans they’ve already made for their retirement income and care. Ideally, families should share these plans as they are being made. This may not happen, but it’s never too early to talk with parents about their income plan, health care coverage, long-term care plans, insurance, estate planning, etc.

Start Conversations with Your Children About Their Futures

At the same time, it’s important to talk to your children, especially if they are high-school age, about what they want to do with their futures. What careers interest them? Do they want to go to a technical school, a 4-year university, graduate or professional school? How will they deal with student loans, job hunting or starting a family? It’s not too early to begin these conversations.

The Older Generation: Health Care and Long-Term Care

Health-care can be one of the biggest expenses for retirees, although changes in medical costs and national insurance policies can make it difficult to determine accurate future costs. However, you should be aware that Medicare does not cover everything. Make sure your parents have adequate health care insurance.

In addition, someone turning age 65 today has almost a 70% chance of needing some type of long-term care services and supports in their remaining years, according to the U.S. Department of Health and Human Services.This care can be very expensive. The average annual costs for nursing home or assisted livingare $90,155 and $48,612, respectively, in 2019.

Medicareonly pays for skilled services or rehabilitative care in a nursing home (for 100 days or less), or short-term skilled home health or other skilled in-home services. It does not pay for non-skilled daily living assistance, which makes up the majority of long-term care services. Medicaid can pay for most long-term care services but requires income below a certain level and other minimum state eligibility requirements.

One reliable way to fund long-term care is through insurance — but these policies can be difficult to obtain for patients with AIDS, Alzheimer's or other dementia conditions, metastatic cancer, Parkinson’s or a history of stroke, for example. They also can be expensive and costs rise with the age at which they are first purchased.

According to the American Association for Long-Term Care Insurance 2019 Price Index, the average annual premium for long-term care purchased by or for a 55-year-old couple was $3,050. A new policy for a 65-year-old couple can cost $4,800 per year while the price rises to $8,700 per year if the insurance isn’t purchased until the couple reaches age 75. If you are considering purchasing long-term care for your parents, doing it earlier can be better than later.

While you are considering how to fund these medical expenses throughout your parents’ lifetime, don’t forget to check into living wills, power of attorney and other legal issues that can affect the quality and timely delivery of health care.

The Younger Generation: Education

For the younger generation of your family, education is likely to be the greatest expense. You may already be paying for private school tuition. It’s likely that you are facing current or future costs for higher education, whether your children want to obtain technical or professional skills before they enter the workplace.

According to the College Board, the average published cost of tuition, room, and board for a year at a public four-year college was over $19,000 in 2018-19, while that cost for a private four-year college topped $46,000. Add in more than $42,000 per year for a private university master’s degree and in excess of $58,000 per year for a doctoral degree and it’s easy to see how education can become a very significant expense.

Today, 529 plans provide tax-free investment growth and withdrawals for qualified education expenses and are a path to funding college that may be worth considering. If you start saving in a 529 account when your children are young, you can take advantage of tax savings and compounding interest and even, in some states, a tax deduction for contributions. The IRS has not set specific contribution limits for 529 accounts, but most states do set limits of $300,000 or more.

529s are specifically for qualified higher education expenses—tuition, fees, room and board, textbooks, computers, and other necessary equipment. Be aware that any earnings that are withdrawn for non-qualified expenses are subject to income taxes plus a 10% penalty. There is, however, no penalty to withdraw principal.

With the rising costs of university, it’s important to also gather information about other resources such as loans, scholarships, grants, and work/study programs. As a member of the sandwich generation, you need to make all your funds stretch as far as they can go. Hopefully, you can enlist your children to play a part, too, in ensuring they get the best education for their goals at the best cost.

Don’t Neglect Yourselves: Retirement Savings

Unfortunately, one of the things that can happen to the Sandwich Generation is the neglect or derailment of their own retirement plans. It’s important for this not to happen to you. You will be the older generation soon enough and you don’t want to be a burden to your children or find yourself in poor financial condition because you did the hard work of helping others.

Contributing enough to at least get the maximum employer match possible is usually a good idea to start with as a minimum. However, you will probably need to do more to ensure a comfortable retirement. Explore all your options with your financial planner. See if it’s in your best interest to maximize contributions to tax-advantaged accounts such as a 401(k)s, 403(b)s, or Roth IRAs. Build an investment portfolio that properly balances risk and reward for your age and goals. Diversify your assets appropriately and re-evaluate your holdings regularly to ensure that you’re still on track.

Whatever tools are best for you, make good use of them. Don’t forget your own needs while you are taking care of others. Speak to a United Capital financial advisor to discuss your situation and start living the life you want.