The Triple Squeeze: Planning for Retirement, Saving for College, and Caring for Aging Parents
Right now, many Americans in their forties and fifties are experiencing what is known as “the triple squeeze.” That’s the simultaneous, one-two-three punch of caring for their aged parents, planning for their own retirement, and saving for their children's college tuition-all while trying to pay the bills. Take Liz,1 for example. She’s a small-business owner in Colorado, and is married with two kids. She says, “I'm experiencing the triple squeeze in a sense, because I am definitely saving for two kids’ college education…saving for our retirement, and caring for my mom.”
The triple squeeze is not necessarily a new phenomenon, but as college tuitions get more expensive and life-expectancy and healthcare costs rise, the squeeze is getting more severe. Increased life-expectancy has two implications: the first is that parents are living longer and in many cases outliving their retirement savings, with current professionals also now having to save more for retirement to avoid the same problem.
All of this is complicated by the fact that many Americans are simply unsure about when to start saving and how much to save for retirement. According to one national survey, more than one-third of American adults simply haven’t started saving at all.2
A 2015 Gallup poll found that "current workers [expect] to live longer and [plan] to continue working later in their lives." This is in contrast to the recent past. As the survey indicates: "Prior to 2009, the plurality of nonretired Americans planned to retire before age 65. Since then, the plurality has said they will retire after they reach age 65.”3
Tyler Wilcox is a Digital Content Producer and Copywriter at a Denver PR firm. At 37, married with one child, he’s uncertain of when he’ll retire. “Maybe by 60? 65?” he responds. “I mean, I hope to retire tomorrow, but that's not happening.”
Despite whatever age people hope to retire at, the current average age of retirement for the American worker is 62.4 The average life expectancy of an American individual is 79.68 years.5 The average cost of retirement is $43,600 per year.6 In other words, a retirement that lasts 18 years may cost, on average, $784,800.
With this in mind, Tyler says, “I suppose I think that I'll never truly retire---I'll always be working in some sense.” He also notes that saving for retirement can be especially challenging because he does “not really [know] the options,” and that he feels “like retirement is an abstract concept.”
It’s important to note that the $784,800 figure is a conservative estimate. While the overall American life expectancy average is 79.68 years, Americans who reach the age of 65 are expected to live until their mid-80s.7 And more and more people are doing just that. In other words, once someone reaches retirement age, they’re very likely looking at a 20-plus-year retirement.
Saving For College
According to the College Board, in academic year 2015-2016, average in-state tuition and fees (including room and board) at a four-year public institution totaled $19,548. For a private (nonprofit) school, it was $43,921.8 To be clear, those figures are annual costs---not the cost for the full four years of education. In other words, at current rates, in-state tuition plus fees and room and board at a public state school be will around $80,000, while the same thing at a private nonprofit institution will cost nearly $176,000.
Tyler Wilcox and his wife actively save for their daughter’s college tuition, but even so, he says, “It's terrifying. Higher education shouldn't just be available for the already wealthy or for those who are willing to go into potentially crippling debt.” He also notes that they are “also highly encouraging in-state education.”
Liz and her husband have a specific annual goal for their retirement and college savings, though they don’t necessarily always meet it. “First we save for retirement, via maxing out [my husband’s] 401(k). Second, we try to save $10,000 each for the kids. Last year we only managed $15,000 [combined]. And then after the $20K for college, anything extra would go toward retirement again.”
Caring For Aging Parents
In a recent report, the Population Reference Bureau (PRB) wrote, “The combined effects of delayed childbearing and longer life expectancy mean more adults in later-middle age may be ‘sandwiched’ between the competing demands of their children and those of their aging parents and parents-in-law.” And since the Baby Boomer generation has a higher divorce rate than generations past, as they get older, they will not have a spouse to care for them, which can shift the burden to their children. “Given the size of the baby boom population, the number of 75-year-olds without a spouse could more than double from roughly 875,000 in 2010 to 1.8 million in 2030,” the PRB reported.9
This has real and significant impacts. Even 10 years ago, caregiving was taking a toll on families’ finances. Using data from 2005 to 2007, the CDC determined that “51% of the 34 million caring for a loved one 50 years or older [were] spending on average more than 10% of their annual income on caregiving expenses.”10
“Given the size of the baby boom population, the number of 75-year-olds without a spouse could more than double from roughly 875,000 in 2010 to 1.8 million in 2030,” the PRB reported.9
The AARP Public Policy Institute issued a fact sheet in 2012 that addressed the career impact of caregiving on families: “One in five (19 percent) retirees left the workforce earlier than planned because of having to care for an ill spouse or other family member. Nearly seven in 10 (68 percent) caregivers report making work sacrifices because of caregiving. These adjustments include arriving late/leaving early or taking time off, cutting back on work hours, changing jobs, or stopping work entirely.”1
Cutting back on hours and taking time off results in lost wages. And for those professionals who have pensions and retirement accounts, this can also mean decreased contributions. Early retirements can also very likely result in smaller nest eggs. So it’s not just a matter of a smaller paycheck now, but a smaller retirement later.
And unfortunately, ill health does not always wait until a parent is well into their elderly years, and the child’s career has been well under way for decades. Liz, for example, is 36 years old, born at a time that makes her among the youngest of Generation X. As she explains, her mother was diagnosed with a degenerative and terminal neurological disease, and her decline has been rapid. “Over the course of the past four months of living with us she has gone from simply needing to be in a one-level house for safety to needing much more help with meal preparation, laundry, daily activities, caring for her two cats, etc.,” Liz says.
“I want to help her as much as I can. At some point, she'll probably need to go into an assisted living facility. Those are expensive, like $4K per month at minimum. I'd love to keep her here with us, with family and grandkids around, and without that high price tag, as long as possible. It's getting to be more and more work as she needs more and more assistance, but I'm happy to do this as long as I can.”
Clearly the triple squeeze extends far beyond the financial, and well into the emotional.
These are tough statistics, but these are not insurmountable issues. Being aware of them is the first step to addressing them. Additionally, there are a number of retirement and savings accounts that are designed specifically to help individuals meet their own goals, while caring both for their children and parents, too.
This article is not an endorsement of any particular product, service or organization; nor is it intended to provide financial, tax or legal advice. It is intended to promote awareness and is for educational purposes only.
1Name has been changed to protect privacy.
2 Source: Bankrate. Survey: 36 percent not saving for retirement. Polyana da Costa. August 2014.
3 Source: Gallup. Americans Settling on Older Retirement Age. Rebecca Rifkin. April 2015.
4 Source: U.S. News & World Report. The Ideal Retirement Age – And Why You Won’t Retire Then. Emily Brandon. May 2014.
5 Source: CIA. The World Fact Book. Life expectancy at birth.
6 Source: The Motley Fool. Here’s What the Average Retired American’s Budget Looks Like. Brian Stoffel. January 2016.
7Source: Social Security. Calculators: Life Expectancy.
8Source: CollegeBoard. Tuition and Fees and Room and Board over Time. 2016.
9Source: Population Reference Bureau. Today’s Research on Aging: Family Caregiving. Paola Scommegna. February 2016.
10 Source: The CDC. Assuring Healthy Caregivers. 2008. Page 42.
11 Source: AARP Public Policy Institute. Understanding the Impact of Family Caregiving on Work. Lynn Feinberg and Rita Choula. October 2012.