Welcome to the sandwich generation. Now what?

Our parents took care of us growing up and served as examples of what to do (or not to do) when it came time for us to become parents ourselves. But nothing prepares us to parent our parents.
 

A growing number of Americans are finding themselves having to provide financial support to a parent over 65 while simultaneously supporting children of their own.¹ And it doesn’t stop at paying the bills. They are frequently expected to provide emotional and physical support to their parents and children alike. Sound like you? Then welcome to the Sandwich Generation.
 

Those in the Sandwich Generation face a unique set of financial challenges that can easily get out of hand and derail their financial plan.
 

So how do you stay on track while caring for your parents and your children? Start by asking yourself these five questions.

1. What are my needs?

You’re the main provider now, but you can’t help your parents until you have your own needs figured out. Before you decide what kind of assistance you can provide, it’s important to assess your own situation.

Start by building a budget. Establish your fixed expenses and align these with your monthly income. Now you can see your surplus. This is the money you might have available to help financially support your folks.

While you’re at it, take another look at your savings. An emergency fund can keep you covered in case of a loss of employment, an unforeseen medical expense or home and car repair. 

2. What are my children’s needs?

One of the biggest expenses of raising a child is education. If they’re young, consider whether private school tuition is going to be necessary in the future. If your kids are ready to go to college, then factor in things like the cost of living on campus and consider state vs. out-of-state school expenses.

If they’re old enough, have a candid conversation with your kids about your finances. This will help them understand where you’re coming from if you need to make difficult decisions. It also allows them to practice healthy money management.

3. What are my parents’ needs?

Older generations may have a wall up when it comes to talking about their money. But openly diving into their financial situation and needs is key to setting up a plan to move forward.

Take into account all their financial resources and assets. List out every possible source of income, like social security, retirement savings, investments, pensions, etc. Also, consider if any of your siblings or relatives can contribute a monthly stipend to help share the load.

Decide whether it’s best for them to move in with you. Sharing the household costs can help lower your overall expenses. 

It may be difficult for your parents to accept that they need help, so be sensitive to their feelings and approach the subject in a way that doesn’t make them feel like a burden.

4. What happens if I’m not around?

You have multiple generations depending on you, so you’ll want to have a plan in case you were to no longer be around to support them.

A life insurance policy is key to protecting their lifestyle. Select a policy amount that covers your mortgage to help ensure your parents and children can keep the family home.

A general rule is to leave your family an amount equal to 7 to 10 times your annual salary.² But that doesn’t mean your policy should always be exactly that amount.

Add up any other sources of income that your family will have available to them in case of your passing. This includes investments revenue, retirement accounts, pensions, etc. How much would that be annually? Then subtract that number from your annual salary. What’s left behind is your shortfall. Multiply that by 10 and you’ll get a number that’s closer to what you need from an insurance policy.³

5. What’s my endgame?

Eventually, you too will want to retire so avoid cutting back on your retirement savings to cover the additional expenses. Instead, save as much as you can. If you’re under an employer-sponsored plan, try to contribute at least up to your company’s match.

Don’t sacrifice your own future. Reducing your retirement contributions or dipping into your savings could lead to depending on your children for financial support after you retire.

There’s no question it’s challenging to be part of the Sandwich Generation, but there are rewards. Multigenerational households are shown to increase social and psychological well-being, both of which are associated with improved health and longevity.⁴ Being in this unique situation offers the opportunity for you to enjoy building a close emotional bond across generations. It’s all about planning for your future together.

This article is not an endorsement of any particular product, service or organization; nor is it intended to provide financial advice. It is intended to promote awareness and is for educational purposes only.

Citations:

¹ Senior Living: “The Sandwich Generation” by Jeff Hoyt, March 4, 2021 https://www.seniorliving.org/caregiving/sandwich-generation/
^2,3 John Hancock: “Life insurance: what's your number?” May 5, 2020 https://www.johnhancock.com/ideas-insights/how-much-life-insurance-do-you-need.html 
⁴ NCBI: “Living with parents or grandparents increases social capital and survival: 2014 General Social Survey-National Death Index” by Peter Muennig, Boshen Jiao, & Elizabeth Singer, November 10