Sandwich generation financial planning tips

At some point in your 30s, 40s or 50s, you’ll probably be faced with a new life challenge: worrying about and/or managing your parents’ health and financial needs. It’s a challenging and complex stage of life, and it becomes more complex if you have children to take care of, too.

If this sounds familiar, you are part of the growing demographic known as the “sandwich generation.”

What is the sandwich generation?

The sandwich generation refers to the cohort of people who have at least one child who is dependent on them financially and at least one aging parent who may also require support with their finances and health.

“You’re squeezed between those two commitments, which can potentially put your own finances in jeopardy,” says Kate Phelan, senior vice president and regional managing director at U.S. Bank Private Wealth Management.

While this caretaking is a gift for those you love, you can’t neglect your own finances. “If you find yourself sandwiched between both responsibilities, you need to take a disciplined approach to financial planning,” Phelan explains.

The sandwich generation: Financial planning tips

Even if you’re not currently sandwiched between these two roles, you might be in the future, so it pays to plan ahead. Here are three tips for creating a financial strategy when offering financial support to others.

1. Financial tip: Take inventory of everyone’s needs and non-negotiables.

When providing financial support to others, the last thing you want is to be surprised. Of course, unexpected expenses are a part of life. But you’ll be able to plan better if you have a clear idea of everyone’s current financial needs—including your own.

“To understand your parent’s needs and your children’s needs, you first have to understand your own needs,” says Phelan. She recommends that you assess your current finances, including all your income sources and expenses each month, aside from the support you may provide to children or parents. Be as specific as you can to get a clear picture of your own financial needs.

Next, move on to your parents. Create a spreadsheet of their monthly income, followed by a line-by-line breakdown of their financial needs. It can be helpful to talk through each cost with them and determine what they can afford on their own and where you might need to help. Identify their essential expenses and try to match those with any potential sources of income, such as a pension, Social Security benefits or withdrawals from a retirement account. Gather details on their healthcare plan and what it will cover.

When it comes to your children, there might be areas where you can cut costs. For example, if you have young children, are there ways to cut down on daycare or after-school costs? Can you enlist a family member to help with childcare for part of the week?

If you have children who are in or nearing college, explore grants, scholarships and other funding options. Or, if you have adult children and are financially supporting them in some way, consider talking to them about ways they can be more financially independent.

While these decisions aren’t easy, you must know your limits when it comes to controlling expenses. This means being able to differentiate between.

2. Financial tip: Fund yourself—and your retirement—first.

When it comes to non-negotiables, your future financial security needs to be at the top of the list. You don’t want to outlive your resources in retirement. Phelan suggests increasing your savings as much as you reasonably can during this time.

Take advantage of a workplace retirement plan, if you have access to one, and make sure you’re maxing out your company match, if offered. If your company offers a health savings account (HSA), you can also set aside money in your HSA on a pre-tax basis, giving you a source of tax-free income in retirement. “All these little steps come together to help,” Phelan notes.

If you don’t have access to a 401(k) or other employer-sponsored plan, or if you want to contribute outside of one, consider opening an individual retirement account (IRA). IRAs allow your money to grow on a tax-deferred or tax-free basis, depending on the type of account you open. There are several types of IRA accounts available, including options if you’re self-employed or are a small business owner.

Outside of work, Phelan suggests taking the “pay yourself first” mentality. Although it’s sometimes easier said than done, even setting aside a small amount from each paycheck can make a difference to funding your future. “Over time, with the benefit of compounded growth, you’ll find you’ve made progress towards your own retirement,” she notes.

3. Financial tip: Protect your income.

If you’re part of the sandwich generation, one of the best things you can do is mitigate or shift areas of risk exposure. That includes protecting your assets now and in the future.

What if you become unable to work and earn money for both you and your family? It pays to look into long-term disability insurance. Check to see if your employer offers it and if you can enroll, or consider an individual long-term disability insurance plan.

Having life insurance in place is also important. It plays a key role in financial planning and can protect your financial situation—a key concern for the sandwich generation.

Another risk area to consider is long-term care, for your parents as well as yourself. Long-term care needs tend to become more intensive and expensive as the person ages. The costs can add up quickly, and most long-term care expenses aren’t covered by traditional health insurance or Medicare. One way to offset some of that financial burden is through long-term care insurance, which reimburses some of the expenses of long-term care. “This can shift the financial loss from yourself to a third party, safeguarding your own assets more,” says Phelan.

4. Financial tip: Protect your parents’ assets with an estate plan.

Finally, protect your assets and your parents’ assets by having an estate plan in place. Think about the following components for both you and your parents:

• Up-to-date wills: Keeping a will current ensures that assets are distributed in accordance with your wishes.
• Trusts: A trust can help you or your parents navigate tax concerns or creditor protection, ensure your family is supported financially or support philanthropic giving.
• Financial and healthcare power of attorney (POA): POAs ensure that you’d be able to pay your parents’ bills, manage their other finances and make medical decisions if they became incapacitated.

If you’re a member of the sandwich generation, taking a disciplined approach to your finances can help give you financial stability while also providing the help you’re able to give to those you love.

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