The Senior Sandwich: Are you caught in it?

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A new trend is sweeping the nation and it may not bode well for your retirement plans. Termed the “senior sandwich” by financial pundits, this trend is characterized by parents who are caught between providing financial support for their young adult children—most often after they graduate from college—and providing financial support to their aging parents while at the same time trying to prepare for their own retirements.

According to the Journal of Financial Services Professionals, in1900 between 4 percent and 7 percent of people in their 60s had at least one parent who was still alive. Today, that percentage is closer to 49 percent. Concurrently, in 1990, approximately 25 percent of young adults between the ages of 18 and 24 lived with their parent. By 2000, this number had increased to 52 percent and it is growing.

What can you do if you are facing the senior sandwich? Here are five things to help reduce your financial burden.

Check the math on your own retirement plans. When it comes to your own retirement, you have to think about yourself first. Your first step is to understand your preferred retirement age and the amount of assets you will need at that time to generate your retirement income. If you are not on track to meet your retirement goals, understand that by providing financial support to your parents and adult children, you are setting yourself up to either extend your retirement date or live below your desired level during retirement. There is nothing wrong with helping others. Just make sure that you are clear about the impact of this help on your own retirement.

Budget for your support. If you do decide to provide financial support, make sure that you budget for it. Even a few hundred dollars of unplanned expense per month can have a major impact on your savings and investing goals. Examine the impact of support from a budget standpoint before you commit to providing it.

Help prepare your children to take care of themselves. If you have children who are living at home after college or graduate school, help them develop a plan to take care of themselves. Honestly discuss their current decision making and how to improve it, and evaluate the economic opportunities that are available to them. Further, work with them to develop a written financial plan and make the completion of this plan a condition for living at home. With this plan, your children will have a timeline along which to move themselves toward financial self-sufficiency.

Help your parents to live within their budget. Tough love is always difficult, but more so if it is directed at your parents. In the best of all worlds, our parents not only would be financially independent, but they also would leave us an inheritance. The reality is that far too few parents have prepared for a retirement period that could exceed 40 years. If helping your parents places an undue strain on your family, your parents have to be told to adjust their lifestyle to live within their budget. This may require them to move into a smaller home, reduce excess spending or perhaps live with you or another family member. Few parents want to ask their children for financial support, so it is safe to assume that they really need it. Help your parents as best you can, but seek first to have them live within their existing resources.

Purchase long-term care insurance for your parents. If your parents are financially strapped today, it is only likely to get worse. It is in the later years, when income generation is more difficult and adequate health care more costly, that they will have the hardest time. To protect yourself and your parents financially during the later years, purchase long-term care insurance for them. This will provide them with the lifestyle support they need and protect you from an unanticipated financial outlay.

The senior sandwich is a very real issue that can be avoided through effective planning. Talk to your parents and your children early about your retirement plans and your ability to provide them with financial support. In doing this, you will manage their expectations and therefore reduce the emotional pain of having to deny financial support to those you love most.   

David Hinson is the founder of Wealth Management Network in New York City. Call 646-375-2388, visit www.wmnllc.com or e-mail: dhinson@wmnllc.com.