A recent survey by the Pew Research Center found that more than 50% of adults in their 40s have both a parent over 65, and are raising a child under age 18, or have financially helped an older child in the past year.
You may not support your parent financially, but the time, worry, and care that an aging parent may need can take a toll and have a cost.
Add in trying to save for retirement, and you end up being spread way too thin. How can you survive this period and keep your goals on track? The key to success is to create balance.
If you’re in your 40s at a large Oil & Gas company, you might be one of the more senior employees–in large part due to several rounds of layoffs from 2015-2020 and interest rates affecting pension values in 2022.
The Fulcrum – Your Retirement
A seesaw works because it rests on a fulcrum, or balancing point, that is stationary. You create a fulcrum for yourself by keeping an eye on your financial future. Saving for retirement is critical, and your 40s is a key period for saving.
Studies show that many top income earners under 45 are not saving much.
It can be tempting to decrease retirement savings amounts or put it off completely when you have competing demands for your cash. But the money you save now is more valuable than the money you put in later because it has longer to grow.
Maxing out retirement savings and taking advantage of Health Savings Accounts (HSAs) doesn’t just build your retirement nest egg – it can also help you lower your tax bill.
Putting a plan in place to keep retirement savings on track allows you to remove one source of stress and can provide discipline and clarity for other areas of your financial plan.
The Seesaw – College Savings and Aging Parents
The sandwich generation has two competing constituencies, children and parents. In a way, you are double-parenting as you begin to work towards launching your children into the world while helping your parents navigate aging in a significantly changed, much more expensive environment than they experienced with their parents.
Planning is vital, and planning requires knowledge and strategy.
Besides the day-to-day expenses, most parents’ biggest issue is paying for college. It’s expensive and overwhelming, and it’s hard to be practical when college means so much to your child. Besides saving, there are a lot of things you can do.
- Do some research on the college selection process – set a realistic budget of what you can contribute, and make scholarships and merit awards central to the selection criteria
- File the FAFSA, even if you think you don’t qualify
- Utilize 529 plans, even if college is imminent. The tax savings can be significant.
- Incorporate college expenses into your cash flow plan
When it comes to your parents, knowledge is the first step. Whether everything is sailing along just fine or you think a crisis may be impending, it’s important to begin with an open-ended conversation. Start by asking what they want and what’s important to them. Once you’ve established a dialogue, you can move into more practical areas.
- Understand their expenses
- Assess insurance coverage
- Get necessary documents in place – trusts, medical power of attorney, etc.
- Research resources for help. Are there local agencies, like an elder council? Are they veterans?
It’s a good time to make sure you have your assets – and liabilities – protected.
- Do you have enough life insurance?
- Is it time for an umbrella policy?
- Do you have long-term care insurance?
Build a Flexible Cash Flow Plan
Cash flow plans aren’t budgets, although budgeting is part of the process. The cash flow plan links your short-term money flows to your long-term plan, so you can see everything and then make decisions to help you achieve your goals.
A good cash flow plan will help you see where you are, help you understand your true expenses, and where you can save money. But it can also be more strategic.
Should you refinance debt? Are you taking enough – or too much – risk in your investments? Should you redeploy assets to different investments? These are all strategies that a cash flow plan can help you assess.
Where This Generation Fits
My opinion is that history will show that this is the last generation to be able to buy significant assets at a young age. I linked an article at the beginning that dives into why millennials making more than $250k/year aren’t saving anything in a brokerage account. It’s because of this dynamic.
Young people today cannot fathom the opportunity our grandparents had. Buying real estate and stocks in the 1970s & 1980s was an unbelievable financial advantage. I think culture will speak of older millennials in the same way. If you were able to buy stocks and real estate prior to 2020–and especially prior to 2012–you bought at a fraction of the current price.
And life is still really expensive–the majority of millennials are still not able to save above and beyond their retirement plans even with their housing advantage. If the next generation (Gen Z) wants to mimic the life their parents and grandparents had in a top 10 US city (buy a house, save & invest, have a family, go on vacation, etc.), it will take an astronomical income. But the silver lining is this: it’s easier to make money today than it was 20+ years ago.
The Bottom Line
The sandwich generation has a lot on its plate. But there are also resources to help sort through the challenges. Working with a financial advisor that understands the unique situation of this generation can help you feel more comfortable in your current situation and more confident about the future.