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The Sandwich Generation Feels The Squeeze

Estate Planners | Tuesday, September 21st, 2010

Waves of demographic change can often have significant economic and social implications, particularly for the lives of the people behind the numbers. Look at the current impact of wrinkles in birthrates, history and new developments in medicine and technology on the “greatest generation” who lived through the Great Depression and World War II to today’s retiring baby boomers and generations “X” and “Y” in the throes of raising families, paying bills, and saving for retirement. Regardless of your age, when you are the central figure in your multi-generational family, the competing needs of your parents and your children can put a squeeze on your time and finances.

Welcome to the “sandwich generation”. This is the stage in life when you could be caring for aging parents while still tending to many of the needs of your own children, juggling doctors’ appointments and dance recitals, piano lessons and drug reimbursements.

It can be a tough situation to manage, but there are steps to take to make it an easier one to handle.

The Graying Of America

The “baby boom” generation is big, with nearly 77 million Americans born between 1946 and 1964. That leading edge of that generation is now hitting traditional retirement age–and facing a potentially long time in “retirement.”

According to the U.S. Centers for Disease Control and Prevention, men who have already reached age 65 can expect to live another 17 years on average; 65-year old women average another 20.

Aging parents frequently require a high level of continuous care, often some kind of an institutional arrangement such as a nursing home or assisted living facility, but with costs averaging nearly $200 a day for a nursing home–and many seniors reluctant to surrender independence–many sandwiched kids try to keep tabs on their parents while still actively parenting their own kids. Hopefully, parents will have insurance or assets to pay for long-term care costs, as caring for three generations can easily lead to physical, emotional and financial exhaustion.

Funding Care

With the cost of long-term care easily reaching into the hundreds of thousands of dollars, planning ahead is essential. Generally, seniors rely on a combination of Medicare, private insurance and personal savings and other assets to fund their health care in retirement.

Because Medicare pays only for hospitalization and brief recuperation periods in nursing care, long-term care insurance is becoming a popular alternative. As with most insurance products, premiums are cheaper when you are younger and vary widely with the features of particular policies. Some offer a return-of-premium provision, survivorship benefits, and protection from inflation, in addition to other features.

Without insurance, you will either have to pay out of your pocket or begin liquidating your parents’ assets and using Social Security or pension benefits to pay for long-term care. Start with the most liquid assets first: cash, stocks, maturing bonds and certificates of deposit. It’s also important to maintain the tax-deferred status of IRAs and 401(k) plans as long as possible, and if your parents still own their home, try to wait until you’ve exhausted other means to sell it.

Preparing For Your Future

Caring for an aging parent can be a powerful reminder of the swiftness of time’s passage and instill a sense of urgency when it comes to securing your own finances. While taking care of your parents, you need to keep investing in your own retirement and consider contingencies for long-term care, whether that means extra savings or some type of long-term care insurance for you, and perhaps your spouse.

If you’re a parent, it’s unlikely that you have not noticed that raising kids can be costly. On top of the basics of food, clothing and shelter, there’s the cost of higher education and maybe even private schools before that. Keep in mind, however, that economics is about the allocation of scarce resources among limited needs and wants.

If caring for a parent and saving for your own old age are putting a crimp in your finances, you will need to prioritize. Put your self first and make sure you’re putting away enough to make it easier on your offspring to take care of you down the road before you pay out of pocket for their college. It will be hard to find a lender to give you money to retire, but loans, scholarships and grants can go a long way toward paying for school. Be frank with your children about whether you will be paying for things like weddings, cars, or Ivy League tuition.

Maintain Focus And Balance

Juggling the simultaneous needs of your parents and kids can be stressful in many ways, but with adequate preparation and plenty of patience you can make it work.

Communication is the key to preparation, so start the conversation with your parents, your kids, and your adviser about the challenges you face. Start today and put a plan in place that will meet your needs.

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