You may be in for a rude awakening if you've envisioned retirement as a time filled with relaxation, travel, and bumper stickers proudly announcing you're spending your children's inheritance. The "sandwich generation," adults who have both living parents over 65 years of age and adult children, is increasingly providing financial support to adult family members.
If you're among those who provide support to others, your financial well-being can be severely affected. Planning and communication are key to reduce the effect.
The cost of being a financial supporter
In a recent Gallup poll, one in three adult investors reported providing financial support to an aging parent or an adult child. Some provided financial support to both. While many adults want to financially support their family members, there can be dire effects on the supporter's own financial situation.
According to a survey from TD Ameritrade, 22% of respondents indicated they are dipping into their savings, and 30% responded they are making modest lifestyle sacrifices to support family members. However, they may be underestimating the impact of the support. Survey respondents reported carrying an average of $22,000 in credit card debt.
In addition, a third of financial supporters have delayed saving money for their own retirement, and 48% of financial supporters report that if they were forced to retire, they would have difficulty continuing to provide the support. Nineteen percent believe this situation is likely to happen. Any delay in retirement savings can seriously affect a family's nest egg.
About one-third of financial supporters are also caregivers to another adult in their family. This care-giving can have long term effects on their careers and retirement plans. A study by the AARP Policy Institute indicates that people who reduce work hours or leave the workforce to care for parents forgo around $300,000 in salary and retirement benefits.
Why do family members need help?
Many in the sandwich generation feel obligated to provide financial support for their aged parents. With improvements in healthcare, many retirees are living longer and outliving their retirement funds. Retirees are also struggling to make ends meet on fixed incomes because of rising prices for everything from healthcare to daily living expenses. In increasing numbers, children of these retirees are stepping in to help so their parents can receive needed care or maintain their standard of living.
In addition, many middle-aged adults are assisting their adult children, aged 18-35, who are struggling to launch and are requesting financial help from their parents. According to a Pew Research Center survey, almost half of adults have provided some financial support to at least one grown child in the past year, with 27% providing the primary support. While many adults providing primary support for adult children do so because the adult child is in college, over one-third who provide support are doing so for another reason. Many adult children have been saddled with large student-loan debt and struggle to make ends meet, and others are having trouble finding full-time employment in their field.
Recommendations for financial supporters
1. Talk to your family. It's important to have a conversation with your spouse and both aging parents and adult children about any financial support you consider providing. Talk to your spouse or partner and examine the long-term impact of providing financial support to a family member. You may feel you have no choice but to provide financial support, especially for an older relative. However, you owe it to your partner to examine how your family's long-term financial goals may need to be adjusted to provide this support.
According to a survey from Care.com, 52% of families have not discussed an elderly relative's financial situation. Most report that they avoid this talk because it's an uncomfortable discussion or they don't want the parent to become defensive.
It's important to talk to parents to understand what they prefer for long-term care. Some may wish to stay in their own home as long as possible, while others may need skilled care or wish to move into a family member's home. Include siblings in the conversation as well, especially when they may be in a situation to help out with costs or care. Review any plans or long-term care insurance that your parents have put into place and discuss what they are able to contribute financially.
For adult children, talk about what support you are able to provide, the conditions for the support, and a time frame for which this support may occur. Discuss your adult child's goals and a launch plan.
2. Create a list of possible solutions. The best option may change with time. Brainstorm a list of all possible options for supporting your aging parents, keeping in mind their preferences. For example, is your parent young enough to benefit from long-term care insurance? Maybe your parent, you, and your siblings can contribute toward the premium. Does your parent have needs that would require some level of skilled care assistance? Would it be best for your parents to move in with you or a sibling to get the care they need? Will the person acting as primary caregiver have to reduce or stop work, and what will be the impact of that loss of income to the family?
3. Check for any workplace benefits for eldercare. Companies are taking notice of the impact that caring for an older relative has on employee productivity. Many companies are implementing elder-care programs into their benefit packages, as they recognize that these programs benefit both employees and employers. The 2016 Study of National Employers found that 63% of large employers offered elder-care resource and referral services, while 79% of large employers offered time off to provide elder care.
Some workplace programs include benefits such as referrals to caregiver community resources, on-site support groups, and dependent care assistance plans. It can be worth a call or visit to your company's HR office to ask about any benefits your company offers.
4. Keep your cool. Anything involving money and family can quickly become emotionally charged. Keeping lines of communication open throughout will hopefully clear up misunderstandings. It doesn't help your situation to vent on an anonymous message board about your sister's lack of financial support for your parents when you should be sharing your feelings and concerns with your sister.
5. Work your plan, but be ready to adjust when needed. Move forward with the plan you've developed for supporting adult family members. However, keep in mind that your own financial situation may change quickly. If you incur an emergency expense or have a health crisis, it can affect the amount and type of support you can provide for others. Have a contingency plan in place to use in case of a crisis.