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Saving For Retirement OrSupporting A Family – What Comes First?

By John Schmoll from the Daily Capital Blog

Saving for retirement is something we hear a lot about these days. With the number of Baby Boomers approaching retirement it’s a trend that’s going to continue. Unfortunately, the retirement savings landscape they’re facing is generally not a pretty one.

According to the National Institute on Retirement Security (NIRS), the median retirement account balance for the average working family is $3,000. For those near retirement that balance is slightly more: $12,000. The average American family has very little saved for retirement, which will potentially lead to a stark reality for far too many. In fact, 41 percent of Baby Boomers expect their standard of living to fall once they hit retirement. This, however, is not the only challenge working families face as they traverse the need to save for retirement – especially for those known as the “sandwich generation.”

If you’ve not heard of the sandwich generation, you’re likely to hear more about them as the next few years go by. The sandwich generation is people who are caring either physically, financially, or both for both a child as well as an older parent. Caught between two separate sets of family members to provide for, they struggle to take care of their loved ones and themselves. Paired with a potential lower retirement account balance, the ‘sandwich’ presents a unique and difficult challenge to feeling squished by it. The good news is that it’s not impossible for sandwiched baby boomers to work towards the life they want while also caring for their loved ones in need.

The Sandwich Generation is Feeling the Pinch
On the surface, those who are at or near being a part of the sandwich generation are facing a grim retirement landscape and are on the losing end of the equation when it comes to time. The numbers make this bleak picture look even worse. According to a recent study from Pew, 47 percent of those in their 40s and 50s have a parent over 65 and are either raising a younger child or providing financial assistance to a child over 18. Taken further, 15 percent (or 1 in 7) of those individuals are supporting both a parent and a child. It stands to reason, to a certain extent, that those numbers will only increase over the foreseeable future.

PC-Graph-sandwich generation
The same report from Pew indicated that the pressure, as of right now, is not coming from aging parents but rather from children. Pew found that 48 percent of those in their 40s and 50s have provided support to at least one grown child and 27 percent of those have provided primary support, which is a significant increase from a similar study done ten years ago. In contrast, Pew found that 21 percent of those same individuals polled provided financial support to their parents aged 65 and older.

Regardless of how you look at the numbers, it’s no surprise that those in the sandwich generation are feeling the pinch especially if they’re not on track to be where they should be with regards to retirement. The numbers in the Pew study do not support the belief that there is a huge need to care for aging parents now. However, they did point out that 75 percent of adults feel a responsibility to provide financially to an aging parent who is in need.

As boomers’ parents age even more this will present a growing unique challenge for those in the sandwich generation. This situation is not without hope however, as it provides an opportunity for boomers to make wise decisions now that will positively impact both their and their parents’ financial futures.

How to Help Parents Who Aren’t Retired Yet
If you’re in the sandwich generation and your parents aren’t retired yet or are just newly retired you need to have one focus – helping your parents think through how to mitigate expenses now, plan for their future care, and protect their assets.

With the cost of healthcare rising this preparation really should begin with looking at Long Term Care (LTC) options. No one likes to think about needing LTC insurance, but acting now is likely one of the wisest decisions they can make – not to mention potentially for yourself depending on your age. If your parents are 65 or older they actually have the potential to benefit from a tax perspective by purchasing LTC insurance now as outlined in the graph below.

PC-Graph-LT Insurance graph
In addition to looking at LTC insurance, this should also be a time to encourage your parents to max out their 401(k) accounts as well as any additional retirement accounts they might have. This will possibly need to be done in consultation with a tax professional in order to determine what will suit them best from a tax perspective.

The planning doesn’t stop there, as you will also want to look at the likelihood of helping your parents establish a Trust. Trusts come in many forms and fashions and can be as complex as you like but the ultimate point is to engage in estate planning that mitigates tax issues and protects assets.

If your parents think they don’t need a Trust because they don’t consider themselves rich, think again. Trusts are worth looking at around the level of $100,000 or more in assets. Again, this is all with the point to help them protect their own assets, have the final say in their wishes and really should be an encouragement to you as the child to begin to get your retirement house in order.

In The Moment
As your parents get older the likelihood is only going to increase of them needing your assistance. This can be increasingly scary when you factor in the cost of assisted living, which ranged anywhere from $2,700 to almost $3,800 per month. Depending on your parent’s financial situation, this raises the possibility of them needing to either live with you or for you to financially provide for their care in some way.

PC-Graph-Cost of Living
If you’re in the sandwich generation, it’s vital for you to find ways to relieve the stress on you to provide for aging parents and adult children. Stress relief can come in the form of support from local non-profits, charities or churches that provide assistance for elderly individuals. If that’s not an option then look to get help from siblings or other family members in the area to help lighten your load.

The key, which can admittedly be difficult at times, is to establish boundaries. Whether that be with elderly parents living in your home or with other family members in your area, the key is to find balance. Doing so will protect you from burning out and will sustain your own retirement saving efforts.

It’s Not A Black And White Issue
It is no doubt that many of us feel responsibility or obligation to help provide and care for our aging parents. That is understandable and expected to a certain extent. However, this is generally not a black and white issue and can be many shades of gray depending on your own personal situation as well as that of your parents.

Basically, each situation is unique and should be handled as such. That all should be taken in light of also not wanting to sacrifice your own future but using this as a time to really think over what kind of retirement you may want. Many of those same things you should be encouraging your parents to look at from establishing a Trust to maxing out your retirement accounts and looking at LTC insurance as you get older are things you should be contemplating as well.

If you’re in the sandwich generation then you likely have a decade or two until you’ll be staring down retirement. This is the time you need to get even more serious about setting the course you want to take for retirement and take action on it. This is where tools like Personal Capital can help you on that journey of discovery. Personal Capital can help you analyze where you might be able to better enhance your investing as well as show how you might be able to reduce expenses, all with an eye towards maximizing the growth of your wealth. While all these things can’t protect you from aging, they can most definitely enable you to handle the changes that come as a result more effectively.

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