7 Actionable Steps the Sandwich Generation Can Take To Build Lasting Wealth
Written by
Cynthia Measom
Edited by
Amber Barkley
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About two-thirds of the sandwich generation — Americans, typically in their 40s and early 50s, who are balancing the financial demands of raising children while also supporting a parent age 65 or older — report feeling “very stressed” or “somewhat stressed” about meeting their financial responsibilities in the next decade, according to the Policygenius Sandwich Generation Survey.
While raising children is known to be costly, more than half of these individuals anticipate that supporting their parent(s) in the next five years will cost just as much as, if not more than, raising their kids.
Unfortunately, without proper planning, these financial demands can dig into their ability to save for the future. Here are actionable steps that the sandwich generation can take to build lasting wealth.
Assess Assets
“First, as in most areas of financial planning, it is so important for all parties involved to do a cash flow analysis, detailing all the money coming in the door from income, pensions, Social Security, etc. and weighing them against expenses,” said Michael Cocco, CFP, a financial advisor with Equitable Advisors.
Cocco said it’s important to separate expenses into needs and wants. Needs, he explained, are vital and cannot be altered much — they include things like food, housing and utilities. Wants, he said, are more discretionary items, such as travel.
“Ensure there are cash or cash equivalents for three to six months of these expenses, to create an ample emergency fund,” he added.
Don’t Sacrifice Saving for Retirement
Cocco said that putting retirement savings on the back burner is not an option. “They must be sure to keep contributing to their retirement accounts, especially to take advantage of any employer matches and to also help with tax deductions, where they are able to take them.”
Explore Long Term Care Insurance for Parents
Cocco explained that there are multiple ways to address long term care (LTC) — from traditional ‘use it or lose it’ LTC policies to hybrid life insurance with long term care riders or annuities with long term care riders. He said that children who are caring for their parents may even choose to pay for the policy themselves — especially if it’s a hybrid type policy.
He added that if the child’s parent never uses the LTC, a hybrid policy will leave behind either a life insurance death benefit or annuity benefits, which means the premiums paid wouldn’t necessarily be “squandered away.”
Find a CPA
Cocco recommended that the family work with a CPA or tax advisor to determine if the sandwich-generation client can qualify for a dependent care tax credit — as long as they are providing ample support for their parent.
“Also make sure to keep copious records of the parent’s medical expenses to see if they can be written off against their taxes,” he added.
Hire an Elder Care or Estate Planning Attorney
“The family should also work with an elder care or estate planning attorney to make sure any gifting strategies are considered, to protect assets from Medicaid and to ensure a proper and tax efficient disposition of assets to the next generation,” Cocco said.
Take Advantage of Workplace Benefits
Cocco suggested that sandwich-generation clients speak to their employer to see if it will allow flexible work arrangements, such as working remotely, to help care for a parent.
“Also, some employers and states offer family leave when taking care of a family member,” he said.
Create an Account for Future Parent Needs
Cocco also recommended that sandwich-generation clients should consider putting money in a separate account, which could potentially be invested if it’s a longer time horizon, to serve as a fund for out-of-pocket costs related to helping care for their parents.
He added that, if the funds aren’t used, they can serve as another area of “forced savings” for their future.
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