The Sandwich Generation Issues: 3 Ways to Alleviate the Stress
Many are familiar with the nicknames given to different generations, from the Greatest Generation to the Baby Boomers and Gen Xers. But a growing number of people are now getting acquainted with what’s being called the “Sandwich Generation”—the cohort of Americans who have dependent children along with elderly parents.
Members of the Sandwich Generation are typically in their 40s or 50s today, and there are quite a lot of them: about 33% of the approximately 78 million Baby Boomers fit the “sandwich” profile, as do about 42% of Gen Xers, according to sandwich generation statistics reported in Pew Research Center’s 2013 report on the sandwich generation.
The problem: having two sets of dependents (children and parents) can be burdensome financially as families are simultaneously confronted with college tuition costs for their children, mounting healthcare expenses for their parents as well as trying to save adequately for their own retirement .
If you’re one of the millions of Americans feeling the squeeze of the sandwich generation, feeling stressed is understandable. Swap the stress for peace of mind by planning ahead and considering a few different options:
Solution 1: Have a strong financial plan & understand your priorities
Perhaps the best way to avoid the “squeeze” is to have a strong financial plan to prevent experiencing economic insecurity.
Simply preparing for retirement can seem a daunting task but adding the expenses of your children and parents can make a secure financial plan seem impossible. You will need to research the costs of caring for parents, paying for college and funding retirement and calculate whether all three are feasible.
If you can not afford all three, you will need to prioritize and make trade offs. Many financial advisors will advise retirement savings over spending on family since there are loans for college and some options for public assistance for long term care but no financial options for paying for retirement beyond working and savings.
Working with a financial advisor to identify your priorities can maximize your options and help you optimize your spending and savings.
Solution 2: Communicate with family members
Those belonging to the “Sandwich Generation” often end up with financial expectations coming from two different directions: their children and their parents. Those expectations can be pricy, whether it’s paying for college or long-term care.
The best way to handle these situations is to communicate with your family members to discuss expectations and what each party will be able to contribute financially.
For example, you could get involved with your parents finances and identify solutions for them to help themselves. Perhaps your parents could fund a long-term care insurance policy or maybe they have assets that you are not aware of. Maybe their idea of what they need is different than your own.
On the other end of the age scale, discuss with your children their expectations for your financial involvement — college, weddings, grandchildren or even do they expect they might move back in with you? Perhaps compromises can be reached.
The key is to be upfront and open with these conversations. Honesty and openness can improve everyone’s financial profile as well as strengthen these relationships.
Solution 3: Use your home equity to your advantage
Homes typically comprise the largest piece of a household’s overall net wealth, and people between 45 and 54 years old (the approximate age boundaries of the Sandwich Generation) have a 71.4% homeownership rate, U.S. Census Bureau data indicates.
And the aging parents of the sandwich generation have even greater home ownership rates.
Home values in the United States rose about 2%—or $412 billion—in the fourth quarter of 2013, according to Federal Reserve data cited in the Department of Housing and Urban Development’s March 2014 Housing Scorecard. In fact, through last year’s fourth quarter, home equity is up more than 60% from the beginning of 2012 and has surpassed $10 trillion, the Scorecard says.
As home prices rise and people rebuild home equity, their net worth improves.
- If you own a home, consider taking advantage of your home equity to help fund your retirement and your family’s needs.
- If your parents own a home, consider ways to tap into their equity to fund their expenses.
Downsizing is an option or you can explore securing a reverse mortgage — for your parents now or for yourself at some time in the future.
The federally-insured Home Equity Conversion Mortgage (HECM) program (most popularly known as a reverse mortgage) allows qualified borrowers age 62 and older to borrow against their equity in the form of a non-recourse loan. With a reverse mortgage you live in and retain ownership of your home while using your home equity to help fund expenses.
For homeowners who feel the “squeeze” of the Sandwich Generation, tapping home equity can help fill financial gaps. Knowing the home equity is there and could potentially be used can give you peace of mind.
Many people in the Sandwich Generation don’t have a choice—they need to be there for both their kids and their aging parents. But by planning ahead, you can make your situation less stressful and eliminate the financial squeeze.