In today's complex financial landscape, many adults are caught in a unique position: simultaneously caring for aging parents and supporting their children while also working toward their own financial milestones – retirement, buying a second home, travel, etc.
This demographic, often called the "Sandwich Generation," faces multiple financial responsibilities across generations which often leads to emotional and financial strain. As the population ages and life expectancy increases, more individuals find themselves in this position, making it crucial to develop comprehensive financial strategies.
This blog post aims to guide how to effectively manage the financial aspects of caring for aging parents while maintaining progress toward other critical financial goals.
Assessing Your Financial Situation
When an aging parent needs your help due to medical needs, memory loss, or just a need for general emotional support, it’s easy to want to jump in with both feet. However, before you can commit to assisting them in any capacity, it’s critical to assess your current financial situation. As any traveler knows, you have to put your own oxygen mask on first before assisting others – and the same is true for your personal finances. Let’s dive into how you can navigate figuring out what type of help they need, and how much of your time and resources you can give.
Budgeting for Two Generations
Creating a budget that accommodates your children's needs, your parents’ care, and your personal goals is a critical first step. This process involves:
Income Assessment: Evaluate all sources of income, including your earnings, any contributions from siblings for parents' care, and potential income from your parents' assets.
Expense Categorization: Clearly delineate expenses related to your household, your children's needs, and your parents' care. This may include housing, medical, education, and daily living costs for multiple generations.
Daily Expense Prioritization: Identify essential expenses that must be met and areas where cost-cutting may be possible.
Future Planning and Goals: It’s essential to recognize that goals and needs change over time. You might ask yourself: When do I want to retire, and am I on track to achieve that goal? Will my young adult children need as much financial support shortly, or will college graduation free up cash flow? Will my parents’ needs increase over time, and how does that impact how much I can help?
Regular Review: Commit to regularly reviewing and adjusting your budget, as care needs and financial situations can change rapidly.
Emergency Fund
A robust emergency fund becomes even more crucial when managing multi-generational financial responsibilities. Consider the following:
Increased Buffer: Aim for 6-12 months of expenses in your emergency fund, rather than the standard 3-6 months, to account for potential simultaneous emergencies across generations.
Separate Accounts: Consider maintaining separate emergency funds for your household and for your parents' care to ensure clarity and prevent depletion of your personal safety net.
Liquid Assets: Ensure that your emergency funds are held in easily accessible, low-risk accounts so that they can be quickly accessed when needed.
Planning for Long-Term Care
The truth is that when you have aging parents who require additional care or financial assistance, you may be looking at a situation where long-term care is required. Long term care is defined as services, support, or even living facilities that help people maintain their quality of life when they can no longer perform daily activities on their own – preparing meals, cleaning up, bathing, dressing, etc.
“Short-term care” trips over into long-term care when the need for assistance in daily living becomes a lifelong or years-long situation. Most short-term care facilities are limited to weeks, months, and a cap of one year in extreme situations. Long-term care services and facilities focus on individuals who will need assistance for multiple years or the remainder of their lives.
Long-Term Care Insurance
In some cases, long-term care insurance can be a valuable tool in managing the potentially high costs of extended care for aging parents. Key considerations include:
Timing: The ideal time to purchase long-term care insurance is often when parents are in their 50s or 60s, balancing lower premiums with an increased likelihood of qualifying. However, this isn’t always an option if your parents are already at a point where they need care immediately.
Coverage Options: Evaluate different options, including traditional long-term care insurance and hybrid policies combining life insurance with long-term care benefits.
Cost-Benefit Analysis: Weigh the cost of premiums against potential out-of-pocket costs for long-term care and the peace of mind that comes with coverage.
If your parents already have long-term care insurance and need to use their policy, here’s what you need to know about when it “kicks in”:
They’ve met the elimination period. Most policies have an “elimination period” of 0-365 days, with 90 days being a popular elimination period window. This means that your parents, or the policyholder, have shown they need continuing assistance and care beyond a short-term care window.
The policyholder has cognitive impairment. In cases where dementia or Alzheimer’s is concerned, LTC may be able to start providing financial coverage for assistance immediately.
They can no longer perform daily activities themselves. As mentioned above, these would include dressing, eating, bathing, etc.
Medicaid and Medicare
Even if your parents have and need their long-term care insurance policy, they likely have other assistance available through Medicare and Medicaid programs. Understanding the roles of Medicaid and Medicare is crucial in planning for long-term care.
Medicare: Primarily covers acute care and has limited coverage for long-term care, typically only for short-term skilled nursing care following a hospital stay.
Medicaid: Provides more comprehensive long-term care coverage, but is means-tested and requires spending down assets to qualify.
Planning Considerations
To reduce overwhelm when navigating the insurance maze for your parents, start with an easy checklist:
Evaluate the potential need to spend down assets to qualify for Medicaid.
Consider consulting with an elder law attorney to explore options for protecting assets while ensuring care needs are met.
Understand the look-back period for asset transfers when planning for potential Medicaid eligibility.
Check to see what types of assistance is covered under their Medicare policy – doctor’s visits, etc.
Evaluate their long-term care coverage – is it available, and how much assistance will it cover?
Balancing Priorities
Balancing college savings for your children with retirement planning while caring for parents requires careful prioritization. This can be challenging, especially as you weigh the emotional pull to care for parents and kids. However, focusing on a few key financial goals can help you keep your priorities straight, and ensure you’re cared for as you move through this season of life.
Retirement First: Prioritize your retirement savings, as there are no loans available for retirement! As much as you may want to put your kids through college or fund their education, student loans exist for a reason. Even if your goal is to help later them pay those off, ensure you’re on track toward your retirement goal before looking to cover any additional expenses.
Maximize Employer Benefits: Ensure you're taking full advantage of employer benefits that may be offered to you. This could include items such as: retirement plan contributions, life/health insurance, personal long-term care policies, and more.
Other Pressing Financial Goals. If you have a goal to be debt-free, to relocate or move, or even to save for a significant expense, it’s time to sit down and think through your priorities. You may decide that all of your short-term goals take precedence over caring for your kids and parents, or you may opt to push back some timelines to juggle new expenses more confidently.
Strategic College Planning: To reduce overall college costs, consider options like community college for the initial years or in-state public universities. You can also help your kids shop around for different loan options, or free scholarships and/or grants to help them cover the cost of their education.
Consider your parents' needs. You can consider your parents ' needs once your retirement, financial goals, and kids’ education expenses are accounted for. Don’t be afraid to think outside the box and have open conversations with siblings and other family members about their care. For example, if you save money on having mom or dad move in with you, are their grants or other resources available for home renovations to make your living space conducive to their needs? Are there assistance programs that can help bridge the gap between you offering full-time care and them needing to find a live-in service? Many different options are available; don’t be afraid to ask for help from specialists when needed!
Need Help?
Navigating the financial challenges of caring for aging parents while maintaining progress toward other financial goals requires careful planning, regular assessment, and strategic decision-making. While the ideas we discuss here provide a framework for managing the complex financial landscape of the Sandwich Generation, each family's situation is unique. Seeking personalized financial advice can help you develop a tailored plan addressing your circumstances and goals.
We encourage you to contact our financial advisors for help. We’re here for you! With expert support, you can develop a comprehensive strategy that ensures financial security for yourself while providing for your loved ones across generations.