Each generation faces its own unique financial challenges. One particular generation — the “sandwich generation” — seems to be juggling it all: children, aging parents, workplace demands … the list goes on.
The problem: This can take a significant toll on their finances and make it more challenging to reach their long-term financial goals. Sound familiar? Here’s what to know if you’re part of the sandwich generation.
The term “sandwich generation” refers to young to middle-aged adults who are raising children and supporting their aging parents at the same time. This generation is made up of mostly Gen Xers, although more and more millennials are falling into this category as their parents get older.
According to the Pew Research Center, almost half of adults aged 40 to 59 are part of this growing group.
People in this generation are the caregivers of today. They’re juggling taking their kid to soccer practice between work and doctors’ appointments for their elderly parents. And the responsibilities aren’t just monopolizing their time — there’s a real financial burden being placed on members of this group.
Members of this generation are often put between a rock and a hard place when it comes to their finances. They are simultaneously caring for aging parents and children, saving for their child’s education and their own retirement, and in some cases, footing the bill for their parent(s) healthcare, memory care, or other day-to-day costs.
On average, caregivers spend 26% of their personal income on caregiving expenses, according to an AARP report. And 1 in 3 dip into their personal savings to cover costs.
“Dual caregiving can feel like a delicate juggling act, with sandwich generation caregivers often putting their family’s immediate needs ahead of their own well-being and future security,” said Matt Gromada, head of family banking at Chase Bank. “This is especially true if they haven’t talked to their aging parents about finances while they’re in good health, which can result in unclear obligations and surprise expenses later.”
Navigating the challenges of being part of the sandwich generation can take a significant financial and emotional toll. However, it’s crucial to put the right safeguards in place to protect your finances.
Having the right documentation in place and a clear picture of your family’s finances can help you create a budget and financial plan that takes into account how your financial responsibilities will evolve over time.
This could include managing their bills, investments or pensions, Social Security benefits, or insurance plans.
“Taking steps to plan ahead while things are calm can make a world of difference,” Gromada said. “Locating and organizing financial and legal documents now — such as healthcare power of attorney or long-term care insurance policies — can help prevent added stress and confusion during a health crisis.”
2. Have open conversations with parents and adult siblings
It’s also important to have candid conversations with your parent(s) about what their expectations are when it comes to providing caregiving and assisting with money management.
Open and honest communication with aging parents and adult siblings can help ensure that the caregiving responsibilities are being shared across your entire family. If you’re not in a position to provide financial support for a parent, for example, but you do have time for caregiving responsibilities, discuss how siblings or even extended family members can help.
“The key is to set boundaries with your parents about how you will and won’t help them,” said Jay Zigmont, CFP and founder of Childfree Trust. “For example, my wife and I have a rule that no one lives with us. We are willing to help in other ways, but we know that living with our parents won’t work.” He added that while you need to budget for your parents’ care, it’s important to realize there is a limit: “A year in a skilled nursing facility costs $125,000, on average, which can quickly deplete your savings.”
Read more: Average savings by generation: How do boomers, Gen X, millennials, and Gen Z compare?
When it comes to your savings, it’s important to look at it as a “put your oxygen mask on first” situation. This is especially important if you want to avoid placing a financial burden on your own children as you age.
So, ensure you have a well-funded retirement plan before committing to providing financial assistance to your kids or parents. Remember, you can borrow money for college or adjust support for parents, but it’s rarely possible to make up for years of lost retirement contributions.
In addition to ensuring your retirement savings are on track, you should have an emergency fund. When you’re the primary caregiver for aging parents and young children, life is sure to throw you a few financial curveballs. So, aim to save at least three to six months’ worth of living expenses to cover any surprise expenses.
The right tax strategy can result in savings that meaningfully offset caregiving costs. Examples of tax-advantaged accounts and write-offs that can reduce the net cost of support include:
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Dependent care FSAs if caring for a qualifying parent or child
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Child and Dependent Care Credit if you pay for care so you can work
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Claiming a parent as a dependent if you provide more than half their support (subject to IRS rules)
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529 plans or tax-advantaged education accounts for children
Caregiving costs don’t have to come solely from your pockets. Check to see if your workplace offers resources such as education reimbursement programs, paid family leave, legal and financial planning assistance, free childcare or childcare assistance programs, and more.
Read more: 9 ways your employer can help you save money