A Generation Stuck in the Middle
According to a study by the Pew Research Center, 15% of adults provide ongoing financial support to both an aging parent and an adult child.1 Known as the sandwich generation, this group of middle-aged Americans is being squeezed from both ends—weighing on both their finances and mental well-being.
This trend looks like it will grow in years to come. As the baby-boomer generation moves into retirement, the number of Americans over 65 will grow dramatically. In 2010, 13% of the U.S. population was over 65. By 2030 more than 20% is projected to be over 65.2 Simultaneously, millennials, hard hit by the financial crisis of 2008, continue to need additional support.
According to the same survey from the Pew Research Center, 75% of adults say they have a responsibility to provide financial assistance for an elderly parent in need. And while the number is lower when considering an adult child in need, 52% of adults say it is their responsibility to support the child financially.
So what can the sandwich generation do? Plan accordingly.
Don’t Forget the Kids … or the Parents
The majority of the sandwich generation are in their 40s and 50s, and while most claim to be able to afford to help their parents and children, the long-term impact is unclear. By diverting money away from their retirement, will they have to make adjustments to their own retirement or curb other financial goals?
For those who already provide support, it is important that they are working with a financial advisor who can clearly and accurately illustrate the impact these withdrawals will have on their lives. An advisor at Buttonwood will be able to provide a clear view of the long-term impact of these withdrawals and will be able to provide multiple strategies for funding future withdrawals and their tax implications.
For those who don’t provide for a child or parent, consider the likelihood of that changing in the future. Are your parents near or in retirement? Do they have a pension or defined benefit retirement plan that will cover their spending needs? If not, are you sure they have sufficient funds to provide for their retirement? What is the likelihood that at some point your parent will need additional care at home or in a facility? Is your child college age? What is the likelihood that they will be able to fully support themselves when they graduate, even with full-time work?
Look Beyond the Money
Beyond the financial support they provide, members of the sandwich generation may find themselves providing their parents with physical care and emotional support—weighing on their time and adding considerable stress. The Pew study found that 68% of adults with parents over 65 said their parents frequently or sometimes depend on them for emotional support, while 76% say the same of their adult children.3 Yet despite all of the additional stress and financial strain, there appears to be some benefit. The Pew research concluded that parents who provided their adult children with financial support saw an improvement in their relationship.
By working with the team at Buttonwood, we can help you simplify the broad range of options and, at the same time, better prepare you for what may lie ahead.
1. Kim Parker and Eileen Patten. 2013. “The Sandwich Generation: Rising Financial Burdens for Middle-Aged Americans.” Pew Research Center.
2. Emily Brandon. 2014. “The Youngest Baby Boomers Turn 50.” U.S. News & World Report: Money.
3. Kim Parker and Eileen Patten. 2013. “The Sandwich Generation: Rising Financial Burdens for Middle-Aged Americans.” Pew Research Center.