The financial implications of being 'sandwiched'

Keep your own retirement goals in mind while caring for aging parents and adult children.

The “sandwich generation”—people still supporting adult kids or grandchildren while caring for their own aging parents—has grown in recent years.

Nearly 48 million Americans, or 19.2%, have provided care for someone 18 years or older in the past 12 months. 1 That number has gone up by more than 8 million since 2015.

Though the “sandwich generation” typically refers to adults in their late 30s to mid-50s, more people nearing retirement are finding themselves in that group as their parents live longer and adult children live at home longer due to economic challenges. During the pandemic, millions of young adults have moved in with family members. A majority of young adults ages 18 to 29 in the U.S. now live with their parents—the first time this has occurred since the Great Depression. 2

As a result, many people transitioning into retirement are having to juggle not only their own financial planning needs, but also those of their parents and their children. James Alverson, Director of Wealth Planning Strategies at TIAA, describes what sandwich generation people nearing retirement should consider next.

Greater percentage of adults providing caregiver duties

Nearly 20% of Americans have provided care for someone 18 years or older in the past year.
A greater percentage of adults are serving as caregivers 16.8% of adults were providing care for someone older than age 50 in 2020, up from 14.3% in 2015.
Source: AARP and the National Alliance for Caregiving, May 2020

Care for yourself first

Whether you’re caring for aging parents, adult children or both, Alverson says, you need to keep your own financial retirement goals on track. This is especially tricky if either the older or younger generation you’re caring for needs financial support, or if you have to take time away from work in order to care for them.
 
Proceed with caution, and try to avoid dipping into your retirement savings or lending money without a repayment plan. Your financial advisor can help you determine how changes to your life impact your finances and your retirement plans.
 
“Having that trusted advisor in place is huge,” Alverson says, “because there’s a lot of planning and work to be done.”
 
Remember that, depending on your specific caregiving situation, your financial or tax situation may change as well. For example, you might be able to claim your aging parents as dependents and deduct their medical expenses. Check with your tax advisor on how to manage your unique circumstances.
 

Financial implications of caring for aging parents

Caregiving duties for aging parents can range from simple household help to completely taking over their finances if they are not able to manage them on their own. If a parent becomes incapacitated, Alverson says, having all the necessary paperwork in place can be essential.
 
“It’s not automatic that you can just step in and help them,” he says. “You need to make sure you’ve got powers of attorney for financial matters and healthcare directives so you can make decisions on their behalf.”
 
Without those documents in place, the courts could intervene.
 
“Not fun,” he says. “And it’s time-consuming. You need to make decisions faster than waiting to get on a court calendar.”
 
Managing someone’s finances for them could also mean having conversations about money, which can be an uncomfortable topic.
 
“I think that in a lot of families people don’t talk about money openly, so they may not know who they need to be in touch with as far as financial institutions, what the bills are for,” he says.
 
Your role may also include helping them find the resources to create or update an estate plan.
 
“A lot of people are surprised by their parents, who may not have wills,” he says. “They assume that it’s there. So this goes beyond the physical care that you provide a loved one. There’s a lot of financial planning that goes into it.”
 

Financial implications of caring for younger generations

If you assumed that you’d be done financially supporting children once they reached a certain age, having them move back in with you or rely on you for financial support may not be covered in your current financial plan.  

Young adults living with parents reaches a record high

The percentage of 18- to 29-year-olds living with their parents was around 40% in the early 1900s, reached almost 50% in 1940, and dropped to 30% by 1960. Recently, it has increased, hitting 47% in February of 2020 and 52% in July of 2020.
Source: Pew Research, 2020
Setting some financial ground rules should be one of the first things parents do if they find themselves looking after adult children.

“There’s that balancing act between empowering the next generation versus enabling,” Alverson says.

Part of that is agreeing on an exit strategy.

“Make sure it’s not an indefinite stay by having a timeline in place for them to leave,” he says. “One idea is to ask for a written plan, including goals and deadlines, concerning how long they’ll stay or for getting a job.”

Consider having your offspring contribute—not just doing some household chores, but also financially, paying rent or contributing to the household budget to cover a share of the “services” they’re getting at your home, such as electricity, TV or food.

“One idea I heard from a client was they had a child living at home and they charged him rent,” Alverson says. “But what they really did is set that money aside and gave it to him, when he left home, for a down payment. It’s an easy way to teach them about saving, budgeting and being fiscally responsible.”

If grandchildren are moving in along with their parents, or if you’re asked to be a caregiver for grandchildren, be clear about what financial support you will provide and whether you will take the role of babysitter.

No matter what ground rules you set, be sure to keep your financial advisor apprised of your situation and how it’s changing your goals and your financial situation. It’s easy for caregivers to sacrifice their own desires in order to help family members, but your advisor may be able to help you find ways to protect your own retirement while still helping out.

If you can manage the financial challenges of multigenerational caregiving, having multiple generations under one roof can yield benefits.

“I have a friend who says he’s been able to spend a lot more time with his grandchild,” Alverson says. “We’re seeing multigenerational families together and reconnecting in positive ways.”

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This material is for informational or educational purposes only and does not constitute fiduciary investment advice under ERISA, a securities recommendation under all securities laws, or an insurance product recommendation under state insurance laws or regulations. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.
 
Advisory services are provided by Advice & Planning Services, a division of TIAA-CREF Individual & Institutional Services, LLC, a registered investment adviser.
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