Many members of the exhausted “sandwich generation” are trying mightily to avoid getting squished. As the generational label indicates, they are in the middle: supporting both an aging parent and their own (in many cases, adult) children — and all the while coping with their own financial needs.
It's a challenging, stressful scenario, in which emotions run high and where sandwiched folks may be near their wit's end.
If ever there was a situation where financial advisors can distinctly demonstrate their worth, this is it. Clearly, it's a prime opportunity to deepen client-advisor bonds and to create new relationships.
“As financial advisors, we ideally have our arms around all the moving parts as people go through different life cycles with an appropriate plan in place,” says Kim Murphy, financial advisor with Edward Jones in Santa Rosa, California. “But sometimes a prospective client in the squished situation will come in and say, ‘Wow! I don't know how to deal with this!’”
The number of people who may encounter the sandwich bind is worrisome: 42% of Gen Xers and 33% of baby boomers are supporting a minor or grown child and have a parent age 65 or older, according to a 2013 report from Pew Research Center. Moreover, 15% of Americans in their 40s and 50s are providing financial support to both an aging parent and a child, Pew notes.
What's responsible for this predicament? Longevity is a chief cause: Today, many people are living into their 80s and even 90s. At the same time, aging boomers are burdened by more health issues and accompanying high medical expenses than were their predecessors, a 2015 USA Today analysis of Medicare data has found.
As for young adults who fail to be self-supporting, a college degree takes longer to earn nowadays; and student debt has been rising precipitously. That, coupled with a wishy-washy jobs market, has forced many grown men and women to seek shelter back in their parents’ homes.
A host of financial issues come into play with the squished phenomenon: cash flow, asset management, insurance coverage and taxes, among others.
Probably the worst action pre-retirees can take during this fraught period is to withdraw savings from their retirement accounts.
“It's really important that in caring for a family member, the client doesn't sabotage their own financial picture and diminish resources they may need for their own retirement,” says Eleanor Blayney, consumer advocate for the Certified Financial Planner Board of Standards and formerly a practicing CFP.
As several sources for this article framed it: “Put your own oxygen mask on first.” That is, if you’re not taking care of yourself, you won't be able to care for others.
This isn't being “selfish,” Blayney stresses. “It's being prudent.”
Though the squished dilemma doesn't crop up with most clients, it's prevalent enough — and serious enough — to warrant what-if contingency plans for all clients.
Well before signs of a crisis loom, advisor Murphy sits down with clients to discuss the issues.
“We look at a variety of strategies,” she says. “For example, if the client says, ‘Mom and Dad are going to have some problems because they’re living off Social Security, and we may need to take care of them — they don't have long-term care insurance,’ we consider different scenarios.”
Murphy uses financial-assessment software to identify possible costs of both at-home and nursing-home care.
“We put these numbers into the client's financial plan and see how they would impact their ability to retire at the level they want to, “Murphy says.
The earlier FAs hold such conversations, the better prepared clients will be should they find it necessary to keep three generations afloat. It is critical that they identify family members who are likely to be financial liabilities.
However, “it's hard for people in their 30s, 40s or 50s to get their heads wrapped around this because human beings are very short-term in their thinking: They don't like to think about bad things that might happen 10 to 40 years from now,” Murphy says. “But we see high stress points in families that don't have discussions about these issues and don't plan for them.”
Hence, advisors should provide clients with a road map to manage effectively and ways to directly address their concerns with parents and adult children.
At the same time, pre-retiree clients must stick to their plans to save steadily for retirement and medical needs in later years. Thus, revamping investment portfolios to provide funding for others is a poor strategy.
“You have to plow ahead with your own needs first,” says Karen C. Altfest, Ph.D., principal advisor and executive vice president of client relations at Altfest Personal Wealth Management in New York City. “What I worry about most is someone taking money out of their retirement account — because often they don't pay it back or realize the possible consequences in taxes and even penalties. It's scary.”
Indeed, clients have deliberately put aside assets exclusively for their retirement years, so “to redeploy these for others’ needs should not be the first line of defense,” Blayney notes.
For instance, tapping into a 401(k) plan must, by all means, be avoided.
“This could be detrimental to the client's own retirement and financial independence if there is no cohesive plan in place for such an action,” says Douglas A. Boneparth, financial advisor and vice president, Life and Wealth Planning, in New York City, whose BD is Commonwealth Financial Network. “If you’re shooting from the hip emotionally, you’re more than likely to make a financial misstep.”
Further, investing beyond a client's established risk-tolerance level to boost investment returns likely will spell disaster — all around.
“If you’re spreading yourself thin on resources to support yourself and others, it's antithetical to load up on risk to earn a higher return,” Boneparth says. “If anything, you may want to be more conservative.”
Taking out a home equity line of credit is an option, though not necessarily a good one.
“Whether it's leveraging something, margining accounts or tapping retirement accounts, these smell like acts of desperation that will put your financial future in jeopardy,” Boneparth notes.
Among positive moves is discussing dependent-care tax credits with a CPA or tax attorney. If the client is in fact the primary supporter of a parent or child, the latter can be claimed as dependents on their tax returns, Altfest suggests.
Another potentially helpful tack is involving the client's siblings — if they have any — in their parent's care.
“It's imperative to bring them in; otherwise, the distribution of care will fall unevenly,” Blayney notes. “Some siblings may contribute more financially but less in physical caregiving.”
Chipping in to buy Mom and Dad long-term care insurance when they’re still relatively young and healthy is a smart move too.
Studies show that there is a 70% chance that people age 65 and over eventually will need some type of long-term care, ranging from help around the house to assisted living to a stay in a nursing home, says Michael Hamilton, vice president-Lincoln MoneyGuard product management, Lincoln Financial Group, headquartered in Radnor, Pennsylvania.
Long-term care insurance should be purchased fairly early because many medical conditions that manifest in one's later years will likely disqualify the individual from obtaining coverage.
“It's never too early to think about long-term care. The sooner you buy this insurance, the cheaper it is,” Hamilton says.
There are now several ways to fund long-term care, including a hybrid, or combination, product with “a life insurance chassis but that's focused on providing long-term care,” Hamilton explains. An insurance policy with a long-term care death benefit rider will accelerate the death benefit for covered long-term care expenses.
With such a vehicle, “you know that you’ll get a benefit out of it, whether it's for long-term care or a death benefit — as opposed to traditional long-term care products, where if you didn't need long-term care, you didn't get any benefit,” Hamilton says.
Should the sandwiched client and siblings find they are simply unable to fund a parent's care, they can apply to government programs, such as Medicaid, and to community services, like Meals on Wheels America, based on eligibility.
When an adult child in financial straits returns home, typically there is no shortage of family conflicts, including the sandwiched client's internal ones.
“It's very important to ask yourself, ‘Will my help, help?’” Blayney says. “It's one thing to boost a person in a productive way. It's another to enable or protect them from the realities of the workplace and from living as a financially responsible adult.”
Herein lies a major opportunity for FAs to display their added value.
“When a child comes home needing money and a parent needs care, emotional decisions must be made. It's therefore important to bring in an objective third party who can hold that emotion but also temper the discussion with reality as to projected costs,” Blayney notes. “As money will [later] be transferred from one generation to the next, the client needs to be sure that one family member is not harmed for the benefit of another.”
This calls for a firm approach. Parents should set a timeframe and other limitations, and require contributions from the child, financial or otherwise. If a loan is agreed upon, a written contract is in order.
“You need to specify rules and have the child contribute, whether it's $50 a month or cleaning up the basement,” Altfest says. “It's not appropriate to keep giving money to a 30-year-old like an allowance they got when they were 12.”
That is quite likely to result in long-term financial dependency.
“We have clients who have had to support their children over and over again,” says Joe Franklin, president of Franklin Wealth Management, in Hixson, Tennessee, whose BDs are LPL Financial and TDAmeritrade. “Eventually, you have to use tough love: Children who have already received ‘economic outpatient care’ aren't going to get as much from [their parents’] estate as their other children.”
Murphy, herself a member of the sandwich generation, avoided being squished when her daughter moved back home while in grad school. The FA structured a written game plan; and everything went according to schedule, including the daughter's snagging part-time jobs to finance personal expenses.
“Most parents are probably not as granular as I was since I’m a financial advisor,” Murphy says. Still, “every parent in this situation should sit down with their child to go over expenses. My daughter chipped in on the utility bill when we noticed that water had gone up $50 because of the increase in showers.”
The squished circumstance isn't pretty, but FAs can seize the opportunity by helping clients plan in advance for this possible state of affairs and guiding them along the right path should it occur.
“Financial professionals,” Boneparth says, “are typically good at helping clients separate the emotional elements of financial considerations — emotions that distract them from making the right tough decisions.”