The financial implications of being “sandwiched”

The “sandwich generation,” defined as adults (mostly women) who are still raising or providing financial support to their own children (or grandchildren) while caring for aging parents, continues to grow. As people are living longer and many young adults are struggling to gain financial independence, about a quarter of U.S. adults (23%) are now part of the sandwich generation, according to a Pew Research Center survey conducted in October 2021.

Though the sandwich generation typically refers to adults in their late 30s to mid-50s, more people nearing retirement are finding themselves financially squeezed as their parents live longer and adult children live at home longer or move back in due to economic challenges. Typically, children require more money and capital-intensive care, while aging adults require more time and labor-intensive care.

As a result, many people transitioning into retirement are juggling not only their own financial planning needs but those of their parents and children. Shelly Eweka, CFP®, ChFC®, Financial Planning Strategy Senior Director at TIAA, addresses what those in the sandwich generation who are nearing retirement should be thinking about now.

Care for yourself first

Whether you’re caring for aging parents, adult children or both, Eweka says it’s critical to keep your own financial goals for retirement on track. This can be especially tricky if either the older or younger generation you’re caring for requires financial support, or if you have to take time away from work in order to care for them. 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, because there’s a lot of planning and work to be done,” she says.

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, having all the necessary legal documents in place is essential.

“It’s not automatic that you can just step in and help them,” she says. “You need to make sure you have 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.

“That can be time consuming and could result in decisions that may not be in your loved one’s best interests,” she says. “You need to be in a position to make decisions quickly, especially those related to healthcare or a family member’s living arrangements, rather than waiting to get on a busy court calendar.”

Managing someone else’s finances means having frank conversations about money, which can be an uncomfortable topic for many families.

“In a lot of families, people don’t talk about money openly,” Eweka says. “As a result, family members may not know how the bills are currently being paid, which financial institutions family members use, or how to contact their tax, legal or financial advisors.”

Your role may also include helping a family member find the resources to create or update an estate plan. People often assume their parents have a will or other important legal documents in place, but that’s not always the case. A lot of work goes into estate planning, which requires careful coordination from a legal, tax and financial planning perspective. It’s important to ensure the right legal documents are in place well before a crisis occurs.

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 relying on you for financial support, may not be covered in your current financial plan.

Setting some financial ground rules should be one of the first things parents do if they find themselves looking after adult children.

There’s a balancing act between empowering the next generation and enabling. Part of managing that balance is agreeing on an exit strategy. Eweka recommends having a timeline in place for adult children to branch out on their own.

“One idea is to ask for a written plan, including goals and deadlines, concerning how long they plan to stay or their timeline for finding a job,” she says.

Consider having them contribute financially, in addition to doing household chores or errands. It’s not unreasonable to ask adult children to pay rent or contribute to the household budget to cover a share of the services they’re getting at your home, such as electricity, TV, internet, food or use of a car.

“This helps to build and reinforce fiscally responsible habits, like saving or managing a budget, even if you don’t need the financial support,” Eweka says. “For example, one client saved her daughter’s rent payments in a separate savings account to be used toward a down payment on a home when she was ready to move out.”

If grandchildren are moving in along with their parents, be clear about the types of financial and other support you are willing to provide, especially when it comes to serving as a caregiver.

The nonstop juggle and joy of compound caregiving

No matter what ground rules you set, be sure to keep your financial advisor apprised of your living situation. It’s important to discuss any impact these changes may have on your financial circumstances, as well as short- and long-term goals. While caregivers will often sacrifice their own desires to help family members in need, your advisor can help you find ways to protect your retirement goals while still helping out.

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

“We continue to see multigenerational families reconnecting in many positive ways,” Eweka says. “One client recently told me that he’s extremely grateful for the opportunity to spend more time getting to know his grandchildren.”