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How to juggle your financial needs with those of your kids and aging parents

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People in their 30s, 40s and 50s are trying to balance sometimes-competing financial goals. These insights may help.

The idea of the “sandwich generation”—people squeezed by financial and other pressures from both their aging parents and their children—has been with us for years. And even those without kids can feel the challenges of keeping their own goals on track while helping care for older relatives. Now those who are currently in their 30s, 40s and 50s are feeling those pressures on a scale their predecessors never knew.

Why this generation is feeling the pressure

People in their late 30s, 40s and 50s tend to share several characteristics that heighten the challenges they’re facing.

They tend not to be from large families. Born during a period of declining birth rates, the current “sandwich generation” often has comparatively few siblings with whom to share responsibilities of caring for their parents.

Their parents may be divorced. Divorces among Americans 50 and older more than tripled from 1990 to 2010, to 643,000.1 That means when this generation’s parents reach the age at which they’re likely to need extra care, fewer of them will have a spouse to help provide it.

They’re late starters. Many parents delayed having children until later in life than any previous generation. This leaves them facing the responsibilities and costs of child-rearing well into their 40s and even their 50s—weighing day care options for young kids as they also consider elder care options for their parents.

There are more single parents than in previous generations. Single parenting can add a number of financial pressures—including potentially having to cover the cost of a mortgage or rent, utilities, groceries and more with one income.

If you’re feeling pressure between your parents, your kids and the financial challenges of daily life, communication is critical. Here are some questions you should ask yourself and family members—and some approaches that may help.

1. What are your needs?

Before you sit down to figure out what kind of assistance you can provide your parents, the first step is to assess your own situation. If you can establish boundaries between what you want to do and what you’re able to do, that will help you avoid surprises later on, says Chris Vale, senior vice president, Products and Solutions, Merrill Edge. Consider these factors:

Your emergency preparedness. Do you have at least six months of living expenses set aside to tide you over if a crisis were to arise?

Your retirement. For your employer’s retirement plan, are you contributing as much as you can? Ideally, you should contribute at least enough to get the full employer match (if any), and try to save at least 10% of your salary (including company match) if you can afford it. To save additional retirement funds, you may want to consider also contributing to an IRA or Roth IRA account.

Your cash flow. Do you have a handle on your monthly income and fixed expenses? Once you have a clear idea of your cash flow needs, you can figure out how much is left over to help you care for your loved ones.

2. What are your kids’ needs?

Children can be expensive. So if you have kids, your finances may be pressed even before you consider whether you have the resources to help out aging parents. And, of course, having children means you may not have as much free time as you’d like for, say, helping out your parents with household chores.

Before you commit to helping your parents, be sure you’ve thought through the costs of child care and saving for college tuition. It can be tough to find the extra cash for a 529 college savings plan, but doing so when also trying to help support a parent is that much harder.

Strategies for paying for child care and education

It’s a catch-22 for many parents nowadays—to afford the high cost of raising children, you’re likely to have a full-time career. But if you put in all those hours, you may have to hire someone to take care of the kids, pushing your expenses even higher. Richard J. Polimeni, director, Education Savings Programs at Bank of America Merrill Lynch, suggests you talk with your tax advisor about whether these suggestions might stretch your dollars:

Flexible spending accounts. If your employer offers one, the government allows families to put up to $5,000 per year ($2,500 for married people filing separately) of pretax income into a flexible spending account (FSA), which can then be used to pay for day care, nannies or babysitters. Because that money doesn’t count as taxable income, depending on a family’s tax bracket, the tax bill could be reduced by hundreds of dollars.

Tax credits. If your employer doesn’t offer an FSA, you might be able to claim a child and dependent care credit on your federal income tax return. You can claim a maximum of $3,000 in child care expenses for one child and up to $6,000 for two or more. (Most families will qualify for a credit equal to 20% of those qualifying expenses, or a maximum of $1,200.)

Reinvestments. Because saving for your kids’ future education expenses can feel like a stretch when you’re already paying for day care, perhaps calculate what you save on taxes by using the FSA or tax credit and then invest that amount into a 529 college savings plan.

Just remember that loans, scholarships and money your kids earn can help them pay for college, “but nobody other than you is going to fund your retirement,” Polimeni says.

And as your children grow older, you may find that asking them to shoulder more of their own expenses provides opportunities to help them develop greater financial responsibility while giving you some welcome relief from spending pressures, says Andrew Porter, Director of Behavioral Finance, Merrill Lynch Wealth Management. These days, he says, parents seem increasingly willing to require their kids to pay for their own cars, hold summer jobs, pay a share of college costs or chip in for rent if they move back home. “This can counteract a sense of entitlement,” says Porter. “Parents want to send the message that ‘You’re going to work, you’re going to take care of your own things, you’re going to understand the meaning of money.’”

3. What are your parents’ needs?

There are several good reasons why your parents may need extra help. While longer life spans are good news for our loved ones, this longevity bonus means not only that their money has to last longer, but also that they’re more likely to become infirm.

For a couple, both age 65, there’s a 50% chance that at least one spouse will reach the age of 92.2

Nearly 70% of Americans over 65 will need long-term care at some point in their lives, according to the U.S. Administration on Aging.3

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Talking to parents about their finances and health

Use these 5 tips for helping your aging parents while being sensitive to their perspectives and feelings.

Regardless of how much help you think your parents need, don’t just swoop in and take charge, as that might offend them and be counterproductive. Instead, sit down with your family and talk openly about the issues.

What specific types of assistance do your parents require?

Who will provide the help?

Who will pay?

Who will be in charge?

Before offering your parents financial assistance, try to get a clear picture of what they can afford on their own. Make sure you assess all sources of income, including:

Social Security

Pensions

Investment income including annuities

Employment

You should also take into account any other assets they may have to fund retirement costs. Whatever your parents’ assets, help make sure they have a plan for the disciplined spending of retirement savings and other investments—a key component of their “retirement paycheck.”

Getting a clear picture of their resources could be challenging, as older family members may consider talking about finances, even with loved ones, to be impolite or otherwise out of bounds.

For example, it’s worth discussing how to make use of any home equity your parents might have, suggests Vale. And if your parents truly have no or very few assets, Medicaid is there as a safety net to pay for long-term care for those who can’t afford it, Vale says.

How can siblings help?

If there is more than one of you, it may be easier for the sibling who lives closest to the parents to inherit the bulk of the responsibilities, whether it’s getting them to doctors’ appointments, running errands or doing chores around their house.

To address such situations, which may impose an unfair burden, “perhaps those who live far away can chip in to help hire someone to help out,” says Cynthia Hutchins, director of Financial Gerontology at Bank of America Merrill Lynch. Whether that’s possible or not, Hutchins suggests holding a family meeting early on to discuss and settle such issues openly. Even small contributions can help, such as paying for an hour a week of help with cleaning or grocery shopping.

Perhaps the sibling who lives far away could host your parents for an extended stay so you get a break. Or maybe he or she could come to stay while you go on a vacation.

As longevity increases, the idea of sandwich generations is developing into the new normal, with one generation after the next putting its own spin on the solutions, Hutchins says.

The one constant is the need for the generation currently in the middle to look after its own needs. You want to be able to help your parents out with confidence and grace, and help your kids achieve their potential. But you also don’t want to be a burden to your children down the road, so saving for your own retirement and looking after your own financial and physical well-being is a favor you can do for them as well as for yourself.

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1 Brown, S.L., & Lin, I., (2012). The Gray Divorce Revolution: Rising Divorce Among Middle-aged and Older Adults, 1990–2010. Journals of Gerontology Series B: Psychological Sciences and Social Sciences. 67(6):731–741.

2 Tackling Retirement Risks, Spring 2015, Merrill Lynch Wealth Management. IMG Retirement Strategies calculations based on Society of Actuaries, 2012 Individual Annuity Mortality Tables, Basic.

3 https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html

Bank of America Merrill Lynch is a marketing name for the Retirement Services business of Bank of America Corporation (“BofA Corp.”).

Investing through your plan involves risk, including the possible loss of principal invested.

Neither Bank of America nor Merrill Lynch provide tax, legal, accounting or benefits consulting advice. This material should be regarded as general information on health care considerations and is not intended to provide specific health care advice. If you have questions regarding your particular health care situation, please contact your health care, legal or tax advisor.

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