Being a Sandwich Generation caregiver is tough. Balancing finances for caring for your aging parents with college savings for your children can be difficult. Read the following advice and tips from the financial experts at The Mutual Fund Store.
You are a Sandwich Generation caregiver. Your parents are getting older, and you anticipate having to give them financial support. Meanwhile, your own children will start college in several years and you want to be able to help pay for school. And of course, you wouldn’t mind being able to retire someday — so retirement savings are always at the back of your mind. Sounds like you may have some tough decisions to make.
Every individual’s situation is unique, and every family is different. Still, it’s generally wise to prioritize your own retirement first. Here’s why:
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Saving for retirement is important, but you still want to be able to help your parents and children. This is what is especially difficult for Sandwich Generation caregivers — how do you do it all?
First, determine what you need to save to reach your own retirement goals.
Then, any remaining invest-able income can be split between investment accounts for your parents and your children’s college.
Finally, when it’s all said and done, if you feel you need to contribute more to their accounts, you might consider adjusting your retirement goals: retire later; plan to work part-time during retirement; travel less; downsize your home, etc.
Sometimes you have to be a little creative when it comes to financing life for multiple generations. Sandwich Generation caregivers have it especially tough, but do have options to make finances a little easier:
Once you have a savings target in mind, create a monthly budget to ensure you’re contributing everything you should to each investment account. You’ll need to identify each of your monthly expenses and the amount of money you’ll spend on each — including what you’ll be putting into each of those three investment accounts — and then track your expenditures daily and ensure you stick to your budget. Take advantage of free budgeting tools like Mint or consider software programs like Quicken to make the process easier.
There are different types of accounts that you can utilize for your different goals. For retirement, contribute to your 401(k) plan and/or to an IRA; for your children’s schooling, open a 529 plan; for your parents, open a brokerage account.
In each case, diversify the money across several asset classes, or investment categories. Here’s a great introduction to creating an appropriate investment lineup for your retirement account: “Smart Investor: Covering the Asset Classes.” You can apply this asset allocation strategy to all your investment accounts, but consider that the length of time until the money is earmarked for your children and your parents since they likely need a much shorter timeline than your personal timeline to retirement. So you might consider a more conservative approach to investing for your children and parents than you might for your own account.
If the time does come when you need to help support your parents, pay attention to the IRS gifting limit, which is $14,000 in 2013. You may be able to pay some of their expenses outside of the gifting limit, too. Consult a tax adviser to help you navigate the rules for gifting and ensure you’re not exposing yourself to unexpected taxes.
If you are a Sandwich Generation caregiver, consider the following to help generate more income:
Unfortunately, there isn’t a magic solution to the budgetary dilemma of meeting financial obligations for three generations, but don’t fall into the trap of sacrificing your own long-term financial needs in the face of other Sandwich Generation responsibilities. You may have to make difficult decisions and have tough conversations, but with some advance planning, you can get on course toward a more secure future and better safeguard your family’s financial well-being.
Providing unbiased, fee-based investment advice and asset management with a focus on doing what’s right for its more than 34,000 clients, The Mutual Fund Store is a nationally branded, independent Registered Investment Adviser (RIA) organization. Today, the company’s system* of fee-based RIA firms includes more than 100+ company and franchise locations across the U.S., which include affiliated companies and independently owned and operated franchises.