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Three generations of a familyBeing part of the sandwich generation – meaning you’re caring for aging parents while also raising children – can create unique challenges in shaping your financial plan. You may be trying to balance the financial goals and needs of your spouse and children against the financial needs of your parents when it comes to things like paying for health care or simply managing everyday expenses. If you’re caught in the financial squeeze, it’s important to rethink your approach to short- and long-term planning when it comes to your money.

Sandwich Generation, Defined

Unlike other generational labels, like Gen X or millennial, the sandwich generation doesn’t necessarily apply to people born at a particular point in time. Instead, being part of the sandwich generation means that you’re caught between two other generations: your parents and your children.

The duties and financial responsibilities you may have as part of the sandwich generation can vary. A 2018 MassMutual study found that 55% of individuals who identified as part of the sandwich generation perform chores for their aging parents or in-laws. Forty-nine percent help with financial tasks for adults they care for, such as paying bills, while 31% bear complete financial responsibility for their parents or in-laws.

At the same time, those individuals are also responsible for the day-to-day duties involved in running their own households. That includes things like working out of the home or working from home, taking care of young children, managing household chores and of course, paying the bills.

Sandwich Generation Financial Planning Challenges

Taking care of both parents and children can present some unique challenges, especially if you’re also providing financial support on both sides.

Some of the biggest challenges you might face include:

It can be easy to become overwhelmed when you have competing responsibilities and goals. And not just financially either. In the MassMutual study, 27% of sandwich generation families said that playing a dual caregiving role added to their family’s emotional and financial stress.

How to Manage Your Finances as a Caregiver

A grandfather with his daughter and granddaughterBeing in the middle of two generations means the traditional approach to financial planning may not work. But that doesn’t mean you have to give up on your money goals entirely. Instead, you can use these steps to create a financial plan:

  • Talk to your parents about their money situation. This step can be uncomfortable if your parents aren’t open when it comes to talking about money. But it’s not one you can skip. If you’re assuming caregiving duties, you should have a clear understanding of where your parents stand financially, in terms of their savings, debt, retirement income and what their expenses will be going forward.
  • Set expectations early on. While you’re having the money talk with your parents, it’s important to establish expectations for what you will or won’t do as a caregiver. For example, you should be aware of whether they’re expecting you to handle their physical day-to-day living needs or also offer financial help. And if they are expecting financial help, you should understand what that means. There can be a huge difference between helping them stay on top of bill payments and assuming total responsibility for their bills and debts.
  • Review your budget. Being in the sandwich generation can add new expenses to your budget if you’re paying some or all of your parents’ bills. It can also affect your income if you’re working less or staying home to act as a caregiver while your spouse or partner continues to work. When caregiving shrinks your income, that can directly affect your ability to save and pay off debt. A thorough review of your budget may be necessary to determine how much you need to cut spending and where you can make those cuts.
  • Prioritize saving. It’s tempting to stop saving for retirement or stop adding to your emergency savings if your income decreases. But that can do more harm than good if you end up with a financial emergency you need to cover or you hope to retire comfortably yourself someday. If your budget is already tight, the better option may be to reduce your savings rate, rather than cutting it all the way down to zero. And remember, that if you aren’t saving enough in your 401(k) to at least get the company match you’re leaving free money on the table.
  • Think long-term. There are two big expenses you may have to contend with as a sandwich generation caregiver: paying for college for your kids and paying for long-term care for your parents. College savings plans can help you set aside money on a tax-advantaged basis for education expenses. If you’re still contributing to your retirement account and you have a decent amount of emergency savings tucked away, then you may consider opening one of these accounts even if you can only save a little each month. Long-term care insurance is something you may also want to look into with your parents to help cover the costs of long-term care if one or both of them eventually needs to be moved to a nursing home.
  • Revisit estate planning. Estate planning is another area to tackle, for yourself and your parents. When reviewing both of your estate plans, start with the basics first. For example, do you and your parents have an up to date will? Do you have life insurance? If not, you can address those first. From there, you can look at other things such as whether either of you may need to establish a trust or whether you may need to assume conservatorship for your parents down the line to manage their financial affairs.
  • Keep taxes in sight. Reducing what you owe at tax time via deductions or credits can help put money back in your pocket to help reduce some of the financial strain of caregiving. As a parent, you may qualify for credits like the Child Tax Credit or credits for paying higher education expenses. The Child and Dependent Care Credit can be used to recoup some of the cost of child or adult daycare you pay for an eligible dependent.

Remember to revisit your financial plan at least once a year to see if you’re still on track with your goals. And keep in mind that your plan may need to be adjusted as your children get closer to college age or your parents’ medical care needs increase.

The Bottom Line

Three generations of a family on the beachBeing part of the sandwich generation puts you in a unique position where your money is concerned. Having a comprehensive financial plan can help you avoid hurdles that could otherwise make it more difficult to save or reach your money goals. The more detailed your plan is and the more you take advantage of financial tools, such as tax-advantaged savings accounts and life insurance, the better off you may be in the long run.

Tips for Investing

  • Consider talking to a financial advisor about how to manage your financial plan if you’re taking care of parents and children. SmartAsset’s free tool  can match you with up to three local financial advisors, and you can choose the one who is best for you. If you’re ready, get started now.
  • A key part of financial planning in the sandwich generation involves Social Security and Medicare. Specifically, that means helping your parents decide when to take Social Security if they aren’t receiving benefits yet while also thinking about your own Social Security plans.

Photo credit: ©iStock.com/monkeybusinessimages, ©iStock.com/vorDa, ©iStock.com/doble-d

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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