One in seven middle-aged Americans is financially supporting both an aging parent and a child.1 If you’re part of this group, dubbed the Sandwich Generation, then you likely already know how challenging it is to save for retirement while supporting three generations.
For example, you might lose income due to time spent caring for parents or children. Or you might be tempted to cash out your retirement account to pay an elderly parent’s medical bills. The fact is, it’s hard to maintain your focus on a long-term savings plan like retirement when you’re faced with problems like these, says Wade Pfau, a professor of retirement income at the American College in Bryn Mawr, Pa. “People want to save for retirement adequately,” he says. “However, they have so many short-term expenses competing for a limited amount of income.”
Here’s a look at financial strategies for dealing with these sandwich generation challenges.
Prioritize your retirement savings. Your children may get a scholarship or take out loans to pay for college, but no such assistance exists for retirement. Work with other family members to share the financial responsibility for elderly parents and ensure that helping a relative doesn’t jeopardize your own retirement needs. Encourage your parents to look into buying long-term care insurance, which could help defray some costs down the road. Also, to the extent that you can foresee expenses you’ll cover for your parents or child, include them in your budget. And consider helping your teenager find a part-time job to fund some of his or her own expenses. You can also use an online savings calculator to help see what you need to do to get to your savings goal.
Take advantage of tax breaks. If you provide more than half of your child or elderly parent’s financial support for the year, you may be able to get a tax deduction by claiming them as your dependents. Children generally need to live with you to qualify as dependents (although there are some exceptions), while dependent relatives do not.2 You might also be able to deduct some caregiving or childcare costs. When possible, use a tax-advantaged account such as a 529 or 401(k) to save for college and retirement, as these accounts can help your savings grow more quickly. Consult your accountant or tax preparer to discuss ideas to maximize your tax savings.
Explore outside resources. You don’t have to do it all yourself. Aging parents may have some of their medical needs covered by Medicare, so check medicare.org for state-specific resources and other information. If your parents have a long-term care insurance policy and are unable to take care of the functions of daily life themselves, it may be time to file a claim for long-term care. The U.S. Administration on Aging operates an Eldercare Locator (eldercare.gov), a searchable directory of providers. You can also find senior care or childcare providers in your area at care.com.