I'm My Parents' Retirement Plan: How the 'Sandwich Generation' is Providing Financial Support for Their Kids AND Parents

Here are some tips to start managing your money in a way that mitigates financial strain if you're currently a "sandwich" caregiver or are planning to become one. 

An image of a woman's hands holding a piggy bank.
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As the eldest daughter of immigrant parents, I knew from a young age that I would be partly responsible for caring for my parents, financially, in retirement. My parents worked two jobs each to provide for their children, and their money was spent on survival. Because of this, my parents have very little in savings set aside for their own futures.

It's a responsibility that I am more than willing to make work. However, balancing my finances to provide for my own needs, raising my own future family, and preparing to support aging parents is at times an overwhelming task.

More than 11 million Americans are considered the "sandwich generation," a term coined by social worker Dorothy A. Miller to describe adult children of the elderly who are "sandwiched" between caring for their own children and their aging parents. The National Alliance for Caregiving and Caring Across Generations found that 1 in 5 sandwich caregivers reported feeling financial strain as a result of being a caregiver.

Here are some tips to start managing your finances in a way to mitigate that financial strain if you're currently a sandwich caregiver or are planning to become one.

Have a transparent conversation with your parents and immediate family to establish boundaries and roles.

It's important to establish healthy communication around a subject as important as finances, especially given the complexity of balancing our parents' expectations and our own needs. Understand what type of support your parents will need in the future (are there health concerns that will require moving into a senior home? Or will they live with family?) as well as who, out of your family, will become a primary caregiver. Then, establish support roles; perhaps one sibling contributes more financially if another is contributing their time to care for the parents.

Of course, there can be a benefit to having grandparents in the home as additional babysitters, allowing you more time to earn income to support the family. Explore all options, and keep communication open between all family members.

Understand your parents' expenses—and your children's expenses.

Gather the monthly costs for these five key categories of your parents' expenses: Housing (including repairs and property insurance); transportation (gas, car insurance, car emergency fund); groceries; utilities; and medication/healthcare requirements. Then, multiply by 12 to get a yearly expense estimate. This gives you a place to start in terms of how much it will cost for your parents to manage their daily and monthly expenses.

Next, do a similar exercise for your children. Establish expense buckets around things like extracurricular activities, clothing/shoes, school supplies, any savings for their college tuition, and more.

Once you have these estimates in hand, you can begin making changes and adjusting your finances to prepare for these costs.

Understand your available income sources and your parents' income sources.

Identify what pension, social security, or Medicare benefits your parents would qualify for. Gather their work documents to see if there's a 401k match or pension plan, and write down the estimated income they would receive from it.

Next, check in on your own income resources. Is there any opportunity for you, a partner, or a sibling to bring in more household income? Whether that means seeking a pay raise, taking on a part-time hustle in the gig economy, or starting your own side business, explore your options and see if something's a fit. When it comes to improving stress on our finances, being able to bring in more income alleviates the need to cut expenses any further than necessary.

Create a realistic budget plan—looking after your own financial needs first.

It's really important that your own financial needs are accounted for to prevent that financial strain. There are multiple budgeting strategies to choose from, from zero-based budgeting to the 50-30-20 rule or apps such as Mint or You Need a Budget. Once you select a budgeting style that works for you, ensure that your household expenses are accounted for (rent, utilities, transportation, groceries, minimum debt payments, and your own savings goals).

Whatever is left over from subtracting your expenses from your income, those are funds that you can realistically set aside for caregiver expenses or for your children's needs.

Open up specific savings accounts.

If your parents are still in their working years, make sure they have access to either a 401k through their employer or a Roth IRA so that they can start saving towards their retirement if they haven't already. Leverage the expense estimate from earlier, as well as any income sources that will be available; the gap that's not currently covered by those income sources is what you can begin saving for in a separate, high-yield savings account dedicated towards your parents.

For your children, open up separate savings buckets for line items such as extracurriculars, clothing, and gifts in a high-yield savings account.

If you're not able to save consistently each month towards education, then leveraging the power of time and compound interest through investing will grow your money without any extra effort. Explore opening a 529 plan for education expenses where investments can grow tax-deferred.

For more flexibility, a UGMA account is another investment account that allows parents to save and maintain full control until their child is an adult. The funds from a UGMA account can be used towards anything, whereas funds from a 529 plan must go towards education.

Have transparent conversations with your children around finances and create teachable money lessons.

"Try not to make money a taboo topic at home," says Robin Taub, author the Wisest Investment: Teaching Your Kids to Be Responsible, Independent and Money-Smart for Life. "Many parents say they don't feel equipped to handle some of the uncomfortable questions they may get like "How much money do you make? Why can't we afford my dance classes?", she says.

Taub encourages parents to start having these conversations, especially as they struggle providing for multiple generations.

"Keep in mind your child's age, maturity and temperament when answering them. You don't want to burden your kids with your responsibility for managing the household budget, but certainly older children can understand the difference between needs and wants. You can explain that you have to prioritize and balance all of the family's costs of living and that right now, you simply don't have the money to pay for dance classes," she recommends.

Taub also suggests that you brainstorm alternative solutions with your child, such as starting a age-appropriate job like babysitting or refereeing sports, to earn their own money to pay for things such as dance lessons, or enrolling in free school clubs that are open year round. "By having some ownership over their money, whether they worked for it or received it as an allowance, kids will think longer and harder about how to spend it," she says.

For younger children, there are still opportunities to teach financial literacy in everyday scenarios.

"I also encourage parents to look for teachable moments, opportunities to build a money lesson into their daily lives. With young kids, you can play counting games with bills and coins (if you have cash on hand!), you can take them grocery shopping or have them sit with you while you shop online and explain the difference between paying by debit or credit card," Taub says.

The sandwich generation phenomena will only continue to grow as more Baby Boomers retire and young millennial families begin child rearing. The financial stress and overwhelm accompanying adult children and the pressures to care for two generations needs to be a continued discussion within the personal finance space. As a soon to be sandwich caregiver myself, it's integral that I put on my own financial oxygen mask first and ensure my needs are taken care of so that I can be there for my family.

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