Many members of the exhausted "sandwich generation" are trying mightily to avoid getting squished. As the generational label indicates, they are in the middle: supporting both an aging parent and their own (in many cases, adult) children — and all the while coping with their own financial needs.
It's a challenging, stressful scenario, in which emotions run high and where sandwiched folks may be near their wit's end.
If ever there was a situation where financial advisors can distinctly demonstrate their worth, this is it. Clearly, it's a prime opportunity to deepen client-advisor bonds and to create new relationships.
"As financial advisors, we ideally have our arms around all the moving parts as people go through different life cycles with an appropriate plan in place," says Kim Murphy, financial advisor with Edward Jones in Santa Rosa, California. "But sometimes a prospective client in the squished situation will come in and say, 'Wow! I don't know how to deal with this!'"
The number of people who may encounter the sandwich bind is worrisome: 42% of Gen Xers and 33% of baby boomers are supporting a minor or grown child and have a parent age 65 or older, according to a 2013 report from Pew Research Center. Moreover, 15% of Americans in their 40s and 50s are providing financial support to both an aging parent and a child, Pew notes.
What's responsible for this predicament? Longevity is a chief cause: Today, many people are living into their 80s and even 90s. At the same time, aging boomers are burdened by more health issues and accompanying high medical expenses than were their predecessors, a 2015 USA Today analysis of Medicare data has found.
As for young adults who fail to be self-supporting, a college degree takes longer to earn nowadays; and student debt has been rising precipitously. That, coupled with a wishy-washy jobs market, has forced many grown men and women to seek shelter back in their parents' homes.
A host of financial issues come into play with the squished phenomenon: cash flow, asset management, insurance coverage and taxes, among others.
Probably the worst action pre-retirees can take during this fraught period is to withdraw savings from their retirement accounts.
"It's really important that in caring for a family member, the client doesn't sabotage their own financial picture and diminish resources they may need for their own retirement," says Eleanor Blayney, consumer advocate for the Certified Financial Planner Board of Standards and formerly a practicing CFP.
As several sources for this article framed it: "Put your own oxygen mask on first." That is, if you're not taking care of yourself, you won't be able to care for others.
This isn't being "selfish," Blayney stresses. "It's being prudent."
Plans Required
Though the squished dilemma doesn't crop up with most clients, it's prevalent enough — and serious enough — to warrant what-if contingency plans for all clients.
Well before signs of a crisis loom, advisor Murphy sits down with clients to discuss the issues.
"We look at a variety of strategies," she says. "For example, if the client says, 'Mom and Dad are going to have some problems because they're living off Social Security, and we may need to take care of them — they don't have long-term care insurance,' we consider different scenarios."
Murphy uses financial-assessment software to identify possible costs of both at-home and nursing-home care.
"We put these numbers into the client's financial plan and see how they would impact their ability to retire at the level they want to, "Murphy says.
The earlier FAs hold such conversations, the better prepared clients will be should they find it necessary to keep three generations afloat. It is critical that they identify family members who are likely to be financial liabilities.
However, "it's hard for people in their 30s, 40s or 50s to get their heads wrapped around this because human beings are very short-term in their thinking: They don't like to think about bad things that might happen 10 to 40 years from now," Murphy says. "But we see high stress points in families that don't have discussions about these issues and don't plan for them."
Hence, advisors should provide clients with a road map to manage effectively and ways to directly address their concerns with parents and adult children.
At the same time, pre-retiree clients must stick to their plans to save steadily for retirement and medical needs in later years. Thus, revamping investment portfolios to provide funding for others is a poor strategy.
"You have to plow ahead with your own needs first," says Karen C. Altfest, Ph.D., principal advisor and executive vice president of client relations at Altfest Personal Wealth Management in New York City. "What I worry about most is someone taking money out of their retirement account — because often they don't pay it back or realize the possible consequences in taxes and even penalties. It's scary."
Indeed, clients have deliberately put aside assets exclusively for their retirement years, so "to redeploy these for others' needs should not be the first line of defense," Blayney notes.
For instance, tapping into a 401(k) plan must, by all means, be avoided.
"This could be detrimental to the client's own retirement and financial independence if there is no cohesive plan in place for such an action," says Douglas A. Boneparth, financial advisor and vice president, Life and Wealth Planning, in New York City, whose BD is Commonwealth Financial Network. "If you're shooting from the hip emotionally, you're more than likely to make a financial misstep."
Further, investing beyond a client's established risk-tolerance level to boost investment returns likely will spell disaster — all around.
