Many of us feel a deep-seated desire to assist our parents as they age, mirroring the support they provided us during our childhood. However, this noble intention can often present significant obstacles, particularly for those in their 40s. This demographic, commonly known as the “sandwich generation,” faces the dual challenge of managing the financial needs of their elderly parents while also caring for their children.
According to a 2022 study conducted by the Pew Research Center, over half of individuals in this age bracket (54%) have at least one living parent aged 65 or older and are either raising a child under 18 or providing financial support to an adult child.
Many families find it increasingly difficult to save adequately for their own retirement. The most recent data from the Federal Reserve, revealed in the 2022 Survey of Consumer Finances, indicates that the average retirement savings for all families in the United States stood at $333,940, while the median savings figure was much lower at just $87,000.
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Despite the challenges, it’s crucial to understand that assisting your parents doesn’t mean sacrificing your own financial future. There are various ways to offer help, each requiring different levels of commitment. Below are three key areas where you can support your parents while maintaining your financial strategy.
1. Estate Planning
Advise your parents to create or update their estate plan. This should encompass individual wills, trust documents, durable powers of attorney, and medical directives, all of which must be correctly executed. Request a copy of each document from your parents so you can review them together and keep backup copies handy in case theirs are misplaced, especially during emergencies.
As a best practice, estate planning documents ought to be reviewed for accuracy and completeness every three to five years, particularly as relationships or assets change. Additionally, remind your parents to check and update the beneficiary designations on their retirement accounts, such as IRAs and 401(k)s.
2. Cash Flow Planning
Many older adults have concerns about managing their finances each month. Unexpected medical expenses not covered by Medicare or supplemental health insurance can quickly burden many households. For countless individuals aged 65 and older, Social Security serves as a primary income source, which may not adequately cover their living expenses.
I recommend collaborating with your parents to assess their household cash flow in real-time. The goal should be to lower discretionary spending where possible and optimize cash flow from all available sources. Keep in mind any potential tax consequences as well. Utilizing a simple Excel spreadsheet can help you and your parents monitor income and expenses, or you might consider more sophisticated tools such as Quicken or Credit Karma.
If feasible, encourage your parents to establish and maintain an emergency savings account with a balance of three to six months’ worth of their average monthly expenses. This account should ideally be kept in liquid cash for easy access to cover unplanned costs.
3. Tax Planning
Having a knowledgeable and proactive tax professional can significantly benefit your parents. Such an expert can assist them with managing tax duties, including making required minimum distributions (RMDs), setting up qualified charitable distributions (QCDs), or gifting cash and assets to family members.
Considering the increasingly complex tax landscape, it’s advisable to consult directly with a tax professional to evaluate your parents’ tax situation. Navigating this area alone can be challenging.
Helping aging parents is a common and ongoing conversation I have with many of my younger clients. It’s rarely a one-time discussion, as their needs and available options change over time. Partnering with a Certified Financial Planner (CFP®) professional is an excellent approach to ensuring that you are aware of your options and can make informed decisions that benefit both your parents and your family.
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This article reflects the views of our contributing adviser and was not produced by Kiplinger editorial staff. For adviser records, you can check with the SEC or FINRA.
