How to help ‘sandwich generation’ clients manage care and build wealth

People entering the sandwich generation face a frustrating realization. Just as they’re reaching their peak earning years, they find themselves with both young children and aging parents whose needs can sap their savings and productivity.

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Wealth advisors say having early conversations with aging parents, maximizing employee benefits and fully understanding HSA accounts can help clients who find themselves in the middle of this squeeze.

The sandwich generation is composed of nearly 1 in 4 U.S. adults, according to the Pew Research Center, as well as more than half of Americans in their 40s. Their financial responsibilities ping between working toward contributing to their own retirement savings, funding their kids’ needs and saving for their college education, and covering their parents long-term costs, or even caregiving for them. 

READ MORE: 1 in 4 Americans are ‘sandwiched’ between their parents’ and children’s expenses

But managing all three can be stressful, and it takes a hit on financial health. A recent survey from the Employee Benefit Research Institute found unpaid caregivers face greater financial strain, as well as lower retirement confidence and more concern about future retirement risks. 

The survey also found that nearly 3 in 10 Americans age 25 or older are unpaid caregivers. With the affordability crisis and increasing life expectancy, more  Americans are expected to become their family’s middlemen. 

Right now, most sandwich generation members are primarily Generation X and millennials, said Catherine Collinson, founding CEO and president of nonprofit Transamerica Institute. 

Financial Planning spoke to experts about how wealth advisors can approach planning for sandwich generation members so they can manage taking care of their families while contributing toward their own retirement goals.

Have conversations with parents early

More likely than not, clients will have to be financially responsible for their parents’ care at some point, said Miklos Ringbauer, founder and principal of Southern California-based MiklosCPA. That is often true due to their lack of their parents’ retirement savings. 

READ MORE: Americans are living longer. Advisors say retirement planning hasn’t caught up

Discussing financial matters with parents who are still active and working will help clients plan for their own kids’ long-term savings, having a positive effect on the entire family’s financial well being. 

“What if your kids are coming to say, ‘I want to go to college out of state,’ and you have to say, ‘Honey, I can’t afford it, that will be just too much financial pressure,'” Ringbauer said. “Having these discussions on both ends is so vital, and many families don’t.”

Understanding the assets that aging parents have ahead of time and creating a plan around them, like selling their home and putting the funds into an irrevocable trust for medical expenses, can help clients plan for their parents’ caregiving or their own retirement later down the line. 

“If you have five to 10 years, you want to explore all of these alternatives so it’s less financial stress on you,” Ringbauer said. “Whatever you end up spending on your parents or your kids, that’s how much less you will have in order to secure your own future.”

READ MORE: The estate planning ‘haircut’ advisors should know about

For the sandwich generation, discussing their parents’ assets with their siblings, while keeping open conversations about finances with their own kids, can also ease tension or resentment that overworked clients may feel, Ringbauer added. 

Maximizing benefits and resources

Clients must also have a better understanding of their own income and budgets, in addition to employer resources, Collinson said. Many employers have employee assistance programs that can reduce the stress employees endure when caretaking on top of their jobs. 

Her employer’s assistance program pointed Collinson toward a caregiver referral service, which was a lifesaver when she was taking care of her grandmother, Collinson said. 

“I had burnout and I was tearing my hair out. I just needed a break,” Collinson said. “One of my coworkers said, ‘We have an employee assistance program.’ Sure enough, I called them and in 24 hours, they had researched and done due diligence on three different agencies.”

More employers are offering dependent care FSAs, a crucial tool for sandwich generation members, Ringbauer said, since dependent care, either for childcare or elder care, is a pretax deduction. 

READ MORE: Long-term care costs outpacing retirement income: AARP

This is beneficial for high-tax earners in the 30%-plus bracket, Ringbauer said. 

“Plan appropriately. Understand when and where you have to be involved,” Ringbauer said. 

Clients should also know when to put their parents on their health insurance as a dependent or when their parents qualify for Medicare. Some employers will not cover insurance for those 65 and older. 

Like Ringbauer, Collinson said understanding what Medicare does cover and what will have to be paid out of pocket can help prepare for future medical emergencies or major expenses for aging adults. 

“Do the homework,” Collinson said. “With human nature, people may go for the less expensive coverage, thinking they aren’t going to need it, or they’ll just deal with it when the time comes. Based on their health situation, they may be better off choosing a higher level of coverage.”

READ MORE: The Medicare trap costing clients thousands 

Use HSA benefits

Using HSAs for medical expenses can be a big savings since they are funded with pretax dollars and grow tax-free, Collinson said. 

Collinson said using HSA benefits, along with not tapping into retirement savings ahead of time, are best practices to prepare for retirement while still supporting multiple generations of a family. 

If they draw from retirement funds — which can include tax-deferred savings — clients may have to pay income taxes when they’re already financially overworked. 

“If you have only a finite amount that you can save, be very mindful of how you allocate those retirement savings dollars, the HSA dollars, and basic savings accounts,” Collinson said. “Because the issue with tapping into retirement savings is you might be able to take a plan loan and pay yourself back, but there’s still a fairly significant percentage of people that end up taking early withdrawal.”