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The demographics of the United States are fast changing, and so is the financial landscape. As a result, you may have no choice but to help your parents and kids financially. You may feel like you’re being sandwiched between the costs of having elderly parents that need care and having children that still require some financial support, all while trying to plan for your own retirement at the same time!
The generations from baby boomers on up are starting to hit an age in which they can’t function the way they used to. This puts a burden on their children to help their parents lead a dignified and enjoyable life, but this can be very expensive. With 28% of Americans with parents who are still alive saying that it is or will be their responsibility to care for their parents, this isn’t a fringe issue in the least.
It has been shown that 86% of this group are unsure of their ability to properly support their parents during this period. Retirement planning has always been a hot topic, especially with people living longer lives and pensions becoming much less common, but now it’s truly a problem area.
The real problem comes from the sandwiching effect mentioned above.
Perhaps you already feel the effects of your efforts to your help your parents and kids financially. It may feel like your finances are being spread too thinly.
And if your plans fail, this may create a vicious cycle in which you end up needing assistance from your children because of the financial support you were busy giving your own parents.
Causes of the Sandwich
There are two major roots of this problem.
First, increasing life expectancy makes the idea of retirement planning much more complicated.
Second, college education costs for kids are continually going up while their likelihood of being able to afford a house of their own is going down.
Life expectancy has increased from 63 in 1940 to 79 in 2010, and while this is a good thing in a lot of ways, it’s also challenging how people handle their finances.
In the 1940s, you were lucky if you lived past retirement, so you either had a few years of savings to get through or your pension would support you until you died.
Now, retirement may last for decades, which has led to people running out of money later in their life and requiring the support of Medicaid.
Caring for children can be equally expensive. When kids are younger, costs for daycare and school expenses can be quite burdensome. It gets worse as they get older and go off to college. Higher education and the industries based around it are constantly getting more expensive.
And this high cost of college doesn’t even mean that kids are going to be financially independent once they graduate.
In fact, it’s very possible that kids need to move back in with their parents until they find a good enough job to move out and rent a place of their own. This takes the idea of saving up for a down payment on a home off the table.
What You Can Do To Protect Yourself
All hope is not lost, though. If you use the five steps outlined below as a starting point, it’s possible to help your parents and kids financially and protect yourself from being in a vulnerable position several decades down the line.
1) Talk About It
The topic of care giving and future planning can be difficult, but the worst thing that can happen is that it’s avoided and certain assumptions are allowed to live on.
The sooner you talk with your family, the sooner you can build a plan for how everyone is going to stay happy without you being bankrupted in the process.
2) Get Organized
As your parents get older, they will lose their ability to manage their financial and legal lives. The only way to wisely make decisions is to have all their information.
Make sure to organize all of your family’s important legal and financial documents so you’re ready for any emergencies, should they occur.
3) Meet With an Advisor
Managing money isn’t your job, and you probably aren’t aware of all the options that are available for your parents. Finding an accountant that specializes in investing for retirement as well as the living options for the elderly will take the pressure off of you when it comes to making decisions.
A common mistake that results from not properly communicating is holding onto an expensive house too long. Often you’ll see parents staying in a house because they want to pass it onto their children. The problem? Their children are happy where they are.
Big houses often mean expensive upkeep. They’re not always worth it for families that don’t need it.
Whether this applies to you or your parents, downsizing can both increase the amount of cash you have on hand, and decrease the costs that are eating at your nest egg.
5) Don’t Compromise Your Future
As much as it may pain you, you do have to look out for yourself and your partner first. If you compromise your future to help your parents and kids financially, you won’t have the safe and happy retirement you planned for in the first place.
This doesn’t mean you should turn your back on your parents or cut off your children, but every request or expense should be treated with careful consideration. When it doubt, protect yourself!
You Can Help Your Parents and Kids Financially Without Going Broke!
Most of these tips are centered on caring for your parents, and that’s because they are more avoidable and realistic. You likely already had a plan involving your children – that’s why you had them.
If you want to get your kids to help reduce the financial burden, find a time to discuss the importance of choosing a major that will actually lead to a job, and tell them that even though they are welcome to move back home, freeloading won’t be an option. (And remember, college isn’t always for everyone!)
All of this may seem difficult and uncomfortable for you, but you will be able to navigate your way through it and get to your own retirement in a few years. Just stick to your plan and continue to have the tough conversations that will help your family stay happy with each other.
This guest post was contributed by Troy Martin.
Troy has been married for 27 years to his wife Shauna. They have six active children and they love to participate in many extracurricular activities including: boating, flying, mountain biking, hunting, fishing, horseback riding, and adventure motorcycling (pretty much whatever will get them outside).
Troy has a vast amount of experience in the following business sectors: medical, dental, manufacturing, retail, restaurants, construction, farming and ranching.
He is a shareholder in Cook Martin Poulson, a Utah Accounting Firm.