About the author: Lamar Watson, CFP®, is a Fee-Only Financial Advisor in the Washington, D.C. area that works with clients virtually across the country. Lamar's work with his clients focuses on budgeting, employee benefits, paying down debt, buying their first home, and investing. Lamar is the Founder of Dream Financial Planning, a virtual Fiduciary Financial Planning firm specifically designed to help young professionals and minorities take control of their finances and fulfill their dreams. Feel free to schedule a complimentary consultation to learn how we use the DREAM Financial Planning Process ™ to help our clients achieve their goals.
Since 1994, the fourth Sunday in July has been celebrated as National Parents Day. This holiday was established with the purpose of “recognizing, uplifting, and supporting the role of parents in bringing up their children.”1 As a parent, you have one of the most important jobs in the world - raising and encouraging the next generation. Some parents, however, may find that they’re sandwiched between raising their kids and caring for older loved ones. Aptly named the “sandwich generation,” those in their 40s and 50s may be feeling the pressure of being stuck in the middle. In fact, a recent study suggests almost half (47 percent) of adults are a part of the sandwich generation.2
If you’re a loving parent and an adult child caring for parents of your own, how do you strike a balance between your financial wellbeing, your child’s needs, and your parents?
Understanding Your Situation
You may feel compelled to provide care for your aging parents in addition to raising children, meaning you don’t mind the added responsibility. But stretching yourself financially between saving for college, preparing for your own retirement, and covering your parents’ costs can be a tough situation to find yourself in. And depending on how much care your kids or parents require, your income stream could be affected.
That’s why protecting your own financial standings when caring for loved ones should remain top of mind. Finding that balance is, of course, easier said than done. But here are a few ways to ease the financial toll of caring for elderly parents while being a parent of your own.
What Issues Should I Consider For My Aging Parents?
Becoming a caregiver for aging parents can be a drain physically and emotionally. It can also carry financial ramifications both for parents and for the caregiver children. Working to understand and manage the financial issues involved can make the situation a bit easier.
This is a comprehensive checklist of the types of financial issues you should consider if you're caring for aging parents. In this checklist, we cover several financial issues that you need to consider when faced with helping and potentially caring for aging parents, including:
- Be sure to examine your parents’ finances to determine if they can manage their own expenses. There may be sources of income available to your parents that they're unaware of.
- It’s important to ensure you have access to your parents’ important documents, such as any estate planning documents. You should have the names and contact information for any advisors their parents use, such as an attorney, financial advisor, or accountant.
- If your parents need long-term care, they will need to investigate ways to cover the cost. Medicaid planning or a reverse mortgage might be options.
- If your parents' estate is over a certain amount, they may have an estate tax issue. It’s also important for you to ensure that your parents’ beneficiary designations on insurance policies and retirement plans are up to date and that they reflect their wishes.
- You need to ensure that your parents’ tax situation is in order, managing any capital gains or losses, as well as fully utilizing any deductible medical expenses.
- It's essential for you to have a handle on all of your parents’ assets, liabilities, and all related financial issues as a time may come when their parents are unable to manage their own affairs.
Tip #1: Build Your Support Network
Sometimes people feel like they need to shoulder all of the responsibility in caring for elderly parents. You may be the oldest sibling in your family, considered the most responsible, or live the closest to Mom and Dad. But if you find that the caretaking is becoming too much for one person, it may be time to have a transparent and honest conversation with your siblings or other family members. They may not know just how much added responsibility you’ve taken on, and they may be just as eager to help.
Family members aside, it can be beneficial to gather a team of financial professionals as well. Your Financial Planner, for example, can help keep your financial priorities top of mind while also developing a game plan for managing your caretaker responsibilities. Other professionals you may want to engage with could include an accountant, estate planning attorney, insurance agent, and college planning professional.
Tip #2: Keep Your Savings Goals in Mind
Remember, you can not help others financially or otherwise if your own financial standings are in jeopardy. For example, trying to put a kid through college while caring for aging parents can drain your savings quickly if you aren’t careful. That’s why making your own financial goals a priority isn’t easy, but important.
This checklist covers 21 of the most important planning issues to identify and consider when trying to determine how to fund their child’s college education. It’s structured as follows:
- Financial Aid Issues
- Funding Issues
- Qualified Account Issues
- Tax Planning Issues
In fact, staying focused on your long-term financial goals (like retirement) can actually be thought of as a way to protect your own kids. Emptying your retirement accounts early, or neglecting to save enough for retirement, could leave you in a bad spot later in life. In turn, your children may find themselves providing for you financially while they’re raising kids of their own. Remembering to prioritize your long-term goals now can help set you, your children, and your grandchildren up for a less stressful financial future.
Tip #3: Create Boundaries For Your Children
If your kids are college-age or older, you may be able to set financial limitations with them. This won’t be easy, but it may be necessary for certain circumstances. If they don’t already work, encourage them to find a part-time job. And if they’re already earning an income, help your kids develop a budget and become as self-sufficient as possible. You may even find that your kids can rise to the challenge when presented with the opportunity and learn good money habits from being less financially dependent on their parents.
If your kids are younger, start working with them to understand the importance of saving versus spending. That way, when they’re old enough to start earning money of their own, they’ll be well-prepared to work toward financial independence from you.
Tip #4: Consider Investing in a Long-Term Care Policy
If you're contemplating Long Term Care (LTC) Insurance for yourself or a loved one, please review our checklist below. This can be a complicated analysis, dependent upon an individual’s age, health, financial circumstances, wealth transfer goals, and general philosophy. As a result, you may struggle and be reluctant to weigh the risks and benefits and assess LTC coverage's potential value. Please feel free to contact me if you have any questions.
To help you guide you through this process, we have created This Checklist. It covers key issues to consider before purchasing LTC coverage, including:
A long-term care insurance policy can cover several expenses not typically covered by health insurance. This could include assistance with activities of daily living (ADLs) such as bathing, dressing, and eating. Care may be provided wherever your parents are living - at home, in a nursing facility, or adult daycare.
A long-term care policy is typically bought when individuals are in their 50s or 60s, as a policy can’t be obtained once a person has been diagnosed with certain debilitating conditions or diseases. However, depending on your parents’ health, you may still have time to purchase a policy. If not, you may want to look into obtaining a policy for you and your spouse if you’re concerned about your own future care needs.
Protecting yourself, your parents, and your kids requires careful strategizing, discipline, and planning. It’s a balancing act, but it’s one you don’t have to perform alone. Your Financial Planner can help steer you in the right direction while keeping your financial goals a priority.
Dream Financial Planning Process ™
Whether you're managing student loan debt, starting a family, or considering buying your first home, the DREAM Financial Planning Process™ is tailored to the unique needs of busy professionals in their 30s and 40s. This process focuses more on short-term goals while you grow and evolve in your personal and professional life. So if you're looking for guidance on Financial Planning, optimizing employee benefits, budgeting, student loans, and managing your 401k or investments, we can help.
With uncertainty surrounding the economic stability of our country, it's okay to have fears and anxieties surrounding your own savings and investments. The most productive course of action from here is to reach out to Dream Financial Planning (or whoever your trusted advisor might be) and discuss your options. It's easy to have knee-jerk reactions when it feels like the bottom is falling out, but it is imperative to make decisions using research-backed data and a level head. If you'd like a Complimentary Review and risk assessment of your investment portfolio, feel free to send me an e-mail.
In my July Newsletter, I discuss how to avoid a surprise tax bill. There's also a U.S. News and World Report article where I share a few tips to help you financially prepare for starting a family. If you're planning to build your dream home and/or need a construction loan, that's covered too.
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