How can you save for retirement as a member of the sandwich generation?
I recently saw someone who asked just this question:
My family has never been considered wealthy. Every generation has been lower to lower middle-class workers. My grandmother, aunties, and now my mom have worked doing odd jobs their entire life earning just enough to get by. Due to their jobs, they do not qualify for social security benefits and they never had the opportunity to save for retirement. It was always considered the younger generation’s responsibility to care for them in their old age.
Now, it is my turn and I don’t know what to do. I am in my early 40s and have 2 kids of my own, 11 and 15. I can see that my mom is getting older and won’t be able to keep doing the work she’s done for much longer. She expects me to take care of her when she can’t work full-time anymore.
I’ve been reading about the FIRE (Financial Independence Retire Early) movement. With my current middle-class job, I want to build a retirement for myself so MY kids never have to financially take care of me in my old age. We can end the cycle.
How can I build my own retirement savings while still taking care of my kids and soon-to-be my mom? I’m Stuck In The Middle!
Dear Stuck In The Middle,
You are not alone. This is the situation in so many families.
In the past, it was expected that by the time your kids moved out on their own, you would have years of empty nesting before needing to care for your parent.
But now:
- Recent generations have waited longer to have kids. Many start their child-rearing closer to their late 20s or early 30s as opposed to the late teens and early 20s of generations past. Some people are even waiting until their 40s to start having kids. This means that instead of having those high-earning years to stockpile for retirement, families are still paying for private school and gymnastics in their 40s and 50s.
- People are living longer, and the years spent taking care of elderly parents are much longer than in the past. In 1900, the average life expectancy was 47. In 1950 it was 68. As of 2021, the average life expectancy is 76. That means the time spent needing care in your old age can potentially be much longer.
But even with this pressure from both sides, there are steps you can take to build your own retirement.
Sandwich Generation- Take Parent Care Into Consideration When Calculating Your FI Number
Many of us following the FIRE movement are slightly obsessed with our “FI Number.”
This is the amount needed in investments to cover our living expenses indefinitely. Many people use the 4% Rule and require 25 times their living expenses in investments to feel financially free.
Others are more conservative and want to use only 3%, needing closer to 30 times their living expenses in investments to feel ready to retire forever!
Whichever rule you feel more comfortable using, make sure to consider the necessary care your parents will require in your number.
Figuring Out Your FI Number
If you figure that you will need $60,000 a year (increased annually for inflation) to be financially independent, you would need to have $1,800,000 in investments before considering yourself Financially Independent.
$60,000 X 30 = $1,800,000
But if your parent will also need an extra $30,000 a year in care and expenses, you will need to take this into consideration when building your own retirement savings.
Now, you could just add their number to yours:
$60,000 + $30,000 = $90,000
Then figure out your joint FI number that way:
$90,000 X 30 = $2,700,000
But that is probably out of reach for most people (Heck, FIRE, in general, is a feat on its own, let alone FIREing for both you AND your parent. But that’s what Stuck In the Middle asked, so, that’s what I’m throwing out there. :))
Remember, your parent probably isn’t going to live as long as you. There is a high likelihood you won’t need the full amount to ensure you BOTH have a good retirement for 50+ years.
You can probably expect to have their extra expenses for closer to 20 years or so, whereas I usually calculate our own retirement for 50 years.
If you’re only going to cover their expenses for 20 years, you can probably get away with an FI number of $2,100,000. Still a huge number but much closer to your own personal FI number.
Please remember, this is a very high goal. If you start investing early enough, it can totally be accomplished but it is not going to be easy. Keep these other tips in mind when trying to figure out your finances as a sandwich generation.
Sandwich Generation- Prioritize YOUR Retirement
You know how on a plane they say to put on your own oxygen mask first before trying to assist others, it’s the same for retirement savings. Prioritize your financial security in your older years before helping others.
Your Kids Can Get Loans For School, But You Can’t Get A Loan For Retirement
All parents want to set their children up for success. Send them to the best schools, participate in all the extracurricular activities, and usually, pay for their college.
With student loan issues all over the media, of course, parents want to make sure their kids won’t get saddled with debt after college. But really, your little future college student has so many options to pay for their education besides just loans or Bank of Mom & Dad:
- Scholarships
- Work Study
- Apprenticeships
- Instate Public Schools
- Certificate Programs
- Tuition Assistance from Employers
- Even Military Service
- Or stretching out their college classes while working and paying cash
If you are having to choose between paying for your kid to go to college or saving to ensure you have a financially secure old age, strap on your mask first. Ending the cycle of being responsible for your parent’s financial needs for your child is a much bigger blessing than paying for college.
Take advantage of Tax-Advantaged Retirement Funds like your 401K and IRA. Put away as much as possible each paycheck. Make it a priority.
Once you are sure you can breathe, then you can start assisting your kid. And if they’ve been raised right, they will probably already have their own mask on by the time you look over anyways.
Look For Alternatives
When you’ve got both young children and your parents looking to you for support, it can become overwhelming. Look for alternatives that might benefit you all.
- Could you add a “Granny Flat” in your home so that you can share a living space with your parent to cut down on living expenses? This could also bring them closer so that you can more easily manage any necessary care. (Some family dynamics would not let this work)
- If your parent is healthy enough and you have young kids, could they watch them while you’re at work or help cook meals? You can save on child care and they gain funding and purpose.
- If living together is not an option, could your parent downsize to a smaller home? Maybe to a community with more social opportunities and less maintenance.
If you’re trying to manage 3 generations of finances, it is usually so much easier if you can all help each other out. Finding ways to lower expenses and increase social assistance can make a huge difference.
Sandwich Generation- Don’t Become an Endless Bank
Most elderly parents who do not have enough retirement savings expect to work, at least part-time, for as long as they can to pay their own bills. Accepting help from their children is often a last resort.
But listening to podcasts and reading group posts, I’ve seen time and again where parents EXPECT their children to care for them financially in old age. They are often in that situation simply because they have been bad with their own finances their whole life.
- Maybe dad always handled the family finances and now that he’s passed, your mom is unsure how to balance a checkbook. (Stay-at-Home Mom, Take Charge of Your Financial Security)
- Or they have always depended on credit cards to pay their day-to-day bills
- Maybe mom has a gambling problem
- Or dad has a shopping addiction
Some parents who have been bad with money expect their kids to just “keep” them as they age. But just because they never had a budget does not mean you don’t have to.
Build a budget that you can afford and that both of you can agree on. If you have siblings, figure out how much each of you can reasonably contribute so your parent’s care does not become too large of a burden on any of you.
“Sorry mom, I can help with your rent and electricity, but you may need to take on some part-time work at the fabric store if you want to go to the Casino every month.”
And if they need help managing their money, work with them to ensure you are both successful.
Don’t Be Too Proud To Get Support
There is a bad stigma about people using social support systems, but food stamps, housing, and medical assistance are all there for when you need it. Don’t live in destitute poverty just because you’re too proud to ask for help.
If your parent is in need and you are unable to support them as much as they need, encourage them to apply for state or local assistance programs. Even if they only qualify for a minimal amount, every little bit helps.
Wrap-Up
When you’re trying to get your own finances in order and end the cycle of family poverty, it can be extra hard when you are stuck in the middle. Caring for both children and aging parents while trying to build your own secure retirement is hard.
But be proud of what you have already accomplished. Work together and set boundaries.
You all might have to make some adjustments to fit into each other’s lives, but with the right planning and persistence, you can all fit together like a Peanut Butter and Jelly Sandwich.