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The Sandwich Generation: Breaking the Cycle to Create Multi-Generational Wealth

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“The sandwich generation” is a term used to describe those people who are simultaneously raising children and taking care of their aging parents, all while trying to plan for their own retirement and personal needs. Being sandwiched in between two generations can create an unsustainable financial situation that introduces new risk, potentially jeopardizing your long-term financial health. Let’s look at some of the common challenges people in the sandwich generation experience and how you can avoid them with the right financial plan.

The 'sandwich generation' problem

The main problem for those in the sandwich generation is simple: you have three generations essentially competing for the same dollars. Long-term care costs for elderly parents can be exorbitant, and the price of college and raising children in general is always increasing. If you are constantly paying for healthcare costs and investing in your child’s future, your own retirement needs can be neglected. Without proper planning, you could find yourself in a perpetual cycle that inhibits the ability to create and maintain true multi-generational wealth.

Negative impact on cash position

Unplanned healthcare costs or other surprise expenses can put a strain on your cash position. This can lead some families to take on costly debt that interferes with long-term goals. Using realistic cashflow forecasting and projections for future expenses can help avoid debt while satisfying all necessary obligations. A team of experienced advisors can also help you find ways to improve your cash position when it becomes of critical importance.

A few questions to ask yourself:

  1. Could you shift the risk of long-term care costs to an insurance company by purchasing a long-term care policy?
  2. Are there other members of the family who could share the financial burden of long-term care costs for mom and dad?
  3. How can you maximize college savings vehicles to ensure tuition costs can be met without significantly straining cash holdings?
  4. Have you exhausted all potential means of financial aid and scholarships before turning to debt to fund college expenses?

By thinking about how your family’s current and future needs will impact cashflow and savings, you can create a plan that provides for all relevant parties without sacrificing your own future.

Failure to save for retirement

The time value of money is central to many discussions of retirement planning. If your early career earnings went to paying off tuition debt (because you didn’t receive support from your parents), followed by your highest earning years being spent paying for children’s college and a parent’s care, your own retirement savings can get neglected. An inability to save appropriately for retirement is what perpetuates the cycle and continues the sandwich generation problems for your descendants. Prioritizing retirement savings that account for the needs of you and your dependents helps to secure a healthy financial future, and can help prevent you from falling prey to the sandwich generation.

Problems within the family dynamic

In addition to the cash flow challenges mentioned above, financial issues involving parents can put a strain on relationships with siblings and other family members.

In addition to supporting their children and parents, affluent individuals may find themselves supporting siblings. Consequently, when cashflow is negatively impacted, difficult decisions regarding who continues receiving support can lead to feelings of resentment and strain on family relationships. In other cases, siblings may disagree on the level of care provided for their parents, which can spark ugly disagreements about what is best and what is financially possible for parents.

Solid financial planning can help avoid these issues and allow continued support for all loved ones while ensuring care-related expenses have been planned for.

The key is to address the issues before they become problems. Agreeing on a plan before emotions get involved will most often result in a better outcome.

Breaking the cycle

By taking a disciplined financial approach, those who find themselves in the “sandwich generation” can break the cycle of financial dependence and identify problem areas before they become bigger issues. Creating and executing a comprehensive financial plan that accounts for current and future liquidity needs and adequately plans for retirement, college and long-term care, can help serve as a guide to financial independence for everyone in your family and facilitate true multi-generational wealth.

Would you like to learn more about multi-generational wealth for your family? Contact Granite Harbor Advisors today and we can set up a call to discuss your situation and ways we can help you achieve the future you want for yourself, your parents, and your children.

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