Paul Tramontozzi was a 35-year-old trader on Wall Street, with a newborn son and a 2-year-old daughter when his father was diagnosed with Lewy Body Dementia. For the next three years as his father battled the disease, difficult decisions were made on a moment’s notice and Tramontozzi found himself caught between caring for his ailing father and his young children, and unwittingly became part of what’s known as the sandwich generation.
“We didn’t really plan,” he said, “We were always reacting, it was a lot of ‘what do we do now?’” After his experience managing his parents’ finances and health care decisions, he decided to leave Wall Street for Lob Planning Group and became a Certified Financial Planner to help other families be more financially organized.
Looking back on his own experience, he recommends “having an ‘if something were to happen to me’ conversation with your parents early on so that if something actually does happen you aren’t reacting to the situation.” Additionally, he said that having a strong power of attorney is critical.
Initiating the “what if?” conversation between an adult child and their parent can be daunting. The first step should involve gathering all family members, or other individuals who are involved in planning, to come up with a list of questions or concerns such as future care options or who will be responsible for paying bills, according to AARP. It is important to be as direct as possible with an aging parent, but to also understand that this may be a sensitive topic for them to discuss. Though it may be unrealistic to have a plan after one conversation, the goal of addressing these issues with a parent should be to ultimately lead to broader down the road conversations.
Like Tramontozzi, 23% of Americans adults are also juggling caring for children and aging parents, according to a 2015 report published by Pew Research Center In 2013, Pew reported that 47% of U.S. adults in their 40s and 50s “have a parent age 65 or older and are either raising a young child or financially supporting a grown child (age 18 or older).”
As seniors are increasingly living longer, the size of the “sandwich” is expected to get substantially larger in the coming decade. What this means is that more adults will find themselves caring for children and parents, both physically and financially.
It makes sense to plan for this eventuality. While most people know they need to save for their own retirement as well as their kids’ education, they are unprepared for the extra costs of caring for an aging family member. This can include financial strain from helping with living or health care costs, as well as time taken off from work, which not only leads to lost wages but can also result in lost career opportunities.
Clients need to be prepared so the care of a loved one doesn’t turn into a disaster Steven LopezFor adults with parents over the age of 65, it can be challenging, if not impossible, to predict their parents’ future health conditions. “Clients need to be prepared so the care of a loved one doesn’t turn into a disaster,” said Steven Lopez, who is a wealth management adviser at Merrill Lynch BAC, +0.98% in Chicago.
For adult children and their parent’s part, Lopez recommends that each set aside six to 12 months worth of living expenses in an emergency savings fund which can be used to cover unexpected care and health-related expenses. It is important that the majority of this fund is primarily in the form of liquid assets, such as stock or bonds according to Lopez, “and making sure that liquidating the fund doesn’t cause tax penalties.” Avoid withdrawing money early from a 401(k).
Another factor adult children who have children of their own need to consider is how much to contribute to their child’s secondary education costs. “If they do decide to contribute, they should be aware that it can impact their ability to retire,” Lopez said. On the nonfinancial side, caring for an aging parent can also impact one’s ability to get a promotion “and over time it can hurt someone’s chances for earning potential,” he said.
Mark Smith, who is also a financial planner, and president of Vision Wealth Planning located in Glen Allen, Va., and his wife, Debbie Smith, were recently faced with deciding between placing his wife’s mother, who has dementia, in an assisted living home or renovating their current home to accommodate both of her parents.
“We had been considering this for three years, I said 100 times that I didn’t want to add on to our existing home,” Smith said. In the end, he and his wife decided it made the most sense to add on to their existing home, given the high cost of assisted living facilities and limited availability.
“It’s going to cost us about what we paid for our first house in 1991,” he said. Given Smith and his wife’s commitment to saving money early on in their marriage, he said, “The good news is we are in a good position [financially] to do this. If we were still paying out a mortgage, that would have been a game changer and it would have been a real limiting factor,” he said. Additionally, he said that because they had enough money in stashed away in savings, they are able to support their two children’s’ college expenses through current cash flow.
At United Income, to help clients navigate through the process of financial planning, they offer clients a service that allows them to model many possible life outcomes, including caring for a child at the same time as an aging parent.
“The process is very individualized to the client,” said Elizabeth Kelly who is senior vice president of operations at United Income, which provides financial planning to older clients. “We typically look at client health care and lifestyle expenses and help people figure out which assets makes sense to sell in a given situation”
At first, Smith, the financial planner, was convinced that while having his wife’s parents live with them made sense logistically, financially it did not make sense at all. “The thing that helped soothe the investment concern was that these kinds of properties are going to be demand in a couple of years because so few of them exist currently,” he said.
