Caught in the Middle

At a time when middle-aged couples should be saving significant sums for their own retirement, they may find themselves caught in the middle of competing financial needs from two generations. Having started families later than past generations, their children may just now be entering college or could still be living at home, placing financial strains on the couple. At the same time, aging parents may require financial assistance. It is a problem that is likely to become more common as time goes on.

Caring for Your Parents

It is becoming increasingly likely that you will need to provide assistance to an aging parent. In 1900, only a small percentage of the population lived to age 65; now, approximately 70% live to that age (Source: National Institute on Aging, 1997). The National Institute on Aging estimates that the number of individuals over age 85 will increase from 3.3 million in 1994 to approximately 31.3 million in 2050.

With advanced age comes an increasing need for assistance. Of those not in nursing homes or other institutions, 9% aged 65 to 69 needed help with everyday activities, compared to 11% at ages 70 to 74, 20% at ages 75 to 79, 31% at ages 80 to 84, and 50% at ages 85 and over (Source: Census Bureau, 1997).

A recent survey found that 40% of the respondents are providing or anticipate providing financial support to their aging parents (Source: Financial Planning, September 1997). Current generations have fewer siblings than prior generations, so any assistance is likely to be shared by only a couple of individuals. Some financial precautions you can take now, before your parents need assistance, include:

  • Investigate long-term-care insurance for your parents. If they can’t afford the insurance, you may want to purchase it for them.
  • Have your parents prepare a complete listing of their assets, liabilities, and income sources, including the location of important documents. This can save a significant amount of time if you must take over their finances.
  • Make sure your parents have legal documents in place that will allow someone to take over their financial affairs if they become incapacitated. They may also want to delegate health care decisions to a third person.
  • If you are supporting your parents financially, make sure you understand the tax laws. Providing more that half of their support may allow you to claim them as a dependent on your tax return. Additionally, you may be able to deduct medical expenses that you pay.
  • Check if your employer offers a flexible spending account for elder care. This will allow you to set aside pre-tax dollars to pay for up to $5,000 of elder-care expenses for a parent who lives with you.

Assisting Your Children

College costs are a significant financial cost for many families. While most people would like to pay for all college costs for their children, with competing needs to save for retirement and to assist parents, this may not be feasible. You may need to shift some of the load to your children, requiring them to work part time during college or to take out and pay back loans. There are a number of ways to reduce the cost of college. Investigate all sources of financial aid, search for scholarships that are not based on need, and apply to several different colleges. Negotiate with your child’s preferred college to see if you can increase the financial aid package. Consider starting your child at a community college, which is often cheaper than a four-year college. Or consider a state public university in your state of residence, which will generally be more affordable than private universities.

Once your child has graduated from college, don’t assume that your financial responsibilities are over. Many parents are finding that their adult children return home for a variety of reasons. Approximately one out of every nine individuals between the ages of 25 and 34 live in their parent’s home (Source: Financial Planning April 1997). If faced with a returning child, realize that there are increased costs – additional food, phone bills, utilities, etc. It may also mean staying in a larger house than you would need if the child was not living with you. Consider charging rent and putting a deadline on how long he/she can stay.

Don’t Forget Yourself

When faced with the competing needs of children and aging parents, it is easy to neglect your own needs to save. Yet one of the best gifts you can give your children is to be free of debt and financially independent during your retirement. Handling these competing financial needs can be difficult. Call if you’d like help.