As if trying to meet day-to-day expenses while saving for retirement and paying for college isn't enough, many people find themselves increasingly responsible for the physical, emotional, and even financial challenges of caring for aging or disabled parents. Welcome to the sandwich generation—a growing part of the population feeling a financial tug from kids on one side and parents on the other.
If this sounds familiar, you have plenty of company. In 2018, 12% of adults with a child younger than 18 at home were also providing unpaid care for an adult as well.1
Why are so many feeling this financial squeeze? People are living longer. They are having children later. Meanwhile, many young adults are finding it too expensive to live on their own. Hence, the "boomerang kids" phenomenon. Add in rising health care expenses for older Americans, and you have the makings of today's sandwich generation.
Pump up your planning
If you're one of the millions of Americans facing this challenge, a good way to cope is to "plan, plan, and plan some more," says Ann Dowd, CFP®, a vice president at Fidelity Investments. "Caring for kids and aging parents comes with many imponderables—there's no telling how much help they'll need or for how long. But don't let that paralyze you. Instead, embrace the uncertainty, think long term, and pump up your planning."
How can you get started? "Begin by funding your emergency cash reserves, avoiding or paying down high-interest debt, and, above all, doing all you can to make your own retirement saving a top priority," says Dowd. "Though your heart may put your loved ones first, they're not responsible for your retirement security—you are."
Here are some strategies to take control of your sandwich finances.
Know more
Even though it can be difficult to talk with your parents and kids about financial realities, try to do so early on. If you wait until a financial or medical crisis forces you to act, you may not have the time or flexibility you want or need.
Over time, try to get a clear view of your parents' total financial picture, from expenses to sources of income and insurance, says Dowd. That way you can better understand what they can afford and if you need to fill in any gaps.
For expenses, talk with them about their essential living costs (housing, food, transportation, insurance) as well as their discretionary costs (lifestyle choices like where they live and how much they travel). Help them match essential expenses to steady sources of income, such as Social Security, pensions, or annuity income, if they have any.
Finally, check into their health care plans. To better manage their care, make sure they have a health care proxy and a living will in place. To see if they can pay for health care expenses, get details on their health and long-term care insurance, as well as any other available resources.
"When you're caring for aging parents," says Dowd, "the boundaries between your financial plans and theirs can quickly blur."
Save more
If you're in the sandwich generation, it's even more important to save as much as possible. This is especially true if you have to take time off from work—and lose income—to care for parents. So be sure to take advantage of any and all tax-advantaged saving vehicles.
Put your retirement first. "Pay yourself first by contributing as much as possible to your workplace retirement plan," advises Dowd. "At least contribute up to any company match so you're not leaving ‘free money' on the table."
If you're already contributing the maximum to your workplace savings plan, consider funding an IRA if you're eligible. A health savings account (HSA) may be another tax-advantaged way to save for retirement as well. You do need to have an HSA-eligible health plan (more on that in the health care section). Even if you're only able to save a portion of the funds in your HSA for the future after covering current medical expenses, these accounts can be a tax-efficient way to save for Medicare premiums in retirement.
If at all possible, don't use your retirement savings—whether through loans or early withdrawals—to support your kids or parents. Dipping into your nest egg sacrifices the potential for tax-deferred growth and potential taxes and penalties. That could eventually force you to depend on your children for financial support in retirement.
Prep for college costs. If you aren't already saving for college, you may want to consider starting. The College Board puts the average cost (tuition, fees, and room and board) for a 4-year, in-state public college at $22,690 for the 2021–2022 tuition year, and $51,690 for a 4-year private college.2
While there are several ways to save for college—such as opening a custodial account (Uniform Gifts to Minors Act [UGMA]/Uniform Transfers to Minors Act [UTMA] account), a Coverdell Education Savings Account (ESA), or even setting money aside in a taxable account—the potential advantages of a 529 savings plan may help you save for your child's education.
529 college savings plans are flexible, tax-advantaged accounts designed specifically for education savings.
You can take withdrawals from a 529 plan to pay for qualified education expenses at the elementary through high school levels, or for college-level and beyond.
To help boost college savings, encourage the gift of education by asking grandparents and those close to you to redirect money spent on toys and other gifts to your child's 529 savings plan account.
Also keep an open mind about college choices. "Look for colleges that offer competitive programs that meet your child's needs with a price tag that works for your sandwich finances," says Dowd.
It can be helpful to consider the level of financial support you may be able to provide and what level of college costs make sense for your family. Addressing that question early as a family can reduce stress in the future.
Read Viewpoints on Fidelity.com: The ABCs of 529 savings plans
Save on health care. If you are enrolled in a high-deductible health plan and meet eligibility requirements, you can contribute to a health savings account (HSA). HSAs let you save pre-tax, and withdraw principal and earnings free from federal taxes for qualified medical expenses. In addition, any money you don't use, you can save and invest for the future, including for health care in retirement.
For 2024, the IRS contribution limits for HSAs are $4,150 for individual coverage and $8,300 for family coverage. The 2025 limits are $4,300 for individuals and $8,550 for families. Any employer contributions will count towards these limits.
If you're 55 or older during the tax year, you may be able to make a catch-up contribution, up to $1,000 per year. Your spouse, if age 55 or older, could also make a catch-up contribution, but will need to open their own HSA. See IRS Publication 969 for more on annual HSA contribution limits.
Your employer may also offer a health care flexible spending account (FSA), which is another tax-advantaged account that lets you pay for eligible out-of-pocket health expenses with pre-tax dollars. The 2022 annual contribution limit for FSAs is $2,850.
Unlike most FSAs, HSA money is:
- Never "use-it-or-lose-it." Unspent HSA money always rolls over to the next year.
- Always yours, even if you change employers or move to a new state.
- Investable in some cases (like Fidelity’s HSA), with no federal income taxes on any growth.
Protect more
Make sure you and your parents have adequate health care insurance now, and for your retirement. Remember, Medicare does not cover everything.
On average, according to the 2024 Fidelity Retiree Health Care Cost Estimate, a 65-year-old individual may need $165,000 in after-tax savings to cover health care expenses.
For example, long-term care is not covered by Medicare, and can be pricey. The average annual cost for a private nursing home room is $108,408, and assisted living facilities average $54,000.3 Do you and your parents need long-term care insurance? The answer depends on your age, the cost of coverage, how long you might need coverage, and the types of benefits you want. So carve out the time to weigh your options.
Finally, with the needs of multiple generations on your shoulders, protecting your family from the risk of your disability or death may be more important than ever. Disability and life insurance can help make sure that your loved ones are cared for in the event that you are unable to work.
Read Viewpoints on Fidelity.com: What you should know about life insurance
Stay flexible
There is no escaping the reality that managing the competing financial priorities of children, parents, and yourself can be stressful. So take control by planning more diligently, saving more carefully, and keeping your retirement saving a top priority.
For all concerned, that may mean adjusting expectations—from when you retire to where your kids go to college to how your aging parents spend their golden years. But that's what families do. You're all in this "sandwich" together.