personal finance | november 8, 2021
How to Care for Yourself Along With Your Children and Aging Parents
Tips on balancing needs and managing competing financial priorities.
Putting your own financial security first is the best way to ensure your ability to help others.
An open and honest conversation about finances is a critical first step in helping parents.
Set clear expectations about what support you can provide for your grown children.
Judith Ward, CFP®
Senior Retirement Insights Manager
Roger Young, CFP®
Senior Retirement Insights Manager
Feeling pulled in different directions raising children while caring for aging parents? You’re not alone. According to a recent T. Rowe Price survey, as many as a third of parents with school-age children are facing the same challenge.1 Often referred to as the “sandwich generation,” they find themselves wedged between competing priorities across multiple generations.
The Impacts Are Real
There may be direct financial impacts for those in this situation—for example, our survey found that nearly a third of those caring for an aging parent or relative spend $3,000 or more a month to do so.1 “The reality is that your resources are limited,” says Judith Ward, CFP®, a senior retirement insights manager with T. Rowe Price. “Remember to first focus on taking care of yourself, which will better position you to help your loved ones.”
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Start With Yourself
Clearly outlining your financial situation and openly communicating with family members will enable you to determine the best use of your time and assets. The most important step is to make sure that you are investing enough to support yourself throughout your own retirement, which could last three decades or more. T. Rowe Price research shows that dual caregivers are more than three times as likely as their peers to have taken premature (nonqualified) distributions from their retirement savings.1 Due to the current environment further complicating their situations, families may be experiencing additional financial challenges. “Not preparing adequately for your future may mean that your children will have to provide care and financial assistance to you decades from now,” Ward says.
To accumulate enough to support themselves in retirement, most investors will need to save at least 15% of their gross salary, including any company match. If you are already there, keep making your retirement savings a priority. If you currently fall short of that 15% target, raise your contributions as much as you can now, then plan on increasing them gradually over time until you reach 15%.
To create more capacity to save, you may have to take a close look at your monthly budget. Get a clear picture of how you’re spending your money, and examine your essential and discretionary expenses. Doing this can help you identify opportunities to shift your resources.
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Consider Your Parents’ Needs
Once you have your own finances in place, you can decide where to focus your attention next. This may mean choosing how to prioritize the needs of both your parents and your children.
When talking with your parents, make sure to:
Gather information about their overall financial situation. Ask about their assets, such as their home, retirement and pension plans, Social Security income, and any insurance policies.
Talk about liabilities, such as a mortgage or credit card balances.
Include appropriate family members, such as siblings, in the conversations so that you can discuss how to best share the commitment of time and expenses.
Discuss housing and your parents’ preferences, such as choices about downsizing or the possibility of having a parent move in with a relative.
Determine a plan should one parent pass away, including whether the survivor would have the information necessary to manage the finances.
Find out what your parents’ health insurance will cover, and make adjustments if needed.
Additionally, discuss establishing a durable power of attorney well ahead of when it will become necessary. “If for some reason one or both of your parents can no longer provide for themselves, a durable power of attorney will give you the legal authority to act on their behalf,” says Roger Young, CFP®, a senior retirement insights manager with T. Rowe Price. “And you don’t want to wait until they become incapacitated; they need to be competent to set one up.”
Young suggests that parents share with their children where they can access their records—documents related to banking, investing, insurance, health, and estate planning—along with any account passwords and contact information for their doctors and accountants, for example.
Provide for Your Children
Raising children involves both emotional and financial support. Our survey of children ages 8 to 14 revealed that those of dual caregivers are three times more likely than their peers to say that they don’t have enough time with their parents.1 “It can take a conscious effort to make the most of family time together,” says Young.
Be sure to build in time to plan for the future. It’s important to start saving for educational expenses as early as possible. Ward recommends that parents look first at 529 college savings plans. Any growth in these accounts will be tax-deferred, and withdrawals used to pay for qualified educational expenses are exempt from federal and, in most cases, state taxes.2 Have open conversations with older children about expectations for college, including what level of support you think you’ll be able to provide toward college costs. Also discuss alternative sources of funding—such as scholarships, grants, or student loans—that might be available to make up the difference.
Some parents may find themselves supporting adult children as well. In 2020, 8 million young adults (ages 25 to 34) lived at home, representing nearly 18% of that demographic.3 If you are in this situation, work to set clear expectations about how much you can continue to provide for your grown children in terms of housing, health insurance, food, family cellphone plans, and so on—along with how much you expect them to contribute to the household.
Find Your Balance
If you’re facing multiple priorities—for yourself, your children, and your parents—remember that your ability to help other family members is dependent on the time and financial resources that you have available. Reevaluating your plan for retirement is one option. If you have flexibility, postponing your retirement for just a few years or working part time can give you more time to add to your savings while reducing the amount that you’ll need to withdraw over the long term. Also, many have found that their spending changed during the pandemic—now may be a good time to reassess your more fixed costs like housing and transportation if your work situation has changed. By establishing the right priorities for you and your family, and gaining a clearer perspective on your family’s financial situation, you’ll be able to get closer to achieving the right balance.
Tips for You
Focusing on your financial security first is the best way to ensure your ability to help others.
Organize your own financial records.
Aim to contribute 15% of your income to your retirement savings, including any company match.
Itemize and review your monthly budget, and make adjustments as needed.
Plan and schedule ahead to help ensure that you’re setting aside time for the things that matter most to you.
An open and honest conversation about finances is a critical step in helping parents.
Gain a clear picture of your parents’ needs now and in the future (e.g., insurance, retirement, investments, estate planning, and long-term care).
Talk about whether it would be helpful for you to have access to their important documents and passwords.
Discuss whether setting up a durable power of attorney and health care proxy is important to them.
Be mindful of both the emotional and financial needs of your children.
When saving for their college expenses, take advantage of the benefits of tax-deferred investing by opening a 529 plan account as early as possible.
Help with their financial literacy, and teach them the benefits of budgeting and saving.
Talk openly with your older children so that they understand the level of financial support you are willing to offer toward their goals and what level of financial responsibility you expect from them.
Tax Benefits to Keep in Mind
Deductions and credits are available for those caring for aging parents or children.
Setting up a dependent care flexible spending account (DCFSA) through your employer will allow you to set aside pretax dollars for qualified expenses associated with adult dependents who are incapable of caring for themselves and daycare costs for children under age 13.
Depending on your income, you may be able to claim a “child tax credit” up to $2,000 per child under age 17.4 If you are supporting your parents or children 17 and older, you may be able to claim a “credit for other dependents,” up to $500.
1T. Rowe Price 2019 Parents, Kids & Money Survey.
2Earnings on a distribution not used for qualified expenses may be subject to income taxes and a 10% federal penalty.
3United States Census: Historical Living Arrangements of Adults, Table AD-1.
4For 2021 only, as part of the American Rescue Plan (coronavirus relief package), the child tax credit amount increased from $2,000 for each child age 16 or younger to $3,600 per child for kids who are 5 years old or younger and $3,000 per child for kids 6 to 17 years of age.
Please note that a 529 plan’s disclosure document includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing.
You should compare any college savings plan with the college savings program offered by your home state or your beneficiary’s home state, which may offer state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s 529 plan.
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