Baby boomers make up what's being called the "Sandwich Generation" because people between the ages of 45 and 55 are finding themselves wedged between financial obligations: their children's college tuition, their aging parents' living expenses, and their own retirement savings.
Of the nearly 2,500 boomers surveyed by the AARP, 48 percent thought they should be doing more for their elderly parents. Meanwhile, 69 percent of those polled felt their children should help care for them in their old age, signaling that the next generation will be sandwiched too.
The Social Security Administration estimates 76 million baby boomers will be retiring during this century. Good Morning America's financial contributor Mellody Hobson, president of Ariel Capital Management in Chicago, said the boomers' burdens evolved, in part, because they waited longer to have children.
"When their children are teenagers and ripe for college, their parents are well into their 70s or 80s, and they need help themselves," Hobson said. So the boomers often find themselves simultaneously looking at college campuses and nursing homes.
The situation is further exacerbated by the fact that boomers tend to be big spenders and have racked up both credit card debt and hefty mortgages, perhaps in defiance of their scrimping and saving parents, who were forced into frugality during the Depression.
"Many boomers live beyond their means, sacrificing their financial futures," Hobson said. "That means children and parents become a strain on already strained resources."
Solving the College Cost Dilemma
The average public college costs more than $12,263 a year, while the average private school costs more than $32,119, creating some hefty bills for parents of college-bound children. But Hobson has some tips for those "sandwich parents" who have kids near college age, or even younger.
Financial Aid: Look into financial aid early, instead of waiting until children are filling out their applications, Hobson said. Long before that, even as early as when the child is age 1, parents should be deciding whether the child will go to public or private school, gathering cost estimates, and determining what they have to spend.
Share Burden With Kids: Parents should also consider having their children take out federally subsidized and unsubsidized student loans, which have very low interest rates compared to those offered by banks. The current rate is 5.39 percent, the lowest rate in years, thanks to the Fed's interest rate cuts.
Consider Federal PLUS loans: These loans for the parents of dependent students come from the government or private lenders and repayment on them starts immediately.The current rate is 6.79 percent, compared to a bank loan, which carries an interest rate of 9.17 percent. After the loan is fully disbursed, the borrower has up to 10 years to repay it.
Have Children Repay the Costs: Parents might also consider having their children repay them at a later date for their contribution to their education costs. It's better than having your children support you in your old age, Hobson said. She also advises parents to let their children pay their own credit cards, even if the money comes from an allowance provided by their parents.It fosters more responsible spending, she said.
Giving Back to Elderly Parents
American businesses lose between $11 billion and $29 billion a year on employees who suddenly have to leave to care for elderly parents. And at least 6.4 million people aged 65 and over need long-term care, with one in two people over 85 requiring such care.
Just as boomers should plan for their children's college expenses early, they should be thinking about their parents' financial welfare while their parents are still healthy, Hobson said. Here are her tips:
Plan While Parents Healthy: Although you might feel a bit nosy, get a thorough understanding of your parents' financial situation. If not, you risk having to recite one of the horror stories of parents who forget what accounts they have money in. As parents age, they can become impaired in what they can disclose to their children, Hobson said.
Get Durable Power of Attorney: Consider durable power of attorney for financial and medical matters, which basically gives children the right to sign for certain things on behalf of their parents, such as bank accounts. If your parents are incapacitated and you have to go to court to sort it out, that can financially put you out while you're going through litigation.
Assign Family Roles for Parents' Care: Those with siblings should share responsibility by assigning responsibilities for legal, financial, medical and other issues to one sibling each. Because families do not live under one roof anymore, and may be scattered across the globe, make sure one person does not bear all the responsibility. The shared duties can also include cousins, or others.
Consider Long-Term Care Insurance Policies: Consider long-term care policy with services not covered by regular health insurance, Medicare or Medicare supplement insurance. These policies vary but usually pay for or defray the cost of long-term care, such as adult day care or in-home services or a nursing home, which can typically cost a staggering $56,000 a year. Some insurance policies cover some of this, but look carefully at your policy to see what is covered. Some policies also have tax benefits.
Don't Worry About Keeping Family Home: Some children worry their parents would be devastated by selling the home, and they're afraid to tell them while they are doing it if the parents are in a nursing home. Hobson suggests not getting emotionally wedded to keeping the "family house." Upkeep, mortgage costs and other expenses can be financially debilitating, Hobson said.
And About Retirement?
The federal government has recognized that baby boomers are in a real bind, with two generations eating away at their finances.
"This becomes an endless cycle, because you're no longer prepared for retirement, and your kids are going to be faced with the same issue," Hobson said.
A final tip: Hobson suggests taking advantage of a new catch-up provision that was included in the 2000 tax bill, which allows those over 50 to put away more for retirement through their IRAs or their company's 401K plans.