How advisers help the sandwich generation protect savings

Wealth advisers say adults supporting both young children and aging parents should begin financial conversations early, use employer benefits such as dependent-care flexible spending accounts and employee assistance programs, and maximize health savings accounts to reduce the need to withdraw retirement savings.

Recent data show the sandwich generation includes about one in four U.S. adults, and more than half of people in their 40s report simultaneous demands from children and parents. The pattern is concentrated among Generation X and younger boomers and millennials. A survey from the Employee Benefit Research Institute found unpaid caregivers report greater financial strain and lower confidence in their retirement prospects; other data indicate nearly 30% of adults age 25 and older provide unpaid care.

Advisers recommend families discuss finances while aging parents remain active and can share information about savings, property and care preferences. Knowing what retirement accounts, home equity and other assets exist makes it possible to evaluate options such as selling a home or placing assets into an irrevocable trust to cover future medical expenses. Miklos Ringbauer, founder of MiklosCPA, noted that having five to 10 years to plan allows families to consider alternatives and reduce future financial pressure. “If you have five to 10 years, you want to explore all of these alternatives so it’s less financial stress on you,” he said.

Planners also advise clear conversations among siblings to divide caregiving duties and costs. They suggest parents set expectations with their adult children about education and lifestyle spending to avoid conflicts later. Ringbauer offered an example of a family conversation: telling a child that out-of-state college may not be affordable rather than delaying the discussion until finances are strained.

On the workplace front, advisers point to employee benefits that can lower care costs. Dependent-care FSAs let workers pay for eligible childcare and eldercare with pretax dollars, lowering taxable income for higher earners. Employee assistance programs can provide vetted referrals to home-care agencies and short-term respite services. Catherine Collinson, founding CEO of Transamerica Institute, recalled that an employee assistance program helped her find home care for her grandmother within 24 hours. “I had burnout and I was tearing my hair out. I just needed a break,” she said.

Health coverage is another planning area. Advisers tell clients to check whether parents can be added to an employer plan and to confirm when Medicare eligibility begins. Some employer plans exclude people age 65 and older, and Medicare has coverage gaps that may require supplemental insurance or out-of-pocket payments. Collinson urged families to research what Medicare covers and weigh more comprehensive employer coverage when health conditions suggest higher future costs.

Health savings accounts receive frequent mention as a tax-efficient way to pay medical bills across generations. HSAs accept pretax contributions, grow tax-free and reimburse qualified medical expenses, which advisers say can be used alongside emergency and retirement savings. Planners caution against early withdrawals from tax-deferred retirement accounts for immediate family needs because those distributions can trigger income taxes and reduce long-term retirement balances; many who take early loans or withdrawals lower their retirement savings.

Advisers recommend that clients map monthly income, regular expenses and likely caregiving costs to determine how much they can continue to save for retirement while supporting family members. They encourage exploring service options years before intensive caregiving begins and identifying which tasks can be outsourced to paid providers.

Advisers point to survey trends and rising long-term care costs as reasons families should address these issues sooner rather than later. They say combining family financial conversations, employer benefits and tax-advantaged accounts can help clients support relatives while limiting withdrawals from retirement funds.