The baby boom generation—those bornbetween 1946 and 1964—is once again chartingan unprecedented course. They are caughtin a demographic storm that has them squeezedbetween the needs of younger and older generations.As life expectancies increase and couples start familieslater in life, members of this so-called sandwich generationare trying to invest for their children's education andoffer support to aging parents, while saving for their ownretirement. According to AARP, 44% of the 76 millionbaby boomers are already sandwiched in such a way.
If you are part of this growing group, take heart.There's still time to put together a workable strategyfor balancing these and other conflicting demands onyour money and time. The following are a few ideasto get you moving in the right direction:
• Discuss eldercare issues before they arise. One ofthe reasons people become sandwiched financially isthat they put off addressing eldercare issues only to beblindsided by their parents' unexpected needs. Researchconducted by the Health Insurance Association ofAmerica and the American Council of Life Insurers indicatesthat 9 million people over age 65 will need longtermcare by 2005. A year in a nursing home currentlycosts around $60,000, and daily visits by a home healthcare aide can reach nearly $16,000 annually.
Given these statistics, it is not unreasonable to thinkthat someday your parents might need help coping withlong-term care expenses. Try to head off potential problemsby helping them create a financial inventory detailingthe account numbers and locations of all bank andbrokerage accounts, insurance policies, real estate, andother personal property. Also offer to join them in meetingwith their financial advisor, accountant, or lawyer toreview their financial status, evaluate options such aslong-term care insurance, and update legal documents,including wills, trusts, and a power of attorney.
• Take a broad-based approach to paying for college.According to the College Board, the averageannual cost of tuition, fees, and room and board at a4-year private college is now a hefty $26,854. If youare already providing financial support to your parents,the sticker shock of a college education no doubthas you concerned. But you needn't go it alone—infact, most families piece together a college paymentplan from a number of sources, including savings andinvestments, student loans, and scholarships.
In terms of investments, consider the CoverdellEducation Savings Account, which allows you to contributeup to $2000 each year per child under age 18,if you meet income requirements. Money grows taxdeferredand can be withdrawn tax-free to pay forqualified education-related expenses. Also look into529 college savings plans, which generally have noincome restrictions and in some cases have accountasset limits (contributions plus any gains) of more than$200,000. What's more, earnings in a 529 plan canaccumulate tax-deferred and qualified withdrawals arefederally tax-free. Keep in mind that nonqualifiedwithdrawals from either of these investment plans aresubject to regular income taxes and a 10% penalty.
• Make retirement your long-term priority. It isimportant to keep your competing priorities in perspective.Don't put off saving for retirement until your othergoals have been met. You'll miss out on prime savingyears, particularly when saving through a 401(k) plan,where tax deferral and potential employer matchingcontributions may help your money grow faster. Even ifyou have to reduce the amount of regular contributionsyou make, try to keep investing something. Traditionalinvesting wisdom states that the longer you have toinvest, the more risk you can assume. If your retirementis 20 or more years away, this may mean a portfolioweighted toward stocks, since stocks have historicallyprovided better returns over time than other types ofinvestments, as well as more risk.
Scott J. Kleiman is the president of ApolloniaFinancial Services in Elkins Park, Pa. All securitiesoffered through Linsco/Private Ledger, memberSIPC. Past performance is no guarantee of futureresults. The information presented is the opinionof Scott J. Kleiman and not Linsco/Private Ledger.Mr. Kleiman welcomes questions or comments at800-242-1760 or firstname.lastname@example.org. This article is not intended toprovide specific advice or recommendations for any individual.Consult with your financial advisor if you have questions.