(Yahoo!Finance) - As Gen Zers and millennials move through life, all will have to learn to manage their individual finances. But some will bear responsibility for others as well.
Yahoo Finance last week reported that increasing numbers of millennials, ages 27-42, make up the sandwich generation – those who care for both children and elderly relatives at the same time. It’s just a matter of time before Generation Zers (26 and under) begin to join their ranks.
For both generations, the experts say, preparation is key.
“No one plans for a loved one to experience a long-term care event or caregiving for an aging relative just as no one plans for a pandemic," said Marguerita Cheng, CEO of Blue Ocean Global Wealth. “Caregiving can be physically, emotionally, and financially demanding, so being prepared can make this less overwhelming & stressful.”
Cheng's and other experts' tips:
The reality check
Peter T. Palion, a financial planner at Master Plan Advisory, Inc. said millennials and Gen Zers should prepare for a tough conversation with their parents. He said that older generations often struggle to acknowledge the inevitable: that they will eventually grow older and be unable to take care of their finances — and, in general, themselves.
“You know, oftentimes, the older generation live, I guess you can say, with this unrealistic hope that, 'oh, I'm not going to need any care or, if I do, then my kids will take care of me.’ And it's not that simple,” he said.
Blue Ocean’s Cheng used to be a sandwich generation member, caring for both her children and her father, who suffered from Alzheimer’s. She said it’s important to remind older generations that your concern comes from a place of love and care.
She also said transitional life events like birthdays, the birth of children, and other rites of passage can serve as good opportunities to raise the subject of caretaking with elderly relatives. In her case, she said, she used her sister’s graduation and the birth of her third child as a way to talk to her parents about updating their estate plan.
“It's not that their plan was bad," she explained. "It's just they created it when we were all under 21."
Take inventory
Patti Black, a financial planner at Bridgeworth LLC, recommends caregivers sit down with elderly relatives and review their estate plan. In particular, make sure they have power of attorney — legal authorization for one person to act on the behalf of another — for financial and medical decisions. She also advised caregivers to make sure their elderly parents have a living will, which documents a person's wishes for end-of-life care.
“Because if those documents aren't in place, then your job as the adult child is probably going to be even harder to implement because if mom or dad doesn't have a power of attorney then you're gonna have to go through the court to be appointed to make decisions for them,” she said. “That's a much longer and unnecessarily expensive process than just getting a power of attorney in place.”
Explore outside options for care
Cheng said case management support, a work program that offers care assessments and planning, may be available through a person’s employer in an employee assistance program or through a long-term care insurance plan.
In Cheng’s case, she was able to get case management support through her father’s long-term care insurance. Her father received an in-depth assessment and a plan to meet his health needs, which ultimately meant in-home assistance. Cheng initially received four hours of help, which eventually increased to eight hours as her father’s Alzheimer's worsened.
“It may be available through your employer and you may not even know it … It is really helpful,” said Cheng.
Take advantage of tax breaks
Cheng also recommended that the sandwich generation take advantage of child and dependent care credits. The maximum child and dependent care credit is $1,050 for one dependent or $2,100 for two or more dependents, per NerdWallet. The tax credit applies for a child under age 13 and a person who’s unable to care for themselves and has lived with you for over half a year.
“So if you are thinking about having a child or you have a child and you're wondering, oh my god, how am I going to do this?" she said. “I can tell people, you know, definitely take advantage of the flexible spending account for dependents.”
The budget
Often, financial advisers recommend the “50, 20, 30 rule” where 50% of one’s income is their expenses, 20% is their savings, and the remaining 30% is for whatever the saver wants. But Andrew Herzog, a financial planner at Watchman Group, prefers that his clients be extra conservative in case of stock: 50% for expenses, 30% for savings, and 20% for any further spending.
“So plan now in case … you're suddenly hit with an unplanned pregnancy or suddenly your mom is disabled with something and now you're suddenly a caregiver for your 58-year-old mom,” he said.
The emergency fund
Black also urged further millennial and Gen Z caregivers to build an emergency fund in advance. She said they should start by putting six months of expenses aside. Those expenses include a mortgage payment, money for groceries and other living expenses.
“Your child could have a financial emergency, maybe there's a medical bill that's more costly, and your parent could have a financial emergency. They may quickly come to a point where you need to step in,” she said.
Discretionary expenses
Herzog advised caregivers to monitor their discretionary spending like how often they eat out or what streaming services they have. “Perhaps the single greatest thing within your control is money outflow,” he said.
He added, “We all want nice things and experiences … but start realizing that yes, you know what, maybe we're in a situation where part of your retirement planning is now going to include caregiving planning … you're not just here to take care of yourself. You're actually going to have to be asked to take care of others. Someone has to do it.”
Don’t lose sight of your own needs
Cheng advised sandwich generation members not to lose sight of their own needs. For instance, she said a parent might be tempted to put their money in a child’s education account over their own retirement. She pointed out that while education and avoiding debt are important, caregivers have various means for financing a child’s education including need and merit-based financial aid.
“In retirement, you're not going to have any financial aid and one of the worst things that you can do to your children is not prepare adequately for retirement and then be a burden to them,” she said. “Obviously, if you can save for college and retirement at the same time do that but prioritize your retirement over college because you don't want to be a burden to your children.”
By Dylan Croll
Dylan Croll is a Yahoo Finance reporter.
