How to cope with the “senior sandwich”–paying for retirement, your parents’ care and college–all at once

You know you’re officially part of a trend when someone gives you a catchy label, and there’s a new one out there: the 60-year-old kid. It means someone who is just short of retirement age and still has at least one parent who’s alive and kicking.

Cute, eh? Never have there been so many people in their golden years whose parents are still living, so the fact that the term is entering the lexicon is no surprise. But while the trend is a wonderful thing–we all want our parents to stay healthy and live to be 100–the fact that so many more are sticking around than in previous generations is putting unanticipated financial pressure on their adult children. Neal Cutler, a financial gerontologist (he studies the effect of aging on finances) who coined the term 60-year-old kid, says that at the beginning of the 20th century, between 4% and 7% of people in their sixties had at least one parent who was still alive. Today that percentage is close to 49% and rising.

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The people in this squeeze, according to Cutler, are members of the “senior sandwich” generation. They’re at least 60 years old and facing the ultimate financial trifecta: college for their kids (either current tuition bills or paying back borrowed money), retirement for themselves and at-home or nursing-home care for one or more parents. All at the same time.

That’s precisely where Lee Eisenberg finds himself. The author of the best-selling retirement book The Number is 60. His mother is 92, and he has two children in high school. “A 60-year-old kid is himself grappling with aging and mortality while at the same time watching a parent aging in a much more extreme way,” Eisenberg says. “You get a bird’s-eye view of what you might be in for financially and physically. It’s not a bad thing, but it’s a worrisome thing.”

How can you turn the situation from a source of concern into an opportunity to create peace of mind? If you’re already bumping up against the big six-oh, you have options: Plan on working a little longer, living a little leaner and encouraging your kids to study hard and qualify for merit aid. If you’re 40 or 50, you’re in an even better position–especially if you take the following steps.
• Fit kids into your budget Back in 1990, 25% of young adults between 18 and 24 lived with their parents. Today more than 50% do. How old will your kids be when you hit senior-sandwich age? Do they plan on revisiting their old bedroom as they transition from college to the working world?

Even if they’re already out of college, you won’t necessarily be in the clear. You might not be supporting them completely (and you probably shouldn’t be), but if they bungee-jump back to the nest, you could find yourself spending more on food and utilities, maintaining an extra car, even delaying a planned move out of a big house in a high-tax school district. When you make projections about your annual nut early in your retirement, be sure to plan for the possibility that one of your kids turns to you for room and board. Just for a little while.
• Ask your parents hard questions Having responsibility for older parents doesn’t mean paying for all their expenses. But you’ll be better off if you understand what sort of assets your parents have and how they want to live. You may have read in these pages how tough a conversation like this can be. (Search for “have the talk” at cnnmoney.com.) To ease into it, bring up a friend’s situation or the recent stories in the news about Brooke Astor. (Who said the rich have it easy?) I thought the approach used by John Migliaccio, an expert on aging and the president of the American Institute of Financial Gerontology, was particularly ingenious. He’s the only child of two healthy, independent, working (!) people in their eighties, folks in such good shape that to them the thought of discussing their future frailty was akin to walking under a ladder.

So when Migliaccio was turning 50 and they wanted to give him a gift, he told them he wanted them to really think about the answers to these key questions: How expensive a lifestyle did they want to live for the rest of their lives? Where did they want to live, and in what kind of home? What sort of health-care and lifesaving measures did they want taken, if necessary? And who, exactly, did they want to put legally in charge of carrying out all of these wishes?

These were hard questions to ask his parents, and they didn’t react especially well. But because they really wanted to give him a birthday gift–and he insisted he wanted nothing else–they finally agreed to have a conversation that Migliaccio had been stewing about for years.
• Consider insurance Should in-home or nursing-home care become a necessity for you or your parents even decades down the road, long-term-care insurance may make paying for “just” college tuition and retirement seem manageable. For more on how it works, see page 112.
• Look out for No. 1 A recent study by the National Council on Aging found that 50% of parents would consider taking funds that had been earmarked for their children’s college education and using them to pay for their parents’ long-term care. And many parents sabotage their retirement funds to pay for college. In other words, if you find yourself in the senior sandwich, you’ll likely be tempted to do what many conscientious parents and adult children have done for generations: put your own needs last. This is a mistake. Borrow money for college if you have to. Exhaust your parents’ own assets to fund their care late in life. But remember that no one can contribute to your own retirement savings except you. Do that part right and your kids won’t need to worry about becoming a part of the senior sandwich someday.

STUCK IN THE MIDDLE
Getting caught with both adult kids at home and aging parents is a problem that didn’t exist for so many sixtysomethings even 15 years ago.

7% 1900
49% 2006
People in their sixties who have at least one living parent

25% 1990
52% 2000
Young adults between 18 and 24 who live with their parents

SOURCES: Neal Cutler; Janice Wassel, Journal of Financial Service Professionals.

The next stage of recovery for Roberts: getting her finances back in shape. While she was undergoing treatment, she was able to work only 12 hours a week and her income, normally around $65,000, dropped by more than two-thirds. As a result, she dipped into savings to help cover her living expenses and to pay the $15,000 in medical bills she incurred for deductibles, co-payments, prescription drugs and other costs not covered by her health insurance. Roberts had routinely socked away about a quarter of her pay before her illness, so she wasn’t forced to take on debt. But the disease stalled progress toward her goals of buying a home and retiring early, and added a major element of uncertainty to her financial outlook. “I’m assuming I’ll live another 50 years,” she says. “But I know the cancer could return, and I don’t know how to plan for that.”

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Roberts’ predicament is an all too common one. Many working people who survive serious health problems are forced to drain their savings. Or worse: Medical bills related to illness contribute to one in four bankruptcies in the U.S., according to a 2005 study by Harvard researchers. And even when the damage stops well short of insolvency, the costs associated with a serious health problem can disrupt cherished plans and require a new approach to setting and reaching financial goals.

That said, survivors are just that: survivors. Facing down a health problem calls for grace and determination–qualities that will help power you past serious financial hurdles. “Handling money issues is small potatoes after what I’ve been through,” says Roberts. And just as good medical advice can help with your physical recovery, the right financial advice will help restore your finances. Start with these steps.

Give Yourself a Financial Checkup When you’re battling a serious illness, you aren’t likely to have much time or energy for bill paying, let alone financial planning. Meanwhile, your finances are undergoing radical changes as you deplete your emergency fund (so that’s what that money was for), dip into savings and, possibly, pile up debt. As soon as you’re better, it’s critical to assess your new circumstances–to figure out how much you’re spending (especially if you need ongoing care that isn’t covered by insurance), how much you have left in savings and, perhaps most important, how much you owe.

Once you have a better sense of where you stand, perform financial triage–that is, identify your most threatening money problems and come up with a plan to deal with them. For many people recovering from a serious illness, debt is first on the list. If you’re hard-pressed to make payments on both your credit cards and your outstanding medical bills, focus on paying down the card balances first. Unlike card issuers, most hospitals, doctors and labs don’t charge interest or impose late fees. And their billing offices will often agree to work out a more manageable repayment schedule if you just give them a call.

Rethink Your Risk Tolerance A narrow escape can leave behind a lurking sense of fear. You’ll feel much better if you take steps to manage your risk. Replenish your emergency fund, perhaps building a larger stash if you face the chance of a relapse. Move some (but not all) of your long-term savings from stocks to bonds, at least temporarily, since the potential cost of further treatments effectively reduces your time horizon. “Consider where you’d be if the stock market dropped 35%,” says Milwaukee financial planner Paula Hogan. “Most people coming off a serious illness can’t afford that kind of loss.”

Shore Up Your Insurance Don’t let your medical coverage lapse for even a day. If you then try to buy an individual policy, a new carrier might be able to deny you coverage, citing a pre-existing condition, depending on your state’s laws. If you’re joining a new group plan and you’ve gone without insurance for 63 days or longer, the new carrier can refuse to pay bills related to an existing condition for up to 12 months. To prevent a break in coverage if you’re leaving a job, consider signing up for transitional coverage, known as COBRA, which is available at close to group rates, typically for 18 months. COBRA isn’t cheap. But the costs won’t be nearly as great as footing the full tab for a serious illness yourself.

And if you don’t have one, shop for a disability policy also. A good agent should be able to find a carrier who isn’t scared off by your medical past. But you’ll likely have to wait 12 months before being covered for disabilities related to your recent illness.

Look Before You Leap… Your new lease on life might get you itching to quit your job, travel the world, move to Tahiti or make other major changes that cost a lot of money. Take at least a few months to mull those ideas over. “A basic tenet of financial planning is to avoid making one big life change right after another,” says Hogan. “And a serious disease is truly a life-altering change.”

…But Leap if You Must That said, a brush with mortality sometimes has a side benefit: a deeper understanding of what’s truly important to you. Use your newfound clarity to redefine your goals, and set about reaching them. “I’m no longer interested in money for money’s sake,” says Roberts. “Money is just a tool for living life fully.”

For example, Roberts recently decided to buy her first home, a two-bedroom, $430,000 stucco. The $43,000 down payment wiped out a third of her savings, and the $2,600 monthly mortgage payment is a stretch. Roberts certainly won’t be retiring early now. But she says it’s worth it. “My illness put things in perspective,” she muses. “Why have I saved this money if not to use it for what’s most important to me?”

43% of adults with chronic illness struggle to pay their medical bills.

SOURCE: Commonwealth Fund.

Do It Now
Took time off while you were ill? Let your boss know you’re back and in fine form. Volunteer for projects, pitch ideas and be a mentor. Show co-workers they don’t have to worry that you are not up to the job.

Welcome to spending season–that heady period from October through December when catchy holiday displays and special offers abound. There you are, innocently window-shopping, when you spot a pair of fabulous pumps–20 percent off!–that you just have to have. Impulse purchases like this are big business: More than 40 percent of the clothes women purchased in the first quarter of 2006 fell into that category, according to research by the trade association Cotton, Inc. And a whopping 60 percent of all purchases are spur-of-the-moment, reports the Marketing Science Institute (MSI). You’re not safe from temptation online, either: In 2002, nearly 40 percent of e-purchases were impulsive. It’s not that you have zero self-control–it’s just that buying yourself a little (or big) something has an almost hypnotic effect. “Shopping can provide a pick-me-up and make you feel more in charge of your life,” says April Lane Benson, Ph.D., a psychologist who specializes in compulsive-buying disorder. A better idea: Take charge of your wallet by resisting the urge to splurge. Here’s how.

Window-shop without money.
Shopper’s high–that lift people get from hitting the mall–comes from dopamine, a brain chemical that’s emitted when you do something pleasurable (such as eating a giant slice of pizza or having sex). And that euphoric feeling is especially potent when the enjoyable activity exposes you to something new–like all that gleaming merchandise you haven’t seen before–according to research by Gregory Berns, M.D., associate professor of psychiatry at Emory School of Medicine.

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Think about it: The first time you have sex with a new partner is generally more exciting than the 100th time. That’s because more dopamine is being released into your brain.

To take the “newness” out of the buying experience, window-shop first without your wallet. Then, you can return to the store with a Clearer head and some self-control. This extra step takes a little more time, but the savings are worth it.

Don’t make shopping a social thing.
Shoppers who hit the stores in groups of three or more made 7 percent more impulse purchases than those browsing alone or in pairs, according to research from the MSI. If you really want company (say, a pal who can tell you if that dress makes your butt look big), pick one friend who isn’t a big shopper so she can keep your spending in check, advises Benson, who has created a compulsive-buying treatment program (stoppingovershopping.com).

Pay in cash.
Credit cards have a way of fooling people into thinking they’re not spending money, says Sheryl Garrett, a certified financial planner and author of the personal finance series On the Road. You can charge something and forget it because the bill won’t darken your doorstep for weeks. Cash, by contrast, is much more intimate and immediate–those are your hard-earned greenbacks you’re peeling apart! Letting go of that money can actually be painful, says Garrett–so much so that people paying cash spent 12 percent to 18 percent less per shopping trip than those paying with credit, a recent Dun & Bradstreet survey found. Rule of thumb: If you can’t pay cash today, then you probably can’t afford whatever you wanted to buy, says Garrett.

Pinpoint your triggers.
Curb your exposure to stores where you simply can’t leave without buying something–no matter how small. “I have a hard time in bookstores,” says Garrett. “So I set limits for myself: No more than two books at a time, and they have to be paperbacks because they’re less expensive.” But don’t go cold turkey, says Benson, or you’ll just feel deprived and want to shop more.

Map the aisles.
The more store aisles you visit, the more unplanned purchases you make. Your impulse purchases increase by 10 percent when you visit all instead of just some aisles, according to the MSI. Makes perfect sense: You’re exposed to more new things, coupons, and displays, increasing the likelihood that one of them will prove irresistible. Plan ahead by mapping out your shopping list, grouping items together according to how they’re arranged in the store, and you’re more likely to stay on track.

Distinguish between a want and a need.
When you’re on the verge of. buying something, ask yourself: Do I have anything else like this? Can I live without it? For example, if you’re out of toothpaste, then you need toothpaste. “But most of our so-called needs are really wants that we’re justifying,” says Garrett.

It’s perfectly okay to have (and occasionally indulge in) wants–if you do it wisely. So, if the item in question isn’t a need, decide whether it’s a practical-but-unnecessary purchase or a luxury. If it’s the former (say, another pair of black pants when you already have three), try to fit it into your budget. For luxuries, adopt a rule of three: You can save toward three “wants” at any given time, and if you find yourself jonesing for another luxury item, strike one of the originals. There’s even a hidden benefit: Saving for something specific will help to limit your impulse spending.

Keep a shopping diary.
If impulse spending is a big problem for you, try this remedy: Write down how you felt and everything you bought today. Do this daily for a couple of weeks and look for patterns: Are you more likely to buy those cute mini-muffins when you grocery shop hungry? Do you drive right to the mall after a frustrating day at work?

We tend to shop in order to regulate our emotions, explains Benson. When we’re feeling really high or really low, we go to a familiar activity such as shopping to bring us back to our equilibrium. Researchers in England also found that people who impulse shop describe their motivations by saying, “It put me in a better mood” and “It made me feel like the kind of person I want to be.” By keeping a diary, you can recognize the state of mind that’s likely to make you buy too much–so you can steer yourself away from the store at those times.

Give yourself a cooling-off period.
First, take a stroll around the store while holding on to the item, says Mary Carlomagno, author of Give It Up” My Year of Learning to Live Better With Less. Those black pants will lose their luster pretty quickly if you just give yourself 15 minutes to let that initial “ooh!” feeling subside.

If you want to take the plunge anyway, put the pants down and wait a week, says Garrett. If you’re motivated enough to go back for them seven days later, you must really want those pants.

By: Davis, Rebecca, Redbook, Oct2006

Though most women admit they are concerned bout their financial future, many continue to lag behind when it comes to preparing for retirement. and they know it. According to a recently released study by Prudential Financial, Inc., entitled Financial Experience and Behaviors Among Women, a whopping 62 percent of women gave themselves a grade of “C” or lower when it came to their knowledge of financial products and services.

Women remain clear about their financial goals, but many are not taking action. A lack of confidence and knowledge – along with the interference of more immediate responsibilities – are combining to sidetrack even those with the best of intentions.

Prudential has been conducting this informative study biannually for six years, and since the survey’s inception, little progress has been made in terms of women’s confidence levels in achieving their financial goals.

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Some key findings for 2006:
• Only one in five women feels very well prepared to make wise financial decisions.

• Forty-three percent listed “getting out of debt” as their primary financial goal.

• In 2004, over half of the women polled intended to save and invest more money over the next 12 months; 2006 data reveals in the past 24 months only 11 percent invested in stocks or mutual funds.

• Also in 2004, 41 percent intended to meet with an advisor, while only 24 percent actually did.

• Very few women have discussed the potential risks of needing long-term care with their parents (19 percent) or children (14 percent).

• Women understand life insurance, but are falling short in acquiring the coverage needed to protect their families. In fact, over two-thirds of those polled don’t have a plan in place.

If You Don’t Prioritize Your Financial Future, Who Will?
The Prudential study highlights a common behavioral pattern in women: putting the needs of others before their own. As employees, business owners, volunteers, wives, mothers and daughters, women typically place themselves at the bottom of the priority list, and find little time left over to devote to financial matters. Unfortunately, putting retirement planning off for a rainy day will leave many women out in the cold. Some questions to ask yourself now:

• Will you have enough money to maintain your current standard of living in retirement? What will be your sources of income? What role will Social Security play?

• Do you want to stay in your home after retirement or sell it and downsize? Is a reverse mortgage a viable option for retirement income?

• If your spouse dies before you, will you be able to maintain your standard of living? Keep in mind that the retirement income of your spouse could be reduced or eliminated in the event of his death. And many of us continue to have responsibilities for children, grandchildren or aging parents into retirement.

• Do you have a plan if the need for long-term care services arises?

• Do you plan to work during retirement? If so, for how long?

Knowledge is Power
According to the Prudential survey, a big “disconnect” exists between what women know they should do and what they actually do in relation to their personal finances. One of the best moves you can make immediately is to educate yourself on the basics. Take a weekend seminar. Search the Internet for information. Read a book. Speak with a financial professional. Investing a few hours in your financial education will pay big dividends in the future. In addition, use the following checklist to consider ways to start moving your future securely into the black. Be sure to discuss these ideas with your tax and legal advisors to determine the best options for your personal situation:

• Contribute the maximum amount to retirement plans. Pay yourself first.

• If you’re single don’t count on someone else to help you – look out for number one.

• If you’re married, take an active part in household money matters. And be sure to establish a credit history in your own name.

• Ensure that your assets will be distributed according to your wishes with a will or trust.

• Review your insurance needs including life, disability and long-term care. Longer life spans. Increased responsibilities in retirement. Less social security benefits. Smaller pensions. Whatever the reason, as a woman the reality is that in all likelihood you will need more retirement income than you think- and you and you alone are the one who must make sure it is there when the time comes. Taking even small steps in the right direction now will boost both your financial planning confidence and your bottom line.

By: Umbach, Maria, Women in Business, Sep/Oct2006

1. Buy what you can afford
Even if you’re pre-approved for a big mortgage, look for a less expensive home. You’ll save on interest and won’t have to rely on your line of credit to make ends meet. Never let your combined debts (mortgage, car loan, student loan, credit cards, etc.) exceed 40 per cent of your gross income.

2. Get a mortgage broker
Yes, your bank should repay your loyalty with its best rates, but that isn’t going to fly with its shareholders. A mortgage broker will shop around to get you the best rate available, and you don’t have to pay for their services if your mortgage is with a major lender (brokers are paid by banks and credit unions, but are still impartial). You’ll save about half a per cent over posted rates. On the mortgage mentioned above, you’d save more than $26,000 in interest over 25 years. Check the Yellow Pages or your provincial mortgage brokers association.

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3. Pay more often
Pay your mortgage every two weeks rather than monthly. Take our sample mortgage: if you divide the monthly payment of $1,875 in half and make a payment of $938 every two weeks, your mortgage will disappear four years earlier-saving you $48,000.

4. Shorten your schedule
You can achieve a similar effect by shortening your amortization schedule. If you can afford to, reduce your schedule from 25 to 15 years. Your biweekly payments would then increase to $1,140 (still using our sample mortgage above), resulting in savings of $116,600 that should build a very healthy retirement savings fund.

5. Cerebrate your anniversary
Major banks and lending institutions allow you to pay at least an additional 10 per cent of your mortgage on your mortgage anniversary date, so even if you do nothing else, use your tax refund to top up your payments. The average tax filer received about $1,100 last year-if you did nothing but apply that to the sample mortgage every year, you’d own your home eight months early and save about $30,400.

6. Try an open rate
Once you’ve paid off at least 25 per cent of the value of your home, consider a variable-rate mortgage, which changes with the prime lending rate. You’re exposed to the risk of higher rates, but research has shown you will still save significantly.

You may not be able to afford any or all of these strategies right now-or your current mortgage agreement may not be able to accommodate them. But add them to your financial to-do list and implement them when you can. You’ll be “free” sooner.

By: Bamber, Loft, Chatelaine, Aug2006