For many Americans, the “accumulation years” – the decade or two before retirement – have become  a time of financial hemorrhage.  Sandwiched between adult children grounded by the tough economy and aging parents needing care and support, these Americans are finding themselves having to keep multiple generations afloat, often at the expense of their own long-term security. 

According to a nationwide 2012 Pew Research Center survey, approximately half of adults ages 40 to 59 supported a grown child in the previous year, and 21 percent provided financial assistance to a parent age 65 or older.

So the question for many middle-aged Americans becomes:  how can I say “yes” to my own financial needs and goals, when it is impossible to say “no” to needy family members? 

A CFP® professional would be the first to answer that, in situations like this, there are no financial strategies that allow us to have our cake, and let others eat it, too.  There are trade-offs to be made, and everyone in the family needs to come together to find workable solutions.  At the same time, there are smart approaches to this modern-day dilemma – ways to manage the additional obligations without completely forfeiting the prospect of retirement or other financial goals:

Define expectations and set boundaries If a young adult can’t find a job and turns to the Bank of Mom and Dad, or checks into the Mom and Dad Hotel, it’s important to define some terms.  Will monetary support be a loan or a gift?  How long will he be allowed to stay, and what are the rules of the residence that will govern his stay?  Set an interest rate and time period of any loans extended, as well as consequences for default.  Specify how he can earn his keep by contributing to the tasks of the household.

For elderly adults, the type and amount of care should also be clearly articulated and put in writing, especially for other siblings or family members. Keep careful records of expenditures, mileage and time.  These could be critical both for tax purposes, as well as providing a justification for possible reimbursement from the parents’ assets or estate.  Make sure, too, that aging parents have put documents in place specifying wishes for advanced and end-of-life care, and giving the appropriate family members powers-of-attorney over both medical care as well as financial matters.  Not having these documents can be extremely costly to caretaking family members.

Do not compromise your capacity to earn a living.  Sometimes working while taking care of others becomes just too much, and it seems necessary or easier to quit the job.  Avoid this, if at all possible, bearing in mind that the costs of quitting can be far greater and long-term than simply a foregone paycheck for the period of care.  Retirement and Social Security benefits will be permanently reduced, and re-entry into the workforce at a comparable level can be extremely difficult. 

If leaving work to care for an ailing relative becomes absolutely necessary, be sure to look into your eligibility for unpaid leave under the Family Medical Leave Act.  You may be able to return to your job after 12 workweeks.  If you must leave work to care for an injured or ill family member who is in the military, your job could be protected for as long as 26 workweeks.

Learn what assistance is available from the government, community, and other resources.  In some cases, you may be eligible for payment for taking care of an aging relative on Medicaid.  Call your local Medicaid office and see if your state offers reimbursement to caretakers under the Cash & Counseling program.  If you have to leave your job because of caretaking responsibilities, you could also be eligible for unemployment benefits.  If your relative has assets and does not qualify for Medicaid, consider drawing up a contract whereby you are paid for your services, and can thereby contribute to a self-employed retirement plan. And don’t forget to check to see if there is a long-term care policy in place:  some policies do pay out benefits for care that is provided by a family member; others may require that the caretaker be certified, so look into what might be necessary to obtain that certification.

Finally, put the website of the Administration on Aging in your bookmark folder.  It can provide you with information about local agencies that provide a variety of services, such as transportation, meals, and care to the elderly.

Talk to a CFP® professional.  Financial and physical caretaking has all sorts of ramifications, in terms of taxes, cash flow, insurance coverage, and asset management.  Identifying and managing all these issues is what a CFP® professional does best.  Look to him or her for help with: 

  • determining if your adult child and/or aging relative qualifies as a dependent on your tax return, and whether you are thereby eligible for additional personal exemptions, medical expense deductions, and dependent care credits; 
  • advising on the ways to structure an intra-family loan, or hiring your adult child in a family business; 
  • determining your family member’s eligibility for health care coverages, such as Medicare and Medicaid, under your own health care policy or one of the Affordable Care Act exchanges; and 
  • identifying assets or financing that can be used for care needs (such as reverse mortgages), drawing cash value from or selling life insurance policies, and penalty-free early withdrawals from retirement plans.

It’s one thing to be sandwiched between the needs of generations one up and one down.  It’s quite another to completely lose yourself and your own financial goals. Reaching out to the people and organizations that can help you and taking some financially-wise steps can transform the job of supporting family from a burden to an obligation of love and pride.

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