If some of your boomer clients are stressed about their family situation lately, it’s possibly because demographic trends are squeezing many in that generation. A March 10, Wall Street Journal article by Anne Tergesen, Tax Deduction for Helping Relatives,* highlighted how boomers are getting squeezed financially by their parents and adult children: "According to the Census Bureau, 59 percent of men and 50 percent of women ages 18 to 24 live with or are supported by their parents, up from 53 percent and 46 percent, respectively, in 2005. The same is true for 19 percent of men and 10 percent of women ages 25 to 34. On the other side of the generational divide, 43.5 million Americans look after someone age 50 or older, up 28 percent from 2004. On average, each spends about $5,534 a year providing that care, according to the National Alliance for Caregiving."
The "sandwich" generation
Cheryl J. Sherrard, CFP® with Rinehart Wealth Management in Charlotte, N.C., sees multiple challenges for "sandwich" boomers caught between helping younger and older generations. From a financial perspective, clients must prioritize their savings and spending when multiple needs are competing for their resources. Another factor is how the boomer client will manage the time demands they’re likely to encounter. "The other thing that I try to assist with is the fact that if you are a working 50-something, trying to have a career, save for retirement, college and then assist parents with their aging issues, you need help," said Sherrard via email. "You need to be able to identify those in the community who can best provide assistance in overseeing all these areas, whether that is your financial advisor for particular areas or a geriatric care manager if you might be trying to coordinate care for parents."
Philip Harriman, CLU, ChFC with Lebel & Harriman in Falmouth, Maine, believes most people would be stunned to know how common the sandwich situation has become. His recommendation to boomer clients in the middle: Don’t overlook the time-tested advice of paying yourself first with contributions to tax-advantaged savings accounts. Harriman also suggests that clients understand Medicare’s rules to ensure aging parents maximize their benefits. Additionally, they should develop a plan, which might include long-term care insurance, to help parents avoid having to spend down their assets to qualify for Medicaid.
When adult children seek large amounts of money, one option for parents is to treat the amount as a loan instead of a gift. Diane Pearson, CFP with Legend Financial Advisors Inc. in Pittsburgh, describes a recent case in which the client’s adult child requested the funds for a home down payment. The client wanted to be repaid but didn’t like the idea of calling each month with payment reminders. Pearson suggested the client set up a formal repayment schedule with monthly payments transferred directly from the child’s bank to the parent’s. The automatic payments made the client more comfortable with the arrangement, says Pearson.
Relief on the way
Fortunately there is some financial relief potentially available for sandwich boomers. For those who meet the IRS’s tests for claiming a relative as a dependent, that’s worth a $3,700 deduction. That’s probably much less than your client’s outlay, but it helps. (**See IRS Publication 501 (2011), Exemptions, Standard Deduction, and Filing Information for details.)
"You need to be able to identify those in the community who can best provide assistance in overseeing all these areas, whether that is your financial advisor for particular areas or a geriatric care manager if you might be trying to coordinate care for parents." Cheryl J. Sherrard, Rinehart Wealth Management
*Tax Deduction for Helping Relatives: http://online.wsj.com/article/ SB10001424052970203370604577263601487060084.html **http://www.irs.gov/publications/p501/index.html