Generation X has sometimes been called the anonymous generation, forever overshadowed by the headline-grabbing baby boomers. Yet while it was the boomers (of course!) who first defined “Sandwich Generation,” Gen Xers, now in their mid-30s to early 50s, are living that reality on a scale their predecessors never knew. They are being squeezed by demands from above (their parents) and below (their kids), even as they try to secure their own financial future—all with resources that often feel stretched thin.
Consider, for example, the Catch-22 many couples in this age group now face. In order to afford the high cost of raising children, both spouses often have full-time careers. But if they put in all those hours, they will have to hire someone to take care of the kids, pushing their expenses even higher.
With day-care costs now rivaling the cost of private schooling, Richard J. Polimeni, director of Bank of America Merrill Lynch’s Education Savings Programs, offers these suggestions for stretching your dollars:
Be flexible. If your employer offers a dependent-care flexible savings arrangement (FSA), take advantage of it. Currently you can legally contribute as much as $5,000 per year ($2,500 for married couples filing separately) to an FSA. Your contribution will not count as taxable income. The money in an FSA can be used for all eligible expenses, which may include day care, nannies or babysitters. Because that money is not considered taxable income, a family could reduce its tax bill by hundreds or thousands of dollars depending on its tax bracket, Polimeni says. “And contributions come out of your paycheck automatically, so you probably won’t miss the money after the first couple of paychecks.”
Take credit. You may be eligible for the child- and dependent-care credit on your federal income tax return to offset qualified child- and dependent-care expenses. You can generally claim a maximum of $3,000 in expenses paid in a year for the care of one qualified individual (up to $6,000 for two or more) so that you can work or look for work. However, the amount you claim must be reduced by the amount your employer provides for any dependent care you deduct or exclude from your income. In other words, if your employer offers an FSA, you may be fully or partially ineligible for this tax credit. The amount of the credit depends upon your qualifying expenses. Many families will qualify for a credit equal to 20% of those qualifying expenses, or a maximum of $1,200. However, families with lower amounts of adjusted gross income may receive a credit equal to as much as 35% of the qualifying expenses. Because this is a tax credit, not a deduction, it reduces the amount of tax you owe by the amount of the credit.
Reinvest. Because saving for your kids’ future education expenses can feel like a stretch when you are already paying for daycare, Polimeni suggests calculating what you save on taxes by using the day-care FSA or the childcare tax credit and putting that amount into a 529 college savings plan.
Meanwhile, the other side of the sandwich, involving aging parents, also puts the squeeze on Gen Xers. In an age of geographic mobility and crunched schedules, they may find it impossible to provide in-person attention to an aging parent, says Cynthia Hutchins, director of Financial Gerontology at Bank of America Merrill Lynch. “Or if one sibling lives nearby, it may all fall on that person.” Here are some options to help you avoid or improve that situation:
Seek professional assistance. A growing field of specialists known as geriatric-care managers, or aging-life-care professionals, can help stretched families handle the burdens of eldercare, Hutchins says. More than just companions, they can help pay bills, manage medical appointments and monitor parents’ safety and security. Look for a licensed professional with strong references who is accredited by an organization such as the Aging Life Care Association (aginglifecare.org). Fees should be stated up front and tailored to your parent’s specific needs.
Put a sibling on salary. Some families compensate a family member who lives locally and provides the bulk of the care for an aging parent. Such arrangements may backfire if the terms are not agreed to up front, according to the Family Caregiver Alliance (caregiver.org). Create a written “personal care agreement” outlining the specific duties to be performed, the dates and number of hours, and the fee (in line with similar services in your area), the organization suggests.
Stay connected online. Technology is helping scattered families stay closer, says Stacy Allred, managing director, Merrill Lynch Wealth Management Center for Family Wealth Dynamics and Governance™. This is especially true when a health issue is involved. On the nonprofit website Caring Bridge (caringbridge.org), families can set up a private place online to share information among themselves and caregivers about a family member’s well-being. Gen Xers, Allred says, “are inviting their parents to sign up so they can track their progress from afar.”
As longevity increases, the idea of being stuck in the middle of the sandwich is becoming a new normal, with one generation after the other inheriting the mantle and putting its own spin on the solutions, says Deborah Carr, a professor at Rutgers University and author of Worried Sick. Through it all, Carr says, one constant is the need for the generation currently in the middle to see to its own needs—whether that means looking after their long-term financial future or simply staying in good physical shape and finding time for recreation and fun. “We often think of self-care as selfish, but that’s not true,” Carr adds. “When you’re feeling most under pressure, that’s precisely the time when you need to say, ‘I need to go work out.’ It’s only when we are feeling rested, focused and in control of our own lives that we can plan for the future and care for others.”
Anita Srivastava is a Wealth Advisor at Merrill Lynch in Glen Rock, NJ. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives
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