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Personal Finance FAQ

Bridging the Between Gap

Grandparents
You may have to parent more than your children.

“Most children threaten at times to run away from home. This is the only thing that keeps some parents going.”
–Phyllis Diller

For 18 or so years, your parents raised you. They gave you a home, clothing, food, and love. They carried you to soccer games, plays, slumber parties, amusement parks, and a host of other destinations that you probably don’t even remember now. They taught you values, kissed your scrapes, and helped you develop into the person that you are now. You may now have kids or might be thinking about having kids and want to do the same thing for them. You’re glad to have them as grandparents to be that influence for your children.

However, as they enter into retirement years and start the long walk into the twilight of their lives, has it ever occurred to you that you might have to be taking care of your parents at the same time that you’re trying to put your own children into college or survive those teenage years long enough to kick them out of the nest? It’s a challenge that some children of the Baby Boomer generation are just now starting to realize that they are going to face and are wondering how in the world they’re going to do it.

Historically, when families were large, taking care of Mom and Dad in their later years was not much of a financial strain. Families tended to live on farms and had plenty of hands around the house to help out. Helping the parents meant keeping a room for them, tending to them, and providing food and shelter for them. Because life spans were not long, the requirement for keeping the parents did not last very long.

Now, though, with advances in medicine and healthier lifestyles, Mom and Dad might be around a lot longer than their parents were.

It is becoming a common occurrence to see people live into their nineties. When Social Security started, the retirement age of 65 was not much longer than the average lifespan. People retired, enjoyed a couple of years of doing nothing, and then died. Now, they can reasonably expect to live 25 years past retirement age.

Compounding the timing issue is the progressive increase in ages of men and women before they have children. As societies advanced, people sought to develop careers and explore the world before they settled down and had children. This means that not only are parents older when they have children, but grandparents are older. Thus, it is not unsurprising for the 45 year old parents of 15 year old children to have their own parents who are approaching 75. So, just as Junior is getting ready to pack up and head off to college, Mom and Dad might be ready for a retirement home, assisted living, or even a nursing home. Whether this scenario is happening now or may happen in fifteen or twenty years, you do not want to be surprised and unprepared for the double crunch of the between gap.

What to do?

  • Talk to your parents about their financial situation: Some people would rather claw their own eyeballs out rather than talk to their parents about the parents’ situation. It is necessary, though. You want to make sure that they have planned for living much longer than they think that they might and are socking away enough money. They might have to delay retirement or scale back on the dreams of country clubs to ensure that they’ll have enough to pay for medical care in their later years. Ask them about insurance, too, particularly long-term care. Get them to invest in IRAs and take advantage of catch-up provisions if they apply.
  • Set aside money for your kids’ education now: Look at 529 plans, Coverdell plans, and IRAs for your children. With the rising cost of education, college might cost more than you think it will. Also, many plans offer flexibility so that if Junior decides to go a different route other than college, you can retain control over the money.
  • Look at state schools: Many state schools offer fine educations and are comparable to private institutions, with a fraction of the tuition required to send your kids there. Unless your child can get a scholarship to a private institution, it might make financial sense to send your kids to a state school, and it won’t hurt their chances of making it in the world after college. Not everyone can go to Harvard. Dressing your children solely in clothes that feature your favorite state school’s mascot can’t hurt, either.
  • Make sure you’re setting aside as much as possible to be able to help: Look at your own spending and saving habits. Are you drinking ten Starbucks frappucinos a week? Make coffee at home and save the money. Invest that money. If the time until either college or a potential retirement boost comes is greater than five years, you can afford to take more risk in your investments. If the time frame is shorter, look at lower risk investments so that if you need the money, it’s there.
  • Accept this as an opportunity and a privilege, not a burden: Your parents raised you. As Bill Cosby says, they probably threatened that they brought you into the world and they could have taken you out of it, but they didn’t. You chose to have children and the responsibility incumbent with having them. Think of it as an opportunity to thank your parents for their love and support and to thank your children for the joys that they have brought to your life. You may have to scale back, delay your retirement, put off some of your own self-indulgences. But, wasn’t that what your parents did for you?

In the next few years the children of Baby Boomers will find themselves stretched to support both generations, their parents and their children. Don’t be surprised by the situation. Prepare for it now so that you can, if necessary, provide both for your parents and for your children.

Resources

By

Jason Hull, CFP®, was the co-founder of Broadtree Partners, a firm that acquires $1-5MM EBITDA companies. He also was the co-founder of open source search consultancy OpenSource Connections, a premier Solr and ElasticSearch firm. He and his wife FIREd (financial independence retire early) at 46 and 45, respectively. He has a BS from the United States Military Academy at West Point and a MBA from the University of Virginia Darden Graduate School of Business.

You can read more about him in the About Page.

5 replies on “Bridging the Between Gap”

I used my grandparents aging as a start to talk to my mum about her estate planning. She is a saver so I know she will have enough to live in retirement and get healthcare. But I am concerned about having to take care of a spouse’s parents and how that would affect our relationship. I was raised to be independent and pay for college so thinking about having the kids at home until they’re 30 and pay for everything is hard to imagine. I’d like them to always have a place to stay for a month or two in between jobs or whatever but hope to raise them well enough to want to leave and pay for their life!

I think it would be tough to have a conversation with in-laws about their finances unless they initiated it. I’d rely on my spouse if that was the case.

For those who have kids who want to boomerang, I suggest time-bounding that “in between” rental state where they’re staying with the parents. After that, it’s either rent or eviction, and I prefer eviction. Tough love is more love than tough.

Great subject, Jason. We’ve kicked around the idea of starting to save for our future kids’ educations, perhaps in a 529 for one of us that will be transferred to the kids later. But I swear I read somewhere that transferring is not as easy as the 529 manager says it will be…

Any tips or guidance there? Should we just wait until the little one comes to fruition?

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