Caught In The Middle: Taking Care of Family Matters

Parents who support children who have not yet left the nest and also support elderly parents who can’t afford to live on their own is nothing new. But, the unanticipated costs can be daunting.

Saving for a child’s college education, plus preparing for retirement requires balance and discipline. Add in potential long-term care costs for elderly parents and the feat is a true high-wire act. 

Unanticipated long-term care costs come in many different forms, including -- but not limited to -- nursing homes, in-home care and assisted living care. If people don’t plan for this possibility before experiencing a major illness or disability, the costs can be a real wealth destroyer for the entire family.

This group of adults, financing adult-children and elderly parents, commonly referred to as the Sandwich Generation, has never been more in need of solid long-term care guidance, especially with recent activity around healthcare. The right conversation can make all the difference in helping the Sandwich Generation realize the options that can realistically help achieve overall financial objectives.

Things to Consider with Generation X

The Sandwich Generation represents a subset of Generation Xers born between the early 1960s to the mid-1970s. It’s this group that is most likely impacted by the squeeze.

According toa study conducted by the Pew Research Center, “From the Age of Aquarius To the Age of Responsibility,” 1 in 8 Americans between 40 and 60 years old find themselves caring for their aging parents, as well as their grown children. And, according to an article that appeared in Psychology Today magazine titled, “Medicare’s Missing Link: Care Coordination and Family Caregiving,” 80 million Generation X and Y children are expected to eventually become caregivers to parents.

That expectation combined with continuing rising costs in healthcare and college tuitions underscoresthe importance of advisors reviewing their clients’ financial plans. That review is especially critical for the Sandwich Generation. 

The Generation X group as a whole has suffered more financial setbacks than any other generation since the Great Depression, due to multiple recessions in their lifetimes, bursting securities market bubbles, and market volatility.  And, many economic issues still linger here and abroad.

According to Experian’s 2012 credit trends study, the average debt for Generation X is $111,121. And yet, according to a recent 2012 study conducted by American Express, “The Second Annual American Express Platinum Luxury Survey,” Generation X is “mighty in luxury buying power,” outspending boomers by roughly 18 percent in multiple luxury categories, including entertainment, beauty products, and fashion accessories. These types of statistics reinforce the enormous opportunities for advisors in educating this group, helping them build customized programs, and implementing wealth management solutions that can help protect their assets and ensure specific needs are met.

Asset accumulation is clearly an essential part of the overall planning process. What many people overlook, however, is a plan to protect income and ensure assets are in place to meet unexpected needs during retirement.

People insure their homes to mitigate the financial impact due to unanticipated events. People take out auto policies to ensure they are financially covered in the case of an accident.  Preparing for long-term care is no different, and financial advisors should encourage clients to insure their assets.

The Need for a Family Discussion about LTC

Long-term care is not the easiest conversation to have with a family. Who wants to talk about serious, long-lasting illness involving parents, or even a spouse or partner?  Nevertheless, the need for a family discussion about long-term care is imperative, before it’s too late. 

But, it’s not enough for long-term care to be discussed between spouses and partners. The conversation needs to include adult children. It can mean the difference between the eventual quality of care needed and family member stress levels. 

According to AARP, by 2015, there will be 21 million single older individuals, the “baby boomer” generations, who, in the absence of a spouse, will turn to their Generation X kids to help provide care. When the time comes and those Generation X kids face paying for all or some of their parents’ long-term care, while also financially supporting their grown children, they may be forced to put their careers and retirement on hold. This presents an enormous challenge, because federal and industry data shows the cost of long-term care can easily exceed $60,000 a year. Without the proper financial planning, caretakers are left with few options for managing long-term care expenses. Financial ruin can occur quickly and impact one’s retirement plans for decades.

According to a 2010 survey by Lincoln Financial, 93 percent of caretakers needed to use their own income to pay for their parents’ care and 48 percent have tapped into their own personal savings to pay for care. One misconception that can have devastating consequences is the expectation that savings, investments and government entitlement programs will fund future needs. Savings and investments may be inadequate when the bills arrive, and entitlement programs don’t necessarily pay for all of the costs.

Bridging the Conversation Gap between Generation Xers and Their Boomer Parents

Before bringing about a conversation, advisors need to understand the “style” differences between Generation Xers and their parents. According to VisionPoint Productions, Inc., a developer of flexible training solutions for organizations, Generation Xers are more self-reliant and dependent on informal networking, while their parents often rely on the power of authority when making decisions. They gather need-to-know information primarily from friends and family, and only turn to people who have experience with products and/or services after having exhausted those resources. They don’t turn to industry experts necessarily, but rather they rely on the advice of anyone who has proved their credibility over time. As for communication style, while the older-parent generation depends upon a more formal communication style through a structured network, Generation Xers are more casual and direct in their communication with others. Generation Xers believe in authenticity, which is most apparent in face-to-face interactions.

In fact, LIMRA found that 54 percent of Generation Xers prefer to connect face-to-face versus email. Overall, Generation Xers expect firms to prove their value, involve them directly in the process, and be transparent. Meeting the criteria of both generations while accounting for each specific need will lead to high levels of loyalty from both groups.

Considerations for Incorporating LTC into a Financial Plan

Because many long-term care costs may not be covered by traditional health insurance, Social Security or Medicare, the eventual caregivers need to understand their options to provide care and helps protect their own assets for the future.

Lincoln is continuously working to help advisors become more familiar with the different long-term care planning options, ranging from what, if any, funding may come from government programs to self-insuring, family assistance, traditional LTC insurance and hybrid LTC insurance solutions, which are specifically designed to provide qualified long-term care reimbursements, an income tax-free death benefit or possibly a money-back guarantee to help protect assets set aside for retirement. 

In order for advisors to be successful in helping their clients to understand the options, they need to first recognize the potential impact of a long-term care event on the assets they manage, especially for their Generation X clients. Without a proper plan to address those risks the assets managed by the advisor may be depleted for both generations.

As an example, some of the things that can be impacted by a long-term care event can affect generations by potentially depleting college tuition funds, delaying retirement accumulation plans, and having to divest assets in the portfolio at an inopportune time.  

Those that are part of the Sandwich Generation are in an extremely tight spot, and need help in customizing plans that meet their specific needs. Advisors who start the long-term care conversation with clients early on and help identify effective retirement plans as well as the right funding options for helping to care for themselves and family will likely be the ones with the strongest relationships in the future. When their customers succeed, they succeed.

Andrew J. Bucklee is Head of the Lincoln MoneyGuard® Solutions distribution team at Lincoln Financial Distributors, the wholesaling distribution organization for Lincoln Financial Group, and is responsible for leading the strategic direction for distribution of all current and future MoneyGuard® branded solutions. Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates.