Create an action plan

Lisa Green, a financial services coordinator in Boca Raton, Fla., counts herself among the sandwich generation infantry. Her professional experience came in handy as she and her four adult sisters prepared for financial challenges when their mother needed care.

Delores Green, now 78, survived a bout of throat cancer several years ago but needed care at home following hospitalization for a knee injury and subsequent infection. After her daughters took turns providing care in her home in Delray, Fla., for several months, Delores and her daughters decided it was time to sell the house. Delores planned to move into a continuing-care community, where she could live in her own condo but would have medical care available if she needed it.

Preparing the family home for sale after 40 years was hard enough, with Lisa's sisters flying in from all over the country and using their vacation time to clean out the house. But the timing couldn't have been worse. It was September 2008, during the darkest days of the Great Recession. Delores' portfolio shrank, and home values in Florida hit the skids at exactly the time she needed a lump sum to buy into the retirement community.

Lisa's financial-planning expertise helped the family manage this worst-case scenario. She analyzed the situation, as she does with clients, and let her sisters know exactly where they stood and the timeline for when they might have to pitch in and provide financial assistance.

She helped figure out where to find the lump sum for the retirement community and created a spreadsheet dividing her mother's expenses into three categories: the carrying costs on her house, the monthly expenses for the retirement community and her personal expenses.

"Then we could see how long the assets could last," she says. "We knew that she had staying power for 18 to 24 months. But if we didn't sell the house by then, we'd all have to start kicking in cash." Lisa told her sisters they should be prepared to contribute $500 per month each to their mom's expenses if the house didn't sell after two years.

Fortunately, they found a renter the following year who covered the house's carrying costs, and they were able to sell it before the sisters had to contribute any money. Meanwhile, Delores' portfolio turned around, too. But Lisa continues to monitor her mother's investments and expenses so she and her siblings will have plenty of notice if they need to help in the future.

Kids in need

Helping your parents is only half of the story in the sandwich generation squeeze. Two of Lisa Green's sisters had kids attending college at the same time they were on notice that they might have to help with their mother's bills. Likewise, at the same time that Roger Bacharach was moving his parents from Arizona to Pennsylvania, his two children were in college.

The Bacharachs had saved for years to help cover some college costs without jeopardizing their own retirement. The kids each took out student loans, too. "I told them I'd pay for part of college, but I also wanted them to take out some loans so they had some skin in the game and could start building credit on their own," says Roger. "They're paying them back and managing their own finances."

After both children graduated and found good jobs -- Joel as an environmental supervisor and Jordan as a teacher -- it looked as if Roger and Trudie were finally finished with their kids' expenses. But then the recession hit, and both children lost their jobs.

At Roger's urging, both kids had opened savings accounts when they were young and added to the accounts through the years. Those savings helped them after they were laid off, and Roger gave them each a chunk of cash to help them over the rough patch. But he told them they had to manage the money.

Joel is using his money to help pay off debt and cover his expenses. Jordan, who found a teaching job in Philadelphia and is getting married, is using her savings and her parents' gift for a down payment on a house. Both of them met with Rodgers, their parents' financial planner, to work on their own financial plans.

Rodgers recommends that clients help their children get into the saving habit by matching their retirement-plan contributions as soon as they're eligible. It teaches them about the importance of saving and helps them stretch the money even further.

Make a plan for helping your kids

The Merrill Lynch Affluent Insights Survey found that 82% of the affluent parents (defined as having investable assets of $250,000 or more) surveyed either are supporting their adult children or would if they were asked. And 55% say they would allow boomerang children to come back home, even if they couldn't pay rent.

But the support needs to have limits, says Mari Adam, a financial planner in Boca Raton, Fla. "It's becoming a big problem," she says. "It's interfering with the parents' ability to retire."

One of her clients is almost 70 and needs to retire soon, but she can't because she spends too much of her money on her kids, says Adam. Sometimes the kids are in their 20s or 30s -- and even their 40s. A study by the National Endowment for Financial Education found that more than 25% of parents surveyed took on additional debt to help their children, and 7% had to delay their own retirement because of it.

Adam, who has two teenage children herself, recommends to clients that when their adult children need money, they should determine if it's a short-term emergency or a chronic situation. You can help the kids financially, but set clear boundaries. "It's very hard, and people feel guilty," she says, but you don't want to encourage them to sit around. "You want to encourage them to work or pay some rent."

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She recommends that the parents help by giving a fixed amount of money that the children have to budget themselves, similar to what the Bacharachs did, rather than just paying off their debts or covering their expenses. You may let them live at home rent-free for a certain period, but charge them rent after that.

"You can put that money aside for them and give it to them when they move out," she says. They can then use the money for a security deposit on an apartment or to build an emergency fund. Or, if the children have earned income, the parents can use the rent money to contribute to a Roth IRA, which will give them a head start on their own future.

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