Sandwich Generation is a term coined to describe an American family where the primary breadwinners are supporting not only themselves and their spouses, but also supporting, and frequently living with their grown children and their parents. This slice of America wants to do the right thing, to honor their parents and nurture their children. They hardly expected to be doing them both at the same time, and they are struggling financially and emotionally to come to terms with the responsibilities this shift in life expectancy has left in its wake. At the same time as defined benefit plans and social security are crumbling, college costs are higher than ever. Our parents never anticipated the need for Long Term Care, and few set aside enough money to buy the housing and care that they need now as they survive many of the health setbacks that felled their progenitors.
LIVING ON THE CRUMBS
Today’s college graduates are burdened with staggering student loan debt, and high paying jobs are scarce. With both generations unable to afford to live on their own, what is left for our retirement? Leaving it up to the Government or spending more than the household revenues in the hopes that the income will increase is a recipe for disaster.
The first order of business is to find more money in households already squeezed by job cutbacks, fewer benefits and increasing housing costs.
Our example, Ms. Betty L. Toste (BLT), makes $40,000 in gross salary annually, so gets 10 slices of bread.
First thing BLT does is put $4,000 in her IRA or 401k or 403b or SEPIRA.
BLT now has only 9 slices of bread that can be taxed.
Next, she pays her housing expenses via mortgage financing, at appx. $16,000 a year in mortgage interest, ($1,333/month), or 40% of her gross income, which is within Fannie Mae’s borrower guidelines), sheltering another 4 slices of bread from taxes, leaving BLT with only 5 taxable slices of bread. Now, Uncle Sam, Uncle Arnold and SSI and MediCare and EDD and all their greedy pals take a 40% bite out of the five slices, not out of the 10, so BLT still has $12,000 left for food, and $4,000 in reserves. And, that reserve slice of bread can earn interest or dividends (yeast) tax free, so it just keeps growing.
Now let’s see what Mr. Join A. Club (JAC) does to make sure he has enough bread to support his parents and his children.10 slices of bread. No retirement set aside, pays $1,333 in rent ($16,000/year). Take $16,000 and hands it over to his Housing Provider (no deduction). Meanwhile, The Greedy Pals take 40% of his 10 slices of bread, leaving him only $8,000 for food and zero in reserves.
So, the moral of this story is You must set aside the maximum allowable portion of your earnings into your retirement account. Put off that expensive club membership - want exercise? Take a walk - log off examiner.com and take a walk and think about cutting through all those excuses for not having any reserves.