Life requires setting spending priorities

The Bakersfield Californian
April 27, 2015

Boomers are called the “sandwich generation” – often caught between taking care of their children and their aging parents, while planning for their own retirements.

A 2014 survey by the non-profit American Consumer Credit Counseling revealed 31 percent of boomer Americans provide some support for their elderly parents or young adult children. In a separate survey, the Pew Research Center reported 15 percent of adults in their 40s and 50s are providing financial support to both an aging parent and adult child.

My longtime clients, who I will call Bill and Barbara, could be poster children for this sandwich generation. They are in their 50s; their 24-year-old son has finished college; their 19-year-old daughter is a college sophomore. Bill and Barbara would like to retire from their jobs with local private companies in about 10 years, but Barbara’s widowed mother has been diagnosed with Alzheimer’s disease and she, too, needs their help.

Everything BUT retirement saving is a priority for Bill and Barbara. They both borrowed from their 401(k) tax deferred retirement plans and the equity in their house to help pay for their children’s college educations. Two years ago, they took out a $10,000 loan to “pitch in” on their son’s wedding to a girl from a wealthy family.

The girl’s family picked up the lion’s share of the extravagant wedding, which carried a $200,000 price tag. At their son’s insistence, Bill and Barbara picked up the $10,000 tab for the rehearsal dinner.

I tried unsuccessfully to dissuade Bill and Barbara from this wedding spending. I wish I knew then what I know now. Last fall, two Emory University economics professors published the findings of their survey which revealed the more spent on a wedding, the more likely the marriage would end in divorce. Researchers surmised couples who succumbed to the wedding industry’s spending pressure were left with harmful debt and financial stress. Regrettably, the son’s marriage lasted only two years, and he is now back living with his parents and working an entry-level government job.

Bill and Barbara are not alone in catering to their children’s needs. The recent findings of T. Rowe Price’s Family Financial Tradeoffs Survey revealed that about 50 percent of parents polled were willing to postpone their retirements, borrow against retirement funds and take on second jobs to pay for their children’s college educations. About 49 percent believed they will never be able to retire.

Life is filled with hard choices and priorities. Bill and Barbara – likely all of us – need to do a better job of establishing priorities and sticking to hard choices.

  • Make yourself a “first priority.” To be able to help others, you must be on financially sound ground. Contribute to a retirement plan. Likely you will not be able to work until you die. Without a retirement plan, you could someday live in poverty or be a burden to your children.
  • Involve your adult or soon-to-be-adult children in setting spending priorities. Sometimes it is helpful to include a neutral financial planner in discussions regarding retirement savings, and spending on such things as college educations and weddings.
  • Talk to your aging parents about their financial plans. They, too, should understand priorities and financial limitations.
  • Seek innovative options. Again, a financial planner can help examine such things as insurance policies, annuities and tax-exempt savings accounts to help finance college educations or anticipate long-term health needs. Balance the benefits of a short-term loan against withdrawing funds from a retirement account.

Remember when your parents used to tell you that “money does not grow on trees?” They were right. In your lifetime, you will make only a certain amount of money. For it to support you through retirement, you must set spending priorities and make hard choices now.