Over half of Americans in their 40s find themselves in the sandwich generation. Retirement is just over the horizon but they are still raising children and have parents over 65 years old. A little over a quarter of those in their 30s and about a third of people in their 50s are in this life stage as well.1 With many competing obligations, life can feel complicated and overwhelming, but it won’t always be this way.
Here’s how to gracefully navigate these common sandwich generation challenges and what you can do to build your finances during this time.
What is the sandwich generation?
People who are caring for and supporting children while also helping aging parents are part of the sandwich generation. The decade of life when this is most likely to hit tends to be the 40s but adults of all ages can find themselves sandwiched. With so many demands on you during this phase of life, planning for your own retirement may get lost in the shuffle. It can be important to prioritize your own future while helping everyone else.
1. Saving for retirement
Out of the 4 generations in the workforce today, Gen X (1965–1980) feels the least confident about retirement with only 69% feeling positive about their savings for retirement.2 The youngest Gen Xers are hitting their mid-40s this year. Entering their 40s, millennials, the generation born between 1981 and 1996, seem a little more confident about their retirement prospects at 75%.
To boost your retirement confidence, one way to feel better about your money is by making a plan and beginning to move toward your goals. For instance, in a study that looked at women investors only, it was found that small increases in savings can lead to big results when it comes to financial stress.3
- Nearly 3 in 5 women (59%) saving up to 2% of their household income for retirement felt a fair amount or a lot of stress.
- After saving between 10% and 14% of household income, only about 3 in 10 women (32%) reported similar stress levels.
As women increased their retirement savings contributions, the number of women who reported high stress levels decreased, suggesting that financial stress lessens with every incremental increase in contributions.
Consider these tips:
- Increasing your savings can potentially reduce the stress you feel about money—and it could significantly improve your retirement prospects. Read Viewpoints: Just 1% more can make a big difference
- The accounts you save in can make a big difference as well. Tax-advantaged accounts like a 401(k) or IRA offer the potential for tax-free growth (in the case of Roth accounts) or tax-deferred growth (for traditional accounts). In a traditional account, taxes won’t be due on investments until you take a withdrawal and in a Roth account, qualified withdrawals are tax-free.4 So in either case, all of your money can remain invested, potentially compounding for decades.
- People 50 and older can contribute a little extra, known as catch-up contributions. The annual catch-up contribution to IRAs is $1,000 and for workplace retirement plans like 401(k)s, the annual catch-up contribution is $7,500 for 2024.
- Investing for growth potential with stocks could help drive appreciation and compounding in your accounts. Stocks have historically outperformed bonds and cash over the long term. So when investing for a goal like retirement that is years away, it can make sense to have more invested in stocks and stock mutual funds. But higher volatility also comes with investing in stocks, so you need to be comfortable with the risks.
We believe that an appropriate mix of investments should be based on your time horizon, financial situation, and tolerance for risk.
Additionally, delaying retirement by a few years can significantly improve retirement savings and ensure a more secure financial future. For more steps to consider, read Viewpoints: Gen X retirement guide.
2. Navigating the cost of college education
Higher education costs have skyrocketed in recent years, outpacing inflation and significantly straining family finances. According to the College Board, the average annual cost of tuition and fees at a public 4-year institution was over $11,200 for in-state students and more than $29,100 for out-of-state students during the 2023–2024 academic year.
It can be helpful to consider the level of financial support you may be able to provide and what level of college costs make sense for your family. Addressing that question early as a family can reduce stress in the future.
Here are some tips to help.
- Consider putting your retirement first. Contribute as much as possible to your workplace retirement plan—at least enough to get any potential match from your employer so you’re not leaving “free money” on the table. Fidelity suggests saving at least 15% of pre-tax income for retirement, including any employer match, to help maintain your lifestyle.
- Look at your finances holistically. Are there any ways to spend less now and save more for financial goals?
- Consider a tax-advantaged account. 529 college savings plans are flexible, tax-advantaged accounts designed specifically for education savings. Any earnings grow tax-deferred and, as assets belonging to the parent, money saved in a 529 will have a relatively smaller impact on federal financial aid compared to assets that belong to the student.
The formula for determining financial aid was changed recently and is now known as the Student Aid Index on the Free Application for Federal Student Aid (FAFSA). The components of the index are parents’ available income, parents’ assets, student’s income, and student assets.
The income portion for students is assessed at 50%, while student-owned assets are assessed at 20% of their value—rather than the maximum 5.64% for parent-owned assets.
Because this can be complex and expensive, you should work with a financial professional to look for options that could help set your children up for success while achieving your own goals. From scholarships and financial aid to tax credits and student loans, students and parents may find that there are ways to help mitigate the cost of education. Read Viewpoints: American Opportunity Tax Credit guide and Lifetime Learning Tax Credit guide.
3. Caring for aging parents/relatives
In addition to the financial pressures of planning for their retirement and funding their children's education, many in their 40s find themselves in the role of caregiver for aging parents and relatives. As life expectancy continues to increase, so too does the likelihood of needing some kind of help as the years pass—whether that’s long term care, transportation, paying bills, or assistance with any of the innumerable daily activities of life.
To navigate the challenges of caring for aging parents, consider:
- Discussing their wishes and plans early and often. Don’t wait to be asked for help, start the discussions while your loved one is in great health. That can avoid surprises and stress if help is needed after an unexpected health event or accident.
- Trying to avoid choosing care in a crisis. Find out your loved one’s preference for long-term care and any plans they may have put in place ahead of time. Estimating costs and understanding your options may offer peace of mind and help you plan for any possibility.
- Explore the benefits offered by your employer. If you feel you may need to take time away from the workplace to care for a loved one, ask your employer if they would be open to flexible work hours or if there are benefits available for caregivers, like dependent care flexible spending accounts.
For more resources, visit Life Events: Caring for aging loved ones
The messy middle part of life
Planning ahead can help you overcome these common midlife challenges and achieve financial security and peace of mind. Whether it's strengthening retirement savings, planning for college expenses, or managing eldercare responsibilities, the messy middle is a phase of life that brings new opportunities as well as challenges. But you don’t have to do it alone. Working with a financial professional can help you see where you stand now and make a plan to get you where you need to go.