Money Matters: Avoid Getting 'Sandwiched' Out of Retirement

By Veronica Karas

The Sandwich Generation refers to people typically in their thirties or forties, responsible for bringing up their children, saving and accumulating wealth for themselves, and caring for their aging parents. The goal: make sure you can afford your own retirement (however that looks for you), while also taking care of your loved ones along the way. It seems like a daunting task, but with the help of this creative and informative guide, you will learn the necessary insight to achieve your financial goals!

Meet Jen and Jack. They have now been married for six years; they have two beautiful children, a lovely home, run the finances of their household jointly, and are dealing with being a part of The Sandwich Generation. They are figuring out how to save for both college and retirement. Jen and Jack also face the very likely scenario where they will need to help Jack's parents as they age. In addition, Jack has decided to start a business and is overwhelmed with all the financial decisions involved. Whether you are like Jen and Jack or whether you have different goals for the future, the fundamental principles of financial security remain the same.

Throughout this book, the author guides you on Jen and Jack's journey, but at each stage, you also will be considering the variety of alternatives you may be facing in your life. You may not fit all parts of this – perhaps your parents have done their own financial planning, and you will never have to take care of them, or you may never want to have children. If that is the case, please feel free to take what applies to you and discard everything that does not. This book is organized topically, so it can easily serve as a reference guide for you to make key decisions in areas that may be new or unfamiliar. Whatever your goals may be, this book will help you achieve them!

• Language: English
• Publisher: BookBaby
• Release date: Dec 1, 2021
• ISBN: 9781667802138

Book preview

Chapter One - Goal Setting

Setting Goals is the First Step in Turning the Invisible into the Visible

– Tony Robbins

My favorite topic of conversation is goal setting with clients. Everyone comes from such diverse backgrounds and has different life goals and missions; goal setting is one of the best parts of my job. I like to tell people that I help them align their resources to make their dreams come true. The first step is defining what those dreams are! This is the part of the process where the money takes on a new form, and it is possible to dream big and still be practical about it. I love asking people fun questions at parties such as, So, what financial goals do you have for the future? – yes, that is correct, I am THAT guest! But it always amuses me how often people will dismiss money as part of their goals. Traditional answers range from Oh no, I don’t care about money, I just want to be happy to I just want to pay off the mortgage and send the kids to college. Later in the night, I will occasionally get the more honest answers, such as, Well, I would love enough money to buy a jet and never have to work again. A particular favorite of mine is, I would love to be able to afford to get divorced, but that’s just not happening! What an interesting approach to life – no judgment here or anything!

It does not matter what your goals are for the future; they all have a price tag. Even if you want to go all ‘Eat Pray Love’ on your life and move to an ashram in India, you will still need to pay for your airfare. At that point, I would also strongly advise you to save up some money for medical expenses if you return in three years with a calcium deficiency.

So why is it that people shudder at the thought of putting a price on their goals? Why are we so afraid to talk about how much money we believe we need to live our dreams? The answer is simple: we never really thought about what it would cost. The best news: it probably costs less than you think.

Financial Goal Buckets

Sharing joint goals for the future is the key to financial success and a happy marriage. It is essential to establish these goals and work together to create a plan. Raising a family at the same time as progressing in your own lives can leave little room for daydreaming or goal setting, but if you start to see this as a vital part of your financial planning process, you may just be surprised at what is possible! It is hard to judge yourself against others regarding where you should be with your savings because everyone is in a different situation, and there is no one-size-fits-all when it comes to saving for your financial freedom. In my first book, I used the following rough guide to help benchmark where you should expect to be in terms of your savings by a certain age. Please note this is just a guide and not intended to discourage or scare you.

Ideal savings by age bracket:

30 years old - one year’s salary in savings

35 years old - two years’ salary in savings

40 years old - three years’ salary in savings

50 years old - six years’ salary in savings

60 years old - eight years’ salary in savings

Retirement age - ten years’ salary in savings

In other words, if you are 40 years old and make $100,000 per year, your total accumulated savings should be around $300,000 to be on track for retiring at around age 65. If you plan to stop working sooner than that, you will need to have substantially more savings. If you are looking at this and your instinct is to roll your eyes because you are nowhere close to the target – do not worry – and keep reading! There is plenty of time to catch up and make adjustments so that you can get back on track and even ahead of the curve.

Now, retirement savings is just one piece of the puzzle. If you are currently 32 years old, the idea that you need to focus a lot of time or energy on saving towards something 35 years away may seem a bit pie in the sky. Of course, you need to plan for your short-term goals and everything that will likely happen between now and retirement. How and where you save your money and how it should be allocated or invested depends on how far away the target goal is. We can use a bucket strategy to structure goal planning and ensure that you are also planning for those unexpected twists and turns that life is sure to throw your way. Consider each bucket as a metaphor for a different type of savings strategy:

Short Term

Medium Term

Long Term

Short Term - Bucket One

For the first bucket, we want to consider your short-term goals – this could be minor home improvements, international travel, or maybe something practical like paying off student loans or clearing your credit card debt. Anything that you can achieve within one to three years is considered short-term goal setting. Ideally, you would like to have close to one year’s salary in this bucket, but at a minimum, endeavor to have six months of expenses in highly liquid investment vehicles such as savings accounts, cash, or short-term bonds. This ensures you can cover your basic expenses and any planned treats you have during that time. Remember that while it is important to identify these short-term needs, it is also important not to be too conservative when thinking about your cash needs. Interest income will play a significant role in your portfolio growth over a long period of time. When you hold too much money in cash and other highly liquid products, it can create a drag on your investments and create an inflation risk. Currently, inflation is at around two percent per year, which means you need to at least earn two percent from your holdings each year to keep pace with inflation; otherwise, you are losing money.

Medium Term - Bucket Two

Medium-term goal setting usually involves slightly larger goals that should take around three to ten years to achieve. These objectives may include having children, setting up your own business, or achieving specific saving and investing milestones. This bucket of savings should be focused on capital retention and consistent growth, as any significant risk or volatility could easily derail your plans within a one-to-five-year period. Keep in mind that you want to be able to access these savings within a reasonable time frame. Be clear on your goals or anticipated expenditure when you start saving to ensure you do not need to dip into these accounts for short-term needs. Consider the liquidity of the investments you put into this bucket. As your medium-term goals get closer, you need to be able to access the funds without any penalties.

Longer-Term - Bucket Three

For longer-term goal setting, we should consider a timeline of ten years or more. These goals include significant life events such as retirement, children going to college, estate planning, and more. With a longer time horizon, you can afford to take more risk with your investments if that suits your investing profile, and you can also take advantage of the benefits of keeping your money in one place for longer. As you consider what your goals might be over the next ten, twenty, thirty, or more years, it is prudent to consider whether these goals might change. For instance, specific goals, such as retirement, likely occur in a window of time, age 62-67 or so. Other goals might be more fluid. You might consider a mid-life career change or decide to go back to school at some point. Take some time to note down the potential changes that you can foresee happening in your life over a longer period of time to plan for them appropriately. Even if retirement seems far away today, there will likely be a time in your life when you are not working and need to live off of your investments or some type of passive income.

The magic of financial planning and investing is to start as early as possible. It is much easier to start saving towards retirement at age 35 than it is at age 55. Way too often for comfort, I receive calls from people who did not appropriately plan for their retirement. They call me when they are 63 years old, with insufficient funds accumulated, and ask me what they can do investment-wise to retire in the next 12 months. It is usually a discussion focusing on the need to cut down their expenses if they really want to retire that soon. That is always a terrible conversation to have, and if you start sooner rather than later, it is much more accessible to retire at your planned retirement age or even earlier!

For every stage of life, there are financial goals and aspirations to aim for, as well as financial constraints and considerations to be aware of. Saving for a rainy day is always a good idea, and this is especially true as you move into the later stages of life. Complexity is added to our lives with spouses, children, and parents, making financial planning a necessity. Of course, finances are not the only component of successful goal setting, and you want to work with your partner to create a strong vision of the married life you both want to have. Once you are clear on your life goals, you can then work backward to ensure that you have a solid financial plan in place as to how you will achieve them. Different goals will require different strategies, but it would be helpful to look at some of the most common goals and identify a suitable strategy for each.

Know Your Lifestyle

We will go through an entire budgeting exercise in Chapter 2 of this book, and as you think about your goals, it is essential to know what your lifestyle truly looks like. Once you know the cost of your desired lifestyle, it becomes easier to work towards that goal financially. This is the complete reverse of how many people manage their finances. Most people afford the higher-end lifestyle through debt in the short term and then hope that they will be able to pay it off in the long term.

Lifestyle upgrades such as a bigger house, a nicer neighborhood, luxury vacations, and more expensive cars might be more fun to plan for, but a real-life upgrade comes in the form of financial security. Setting ambitious goals for your savings and investing strategy so that you can increase your net worth should be top of the list for your goal-setting plans. Then you can use that money to create the lifestyle that you are looking for.

Jen and Jack went through a similar process when combining their finances and looking to the future. After a few years of married life, Jen had just been promoted and was making $225,000 per year in her position. Since they had been so careful with their budgeting and saving in their first few years of marriage, they were able to purchase a home and still squirrel money away. They are now at the point of planning for Jack to open his own technology consulting business. He is projecting that he may not make much money (if any) during the first few years in business. His current salary is $170,000, making it difficult to walk away, but he has always dreamed of being his own boss. Jen and Jack know that this is a possibility. For the previous few years, they had been committed to saving extra money towards this anticipated shortfall. Jack could now risk setting up his own business without negatively impacting the family finances if something goes wrong.

This kind of forward planning is essential when making big decisions such as setting up a business or having children. By understanding the key components of what your new financial life will consist of, it is possible to take most of the risk and uncertainty out of even the most significant life choices. Paying yourself first is not just about saving for the future, but it is also about getting into the mindset of money being a tool to create the life that you want to live. Only by fully understanding money and having a complete overview of your life finances will you be able to utilize this tool most effectively.

Starting a Family

Jen and Jack have been planning to start a family ever since they were married, but according to their financial blueprints, they both had slightly different ideas about just how much financial security they would need before doing so. Growing up in a working-class home where money was always tight, Jack was very apprehensive about bringing children into the world before he knew that he would be able to provide for them. He was worried about what might happen if he lost his job or if the economy crashed, as he had seen just how sensitive his family finances had been to these types of events growing up. On the other hand, Jen had grown up in a family with a significant level of financial security, which meant that her parents were not living in fear of external factors they could not control.

One of the motivations for Jack to set up his own business was to have control over his income and be in a more flexible position should any unexpected event arise. Jen and Jack have worked together on a three-year plan that would see Jack set up his business, allowing for a dip in income for the first two years, and then by year three, they would be back up to their previous level of income, if not higher. This allowed them to think strategically about when they would be financially ready to start a family and use their budgeting tool to focus on paying for what they wanted in life.

As much as I always advise my clients to plan ahead, I am also aware that parents should expect raising children to be much more expensive than they think it will be! Particularly for Jen and Jack, who live in Manhattan, the cost of schooling alone is a significant expense. As the children grow, they will also want to join after-school clubs, join a sports team, take up an instrument or go on field trips. Medical and dental expenses, clothes, toys, and larger investments like pets or summer camp will only continue to grow as the children get older. Part of the fun of goal planning is to consider all of these costs years in advance and determine how to create enough financial stability and flexibility to ensure that when expenses arise, that there will be no shortage of ways to pay for them.

Jen and Jack are in a perfect position today to analyze and prepare for their medium-term and long-term goals as they relate to their children. Since Katie is five years old and Matt is three years old, they have about a five-to-ten-year window in which they will have some major expenses. For the medium-term goals, they need to set aside extra money to plan for extracurricular activities for their children, such as dance classes, summer camp, tennis lessons, music lessons, and anything else that their young children may find interesting. Summer camp alone can vary from $200 per week to $1500 per week or more across the United States. The average cost of dance lessons is about $300 per month, tennis lessons run around $45 per hour, and music lessons average around $55 per lesson. Let us assume that Katie and Matt each take up one activity, and both attend a summer camp that has a middle-of-the-road cost.

Katie signs up for dance classes at age eight - $300 per month x 12 = $3600 per year for six years = $21,600 total.

Matt takes eight tennis lessons a month starting at age six- $45 x 8 = $360 per month x 12 = $4,320 per year for eight years = $34,560

Both attend summer camp starting in three years at the cost of $1000 per child = $2000 per year for eight years = $16,000

The total cost of extracurricular activities: $72,160.

Yes, it can be costly to prepare for extracurricular activities for your kids. It is much more expensive to take on credit card debt to make the financing work if you have not prepared for it in advance. Since Jack is looking to start his own business, Jen and Jack want to make sure they have at least this much in their medium-term investment bucket before Jack leaves his job.

For their long-term goals, Katie will be starting college in approximately 13 years, and Matt will be starting in 16 years. If Jen and Jack begin now, they can at least help them pay for college. Early on in our discussions, this was a big sticking point between the two of them. Jack paid his own way through college and felt that doing so made him more committed to the degree and made sure he was not wasting his money. Jen’s parents paid for her college, and she felt she was still equally committed because she did not want to disappoint her parents. Jack felt very strongly that because of all his hard work, they should be the primary beneficiaries of their hard-earned money –perhaps even retiring early to travel the world and sharing more adventures. This puts their retirement at a higher priority than their children’s college education. The couple decided to save a reasonable amount of money towards their children’s college education each year from birth. If their children needed additional funds beyond their savings, then they would take out loans. After all, if Jack’s business becomes successful, they can later decide to subsidize the cost of college. They decide to save $10,000 per year towards college, a total for the two kids, through Matt’s last year of college. Since Katie is slightly older, that means they started saving five years ago. Jen and Jack will continue to put money into college savings accounts for another 18 years (when Matt will be 21 and starting his last year of college).

Prioritizing your goals and what you want to be able to provide for your children is very important. You never know what will happen in life, and it is always a good idea to have a cushion in place for flexibility. Even if your children take on student loans, you can choose to help them pay off the student loans later in life if you have accumulated more money than you might need. However,