Can This “Sandwich Generation” Couple Retire in 10 Years?
"Tom and Linda" are a married couple. They're both 55-years-old. Tom works as an operations manager for a regional manufacturer, and Linda works in corporate finance. They are both targeting retirement at age 65.
Complicating that 10-year runway is a situation that's becoming more and more common among Tom and Linda's generation: they're "sandwiched" between taking care of Linda's parents, who are in their early 90s, and their 25-year-old son, who is still living at home with them.
On today's show, we explain how comprehensive financial planning can help couples like "Tom and Linda" manage complex, multigenerational family variables while maintaining progress towards their retirement goals.
The Rule of 72
While caregiving responsibilities can put added pressure on a retirement plan, the good news is that Tom and Linda are high earners who have saved and invested diligently. With 10 years to go until their retirement goal, their balance sheet is already in pretty good shape:
Annual Income: $250,000 (combined)
Investable Assets: $1.8 million in pre-tax retirement accounts
Real Estate: Their primary residence is worth approximately $650,000, and they carry a manageable mortgage of just $75,000 at 3.25% interest.
Spending Needs: Roughly $140,000 per year to support their current standard of living.
If you assume a modest 7% annual rate of return on Tom and Linda's investments, and run a basic calculation using the "Rule of 72" (72 divided by the annual rate of return equals the number of years it takes to double the value of investments), their nest egg at their target retirement date could be around $4 million.
Of course, at Keen Wealth, we put retirement plans through much more thorough simulations to stress test for a wide variety of scenarios. But on the back of a napkin, even without factoring in Social Security, Tom and Linda appear to be in pretty good shape for retirement.
How Much Care Will Aging Parents Need?
However, as I've been discussing recently in a series of blog posts, retirement is never just about accounts and amounts. Many of the most important challenges seniors face don't show up on a spreadsheet. Emotional preparedness. A sense of identity and purpose. Learning to become comfortable with uncertainty. Prioritizing flexibility over "perfection."
And, in Tom and Linda's case, deciding how to care for family members without putting their own retirement at risk.
Right now, Linda's parents are still living in their own home, with $250,000 in assets and a couple of hundred thousand in home equity they could lean on in a pinch. They're also receiving pensions and Social Security benefits that cover their current lifestyle.
But if Linda's parents should need long-term care beyond the 10-15 hours every week that Linda is currently spending with them, those spending needs could skyrocket. Assisted living in the greater Kansas City area can easily cost $7,000 to $10,000 per month.
It's also important for Linda to model scenarios in which increased caregiving responsibilities force her to retire ahead of schedule. That could force the couple to withdraw more in early retirement than they were planning for in ideal scenarios. Linda's Social Security benefits could also be impacted, whether she takes them early or loses a few high-earning years in her benefits calculation.
Teaching Your Child How to “Adult.”
The 25-year-old son still living at home is, perhaps, a less pressing variable. Tom and Linda say their son is working, so he might not be a major drain on their finances. But having another adult in the house can carry some costs that Tom and Linda might not be thinking about. Is their son buying his own groceries? Is he contributing to utility bills? Is he still on their cell phone plan? Are they paying for any subscriptions or services that only he uses? Is being on their health care plan increasing the cost of their premiums?
Is he paying rent? Should he be?
I believe that a key to managing challenges at both sides of this “sandwich” is communication.
Linda and her brother (who is not local) need to have a clear plan for their parents, covering personal and financial responsibilities, whether they're able to stay at home for the rest of their lives or need to move into an assisted living facility at some point.
And Tom and Linda need to talk to their son about adult financial responsibilities: paying for rent, saving for a down payment on a car or house, his insurance options once he turns 26 and can no longer be on their plan. Tom and Linda might not need to kick their son out the door. But getting their son "off the payroll" and living on his own will ultimately make life better for all three of them.
Solving the $1.8 Million Problem.
Family aside, Tom and Linda's biggest financial vulnerability is that 100% of their $1.8 million is invested in pre-tax retirement accounts.
If Linda did have to retire early and needed to access that cash before age 59 1/2, early withdrawals could trigger significant penalties from the IRS if she didn’t have the proper advice on pre-59 ½ withdrawals.
And if Tom and Linda are able to leave their nest egg alone, they could be facing a huge tax bill in their 70s when they have to start taking required minimum distributions from those pre-tax accounts.
This is where planning ahead is a huge plus. Because Tom and Linda are giving themselves – and Keen Wealth – a 10-year runway to work with, we have options to manage both their projected spending needs and their lifetime tax liability, including:
Contribute excess discretionary cash into a standard, after-tax brokerage account.
Shift a portion of their current retirement contributions into a Roth 401(k).
Build a multi-year Roth conversion strategy starting at age 65.
Create cash buckets for liquidity and emergency needs.
By strategically diversifying Tom and Linda’s holdings and converting some of their pre-tax investments into tax-free Roth investments when their taxable income will be low, Tom and Linda could potentially save a small fortune in taxes.
Your Planning is a Process.
Tom and Linda came to Keen Wealth with a plan: retirement in 10 years at age 65.
Getting to that goal requires planning: an ongoing process that’s personal, adjustable, responsive to your needs, and mindful of what truly matters the most at every stage of your life.
Make an appointment to visit Keen Wealth to learn more about our comprehensive planning process and how it is designed to help you pursue your retirement goals.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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