Financial planning needs and challenges for sandwich caregivers and career extenders

The number of people age 65 or older in the United States is projected to grow from 56.4 million in 2020 to 82.3 million in 2040 — and 98.2 million by 2060. Over the next eight years, as the last group of Baby Boomers turns 65, seven out of 10 will require long-term care in their lifetimes.

As a result, 11 million Americans — or 28% of all caregivers — currently are “sandwich caregivers,” who provide unpaid care to an adult while also caring for children living in their homes.

At the same time, nearly 20% of those Americans over 65 — an estimated 10.6 million people — also are either working or looking for work, representing a 57-year high. These so called “career extenders” are either postponing retirement or retiring from one career and embarking on another.

Both of these groups challenge traditional views of retirement. Forward-thinking benefits brokers, managers and retirement advisors are prudent when they prepare for a shift away from traditional retirement planning to a holistic approach that emphasizes a variety of government benefits and employee benefits to supplement available assets.

Retirement planning hurdles

Sandwich caregivers often struggle to cover the cost of childrearing and caring for aging family members at home, spending close to $7,250 per year out of their own pockets, according to AARP. As a result, they may have lower levels of retirement assets. They also may need a larger home or renovations to accommodate the needs of aging family members. As an alternative, out-of-home care facilities may result in excessive costs.

Many leave their careers to focus full-time on caregiving, leading to lost retirement savings and barriers that prevent some from re-entering the job market. Remaining at work also may impact career growth.

Career extenders often have to plan for longer life expectancies and corresponding declining health in their retirement years. The key consideration regarding those two factors is the rising costs of health care and prescription medications. In addition, the availability of family members to step into a caregiving role has declined, as families become more geographically dispersed.

Career extenders may be relying on employee benefits to help bolster their retirement savings. However, traditional employee benefit plans are focused on young families and may not support their shorter-term financial goals or provide for their more immediate long-term care needs.

In addition, career extenders may begin to experience workplace discrimination, which could derail their career progression and ultimately impact pension and Social Security payment amounts and their ability to save more for retirement.

Career extenders also may have multiple income streams, in addition to their salaries, that should be included in their holistic retirement plan. Additional income streams may include Required Minimum Distributions from all employer-sponsored retirement plans and Individual Retirement Accounts (IRAs), once the participant turns 72.

Career extenders who have worked beyond the full retirement age, and are 70 or older, may be collecting Social Security retirement benefits too, since their benefit amount won’t increase after 70. Career extenders with additional income streams also need to consider tax strategies that will help them maintain the maximum income.

COVID-19 pandemic impacts

One of the well-publicized effects of the COVID-19 pandemic has been the impact on employment. Many Americans were laid-off, furloughed or their jobs were eliminated, which not only affects short-term day-to-day finances, but also can cause a setback in retirement savings.

Women, people with disabilities, older workers and people of color were disproportionately impacted. Older workers may have been pressured or incentivized into early retirement, which results in reduced Social Security benefits due to early filing.

The quality and availability of long-term care also has been affected by the pandemic. Long-term care facilities are having more difficulties recruiting and retaining quality direct-care staff, all while they are struggling with funding, leading to increased possibility of closing down, which leaves fewer facilities. Fewer long-term care options lead to an increased need for home health care — and increased costs: $106,000 a year for a private room in a nursing home, $51,600 per year for a one-bedroom assisted living apartment, and close to $20,000 per year for adult day care, according to the Genworth 2020 Cost of Care Survey.

Now in the third year of the pandemic, newer effects are becoming evident. Specifically, the “Great Resignation” has resulted in 50.3% of U.S. adults 55 or older to retire, as of the third quarter of 2021. These numbers represent a significant shift away from the long-standing historical trend toward declining or steady retirement rates among older adults.

However, the Bureau of Labor Statistics suggests this trend will be temporary, projecting large increases in labor force participation among older adults from 2020 to 2030, with nearly 40% of 65- to 69-year-olds being in the labor force by 2030, up from 33% in 2020.

Lastly, supply chain issues and growing consumer demand have contributed to market volatility, inflation and rising interest rates, which significantly affect income-stream planning.

Special needs planning replaces traditional retirement planning

For both sandwich caregivers and career extenders, special needs financial planning strategies can be applied to help effectively plan for the future. Traditional financial planning advice — which focuses on the three-legged stool of retirement plan income, Social Security retirement benefits and personal assets — has not kept up with the changing reality.

Benefits brokers, benefits managers and retirement advisors can better meet the needs of these two groups by prescribing to the special needs financial planning process, which emphasizes the use of a variety of government benefits — Supplemental Security Income, Social Security Disability Insurance, the Social Security Survivor Benefit, and the Childhood Disability Benefit, for example — in coordination with employee benefits to supplement available assets.

Employer-sponsored benefits for career extenders and sandwich caregivers

As they grow in importance for long-term planning, employer benefits programs can provide education materials and step-by-step guidance tailored to the unique challenges of the growing numbers of sandwich caregivers and career extenders who currently and will make up their workforce. Education and guidance may be backed up with tangible, specific solutions needed to help them prepare a long-term plan for the future.

Subsidized employee benefits provide a key opportunity to help ensure health care costs are predictable and provide other life insurance and wellness benefits that may not be available to retirees and caregivers who have left the workforce. These options can free up resources for retirement savings while positively impacting quality of life. Additional employer benefits to consider include:

Long-term care insurance: Newer, more affordable hybrid products combine elements of life insurance or annuities with long-term care insurance to provide protection against multiple risks.

Health Savings Accounts (HSA): The high price of health care in retirement coupled with the need for caregivers to pay for care services — therapies, accessibility devices and modifications — has resulted in increased demand for these tax-deferred savings accounts.

Emergency savings: Emergency savings help promote holistic financial wellness and enable individuals to build retirement savings while also being able to absorb short-term financial shocks and income disruptions.

Leave management/stay-at-work programs: For both employees and employers, maintaining employment is essential. Employees can manage their own health needs, and those of their family members, for short periods of time without jeopardizing their income, employment or long-term plans.

Individual Retirement Accounts (IRAs): Caregivers often need more retirement savings because the additional cost of providing care limits their ability to save. They also need more retirement income for themselves and for the care of loved ones with disabilities— costly care that can extend for decades.

Student loan debt programs: Americans have tens of trillions of dollars in debt, much of it from student loans. Although adults age 49 or younger hold the majority of student loan debt, almost 10 million Americans ages 50 or older owe more than $360 billion, which can prevent saving for retirement.

Americans’ needs continue to change

Demographic shifts in the U.S. challenge traditional views of retirement and shift thinking away from traditional retirement planning guidance for a more holistic approach. As employee benefits programs play a larger role in this holistic planning, prepare now for a benefits package that will meet the challenge for employees.

Jessica Tuman is head of Voya Cares and ESG Practice Centers of Excellence.

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