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Sandwich Generation: How Much Do You Really Need to Retire?

Your financial planning is complicated. Here's how to figure out how to save enough.

by Dana Sitar | June 22, 2021
<p>Three generations of men portrait</p>

Saving for retirement while supporting a child and a parent takes extra effort.

The Squeeze

  • Consider your expected expenses rather than your current income to figure out how much you need to retire.
  • Saving for retirement might be challenging if you're supporting a child and providing financial assistance or caregiving for a parent. Still, you can keep it up by making it a priority and taking advantage of alternative financial solutions for other expenses.
  • Make the most of your Social Security benefit by retiring at the right time, and you can reduce the amount you'll need to contribute to your retirement savings.

The Sandwich Generation is anyone caring for aging parents while raising their own children. Think of it as a caregiver sandwich — you're the meat, and the people you love are the bread.

With your time and money stretched to support two generations (plus yourself), can you seriously hope to retire at a reasonable age? 

For sure, these are some serious challenges — but you can meet them with a bit of foresight and planning.

How much do you need to retire?

Many experts suggest using your pre-retirement income as a measure to figure out how much you'll want in retirement — aiming to replace about 70% of your pre-retirement income with income like retirement account distributions and Social Security benefits. That's not a great stick to measure by, though. Your retirement income doesn't have to live up to your working income; it just has to cover your expenses during retirement. 

A better way to determine how much money you'll need in retirement is to figure out what your expenses will be. Some examples: Will you have paid off your mortgage and be living in your house free and clear? Will you sell your home and downsize to an apartment where you'll pay monthly rent? Will you relocate to a more or less expensive city, state or country? Will your hobbies, activities and travel habits change to become more or less costly?

Here are the nine factors to consider when adding up how much money you need to save for retirement:

Retirement age: Start with the age you hope to retire. This will give you an idea of how many years your retirement income will need to support you. Generally, plan for between 20 to 35 years. But also consider whether you might leave the workforce early to provide care for a parent while you may still be providing financial assistance to your kids.

Housing costs: Consider your monthly cost for things like a mortgage, rent, property taxes or HOA fees.

Other living expenses: Your necessities will probably be similar in retirement to what they are now — you'll need to eat, be clothed, bathe, have heat, etc. If you plan to move somewhere else in retirement, compare the average cost of living to where you live now.

Travel: If you plan to travel more in retirement than you do now, do you need more savings? How will it affect your other living expenses?

Medical care: This is the one significant expense that generally goes up, rather than down, in retirement. If you'll lose employer-based health insurance before you're 65 (and eligible for Medicare), how will you cover expected medical costs? Once you're eligible for Medicare, you still have to factor in the monthly premium and out-of-pocket expenses (albeit likely lower all around than any health insurance you have now).

Parents' care: Do you plan to have a parent or parents living with you after retirement? Or to contribute to their housing or medical costs? Add that to your equation as well.

Social Security benefits: Use the government's Social Security calculator to get an estimate of how much you'll get from Social Security each month. Your other savings needs to make up the difference to cover your expected expenses.

Savings and assets: Consider what you've got in non-retirement savings, as well as non-liquid assets you might sell during retirement, like your home or business. Those funds can help offset how much you'll need in retirement savings.

Taxes: Don't forget you'll pay income tax on distributions from your Traditional retirement accounts (but not Roth accounts) and may pay taxes on some Social Security benefits.

How to make sure you have enough money to retire

You might look at the amount of money you need in retirement and balk. How can you build that kind of savings, especially while you are responsible for financial and caretaking obligations for both your kids and your parents? And what happens if you or your spouse has to stop working, cut down to part-time or turn to self-employment to accommodate caretaking duties? 

Follow these tips to make sure you can sock away enough to enjoy your retirement.

Make retirement savings a financial priority

If you have to choose among several financial goals at once, prioritize retirement savings whenever you can. You might want to pay down your mortgage quickly, save for your kids' college education or help with a parent's medical costs. If you do those at the expense of saving for retirement, though, you could make major problems for your future self.

Kids can borrow loans to pay for college. Parents can tap into state and federal assistance, insurance and payment plans to pay for medical and long-term care. Your mortgage interest savings is likely to be less than your potential retirement interest gains.

If you can, speak with a financial planner to determine the best use of your money throughout the years to set yourself up for a comfortable retirement.

Lean into savings alternatives

Don't stop saving for retirement if you lose your benefits because you cut hours at work or start working for yourself. Open an IRA or a Solo 401(k) to keep saving and receiving tax benefits.

Keep Retirement Investments Properly Allocated

Work with a financial planner or use a low-cost app to see whether your retirement savings are invested in the right way to see you through retirement.

In your 20s, 30s and 40s, they'll likely be in riskier, higher-growth investments like stocks. That helps you get the most out of your contributions. As you near retirement age, your retirement funds should move into less risky, slower-growth investments like bonds to protect your savings from market swings. An expert can help you set up your savings to minimize your risks while ensuring your money will continue to grow enough to support you in retirement.

Hold off on collecting Social Security

As you plan for retirement, consider Social Security carefully. Your monthly benefit amount depends on the age you begin drawing — the later you start, the higher the permanent benefit.

You can draw Social Security anytime starting at age 62, but that gets you your lowest payout. Wait to receive benefits until as late as age 70 and you’ll increase the benefit amount for every year (and month) you wait.

Working longer or relying on savings or a spouse's income could help you delay and increase your Social Security payouts and reduce the amount you need to save for retirement.

About the Author

Dana Sitar has been writing and editing since 2011, covering personal finance, careers, and digital media. She trains journalists, writers, and editors on writing for the web and has written about work and money for publications including Forbes, The New York Times, CNBC, The Motley Fool, The Penny Hoarder and a column for Inc. Magazine.

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