The Bermuda Triangle (Plus One) of Personal Finance

The October issue of Money magazine has an article on what I'm calling the Bermuda Triangle of Personal Finance -- trying to save for/fund three major financial milestones at once. The three all require massive amounts of money and are made all the worse by the fact that, for many people, they occur at about the same time in life. They are:

• Saving for retirement
• Caring for aging parents
• Paying for college

To these, you can add another financial hardship that many people have to deal with -- an increase in spending when kids graduate from college, then move back home (versus moving out on their own). Ouch! This is the last nail in the coffin. It makes an already bad situation worse!

More and more people are dealing with these issues. According to Money, only 7% of people in their sixties had at least one living parent in 1900. Now, in 2006, that number is 49%. And in 1990, only 25% of young adults between 18 and 24 lived with their parents. In 2000, it was 52%.

For us, I've already set our retirement number and feel pretty good that we're on the right track there. I still need to set our college savings number but my gut is that we're "ok" there. "Caring for aging parents" is a wildcard for us -- how do you even plan for it? And as far as the kids moving back, we're a decade away from even starting college, so we'll worry about that later.

But can you imagine what others are going through? People are trying to save $1 million for retirement, pay for college that can easily be $100,000, and care for parents at $50,000 a year or so. Yikes!

Money magazine says that most people are tempted to pay for their parents' care and the kids' college first, then save for retirement with what's left over (which isn't much). Money says this is a mistake and gives some advice on what to do instead:

Borrow money for college if you have to. Exhaust your parents' own assets to fund their care later in life. But remember that no one can contribute to your own retirement savings except you. Do that part right and your kids won't need to worry about becoming a part of the senior sandwich someday.

Ha! Maybe that's the strategy -- spend it all and count on your kids to take care of you! ;-)

Anyone out there dealing with/considering this issue? I'd certainly like to hear your thoughts on it.

Comments

[Duane Gran]

What is up with children returning to the home after college? I really don't understand this "early adulthood" phase, nor do I understand why parents foot the bill for a college educated stow away. I love children -- I really do -- but the situation sounds downright spineless and a disservice to parent and child alike.

[FMF]

My suggestion -- convert their rooms to spas when they first leave for college. ;-)

"Sorry, honey, there's no place for you to stay." :-)

[Dus10]

I have difficulties with these thoughts myself. I am doing well with retirement savings; my employer helps out considerably, and my income is pretty high for my age (I am approaching 26), so the percentage makes the nominal value nice. However, I we have three kids, with the oldest being eight. So, we are working on a plan for college savings, but we haven't started it yet. My wife is about a third of the way through school, so she will be raking in some decent cash in a couple of years, which is a plus.

But then, we have her parents to think about. Of their kids, we are the most financial stable, and they helped us out when we were getting started... so we have taken it as our job. They had a total of eight kids which were spread out over about 16 years, meaning about 35 years of active parenting. They are now approaching retirement with no savings, very little home equity and some student loans, as my mother-in-law was a stay-at-home mom for a long time, and then finished school later. The good thing is that they have a decent income right now. Our plan is to have another home built in about five years that will have a nice fully-finished basement with full-sized windows and a walk-out. This would have its own kitchen and living room, so they would have their own space. Then, they could take the money they save between now and then, along with whatever home equity they have accumulated, and So-so Security benefits and be able to travel and pay for medical expenses. It wouldn't mean a huge added expense for us, since we were planning on building a new home anyway, and the way we are going to go about it will yeild very high-energy efficiency.

So, yea, I am feeling the sandwich very early on.