Sandwich generation: Investors have kids and parents to worry about

People trying to invest for retirement also have to worry about the generation before them and the generation following them. According to the recently released Wells Fargo/Gallup Investor and Retirement Optimism Index, 47 percent of investors have children and at least one living parent, placing them in what is commonly called the “sandwich generation.” Thirty-two percent of investors report providing financial help to either a child age 18 or older, a parent or both. Thirty-five percent of non-retired investors and 25 percent of retired investors give such financial support to these close family members.

The survey was conducted by telephone with 1,007 U.S. investors Feb. 10-19. It found that more than half of investors who aid an adult family member financially believe it is hindering their ability to save for their own retirement. This works out to be 20 percent of all investors and 22 percent of non-retired investors.

The survey found that among all investors:

• More than half of investors (57 percent) report they have one or more children aged 18 and older and, of these, 46 percent provide financial support to at least one of them.

• About two-thirds of investors (62 percent) have at least one living parent and, of these, 14 percent say they provide either or both parents with some degree of financial help.

At the same time, the poll offers the good news that many investors are engaging in important conversations with family members about money. Specifically it found:

• Seventy percent of investors who have a child under age 18 say they have spoken to them about the importance of saving.

• Sixty-five percent of investors who have at least one living parent say they have discussed their parents’ financial security with them.

“These conversations can be essential to ensuring that adults are positioned for a lifetime of financial independence, and thus not a burden on either their parents or children,” said Jon Graff, director of participant services at Wells Fargo Institutional Retirement and Trust. “Children need to develop strong financial awareness before they turn 18 so they establish good savings habits, while avoiding debt in adulthood. Many seniors can benefit from family conversations that help them better understand and manage finances and other resources available to them.”

The poll found that while the majority of investors already follow a number of basic steps that contribute to overall financial health, this ranges from more than nine in 10 paying all of their bills on time to barely half tracking their spending by category. The full range is as follows:

• 92 percent pay all of their bills on time every month.

• 77 percent are making progress paying down high-interest debt.

• 68 percent review their insurance needs once a year.

• 61 percent check their credit score once a year.

• 57 percent contribute to an emergency fund to cover three to six months of expenses.

• 52 percent track all of their spending by category.

Two of the steps tested apply only to investors currently in the workforce:

  • 71 percent of non-retirees make contributions to savings through automatic payroll deductions.

• 67 percent of non-retirees save at least 10 percent of their income for retirement.

Most investors who are not already taking each step say it would be easy for them to start. However, two practices prove more challenging for investors: contributing to an emergency fund and saving at least 10 percent for retirement. Overall, 57 percent of investors say they contribute to an emergency fund and another 23 percent are not contributing but say it would be easy for them to start. However, 19 percent do not have such a fund and say starting would not be easy. Similarly, while 67 percent of non-retired investors say they already save at least 10 percent of their income for retirement and another 14 percent say they don’t but it would be easy, 19 percent don’t save this much and say doing so would not be easy.

“Focusing on any one of these individual steps is important, but considering all of them holistically as part of your plan will drive a better outcome,” said Graff. “The survey showed that investors practice financially healthy habits in a number of areas, but at the same time, half are not taking the basic step of understanding their spending by category. That’s an important first step in identifying opportunities to save more and achieve their financial goals.”

The importance of 401(k)-type plans as a vehicle for helping to achieve retirement security is clear in the finding that 69 percent of investors, including 76 percent of non-retirees and 50 percent of retirees, have a 401(k) or 403(b) plan.

The majority of investors – 58 percent – say they get professional advice when making investment decisions for their 401(k)-type plan. While there is no significant difference by asset level, women are more likely than men to say they use professional advice: 66 percent vs. 51 percent. At the same time, 40 percent of investors say they make their own decisions about what to include in their 401(k)-type plan. Most of these say they like it that way, but a quarter of those who make their own decisions would prefer to have professional advice.

“From the first day on the job all the way through the retirement years, there are a number of key decisions and levers that can impact your retirement outcome,” said Graff. “Although some investors prefer to do it alone, almost 7 in 10 (those who already get professional advice plus those who don’t but would like to) would rather get some help for these key decisions. There are many ways to get that advice, depending on where you are in your journey.”