‘Sandwich Generation’ Caregiving Crimps Retirement Planning

Financial strains are holding back this generation of caregivers, but workplace benefit providers tout potential for employers to help with customized planning.

Recent research by Nationwide and the Alliance for Lifetime Income highlights financial pressures faced by the ‘sandwich’ generation of caregivers who are stuck between children and aging parents. However, separate findings from Morgan Stanley’s workplace division suggest that tailored workplace benefit plans can assist in staunching the financial pain and stress of this group.

According to the annual Nationwide Retirement Institute Long-Term Care survey, Americans are facing significant financial burdens to provide and pay for long-term care for themselves and their loved ones. The Nationwide survey, conducted from March 12 to April 2, gathered responses from 1,334 U.S. adults aged 28 and older with household incomes of $75,000 or more.

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Nationwide found that to fund caregiving for loved ones, 56% expressed they would borrow from their retirement accounts to support a family member, potentially jeopardizing their long-term finances. Among respondents, 43% worried that the expenses associated with caregiving would hinder their ability ever to retire.

Almost half of respondents, 42%, said they will deplete the funds they had intended to save for their children due to caregiving costs. Caregivers incur significant out-of-pocket expenses, spending $338 per month on average. Costs include co-pays, prescription drugs, gas, transportation and other necessities. Additionally, 15% of Americans have had to switch to part-time work or take a lower-paying, more flexible job to accommodate their caregiving responsibilities.

Social Security

Half of Americans aged 61 to 65 have retired and begun receiving Social Security benefits; moreover, 28% continue to financially support their adult children and extended family, according to a recent study by the Alliance for Lifetime Income. The online survey, which included 2,516 participants aged 45 to 75, was conducted between February 15 and March 2.

“There is real concern that Social Security will not be able to support people who are relying on it as their primary source of retirement income,” Jason Fichtner, executive director of the alliance’s Retirement Income Institute, said in a statement.

The “sandwich’ generation” is expanding, as 38% of consumers between 61 to 65 have one or more living parents or in-laws. Furthermore, 28% are currently giving financial support to adult relatives, such as children aged 18 or older, grandchildren, parents, in-laws and other family members. Among this group, 18% reported that this financial assistance impacts their retirement savings and income.

Workplace Benefits

Although HR leaders are enhancing their offerings, there are still opportunities to better meet employee needs, according to new data from Morgan Stanley at Work’s fourth annual State of the Workplace Financial Benefits Study. This data is based on a survey conducted between February 5 and February 12, which included 1,000 U.S.-employed adults and 600 HR leaders.

Most HR leaders, 91%, believe employees are experiencing financial hardships, an increase from 86% in 2021. Nearly half of employees (46%) reported in the past year they have faced crises or problems with financial management, and about 81% expressed a desire for their employers to be more involved in addressing financial challenges.

“The workplace is particularly crucial for those caring for elderly parents and their own children. Our data captures a significant population of this cohort, and more broadly we certainly hear from our clients that this sandwich generation is seeking comprehensive benefits to help manage and plan for the financial futures of themselves and their families,” says Scott Whatley, head of Morgan Stanley at Work.

Among employees, 85% said their company needs to do a better job explaining how to maximize the financial benefits offered, with 96% of HR leaders agreeing.

Retirement Plan Tax Credits for the Smallest Employers Gain Traction in Congress

The RISE Act would raise credits for micro-businesses with less than ten employees.

A bill to increase start-up tax credits for small businesses with nine of fewer employees offering retirement plans was introduced to update provisions found in the Setting Every Community Up for Retirement Enhancement Act of 2019 and the SECURE 2.0 Act of 2022.

The Retirement Investment in Small Employers Act, was introduced in the Senate by Senators Maggie Hasan, D-New Hampshire, and Ted Budd, R-North Carolina, on May 24. If passed, it would increase to $2,500 from $500 the minimum tax credit available to employers with between one and nine employees that offer a retirement plan. A bill with the same name and effect was introduced in the House in October but has not yet been brought for a vote.

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Section 102 of the SECURE 2.0 Act expanded plan startup tax credits for smaller businesses. It expanded the share of administrative costs that can be counted towards a credit to 100% from 50% for employers with 50 or fewer employees for the first three years of the plan, up to an annual maximum of $5,000.

However, SECURE 2.0 did not amend the tax credit structure found in SECURE 1.0, which limited the startup credit to $250 per employee, with a minimum of $500. By keeping the $250 per employee provision in place, but upping the minimum benefit to $2,500 regardless of the number of employees, those employers with between one and nine employees receive an added incentive to offer a retirement plan.

Section 102 of SECURE 2.0 also offers a tax credit to incentivize employer contributions to defined contribution plans. The credit, which was effective after December 31, 2022, provides a credit of 100% of employer contributions for the first two years of the plan, 75% in the third, 50% in the fourth, 25% in the fifth, and none from year six onward. The value of the credit cannot exceed $1,000 per employee and is available to employers with 100 or fewer employees, but is phased out gradually for those with 51 to 100 workers. This part of Section 102 is not modified by the RISE Act.

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