Beyond Bulls & Bears

Saving for Retirement Stage 2: The Sandwich Generation

You’ve probably heard of the term “sandwich generation,” a time at mid-life when many individuals find themselves caring simultaneously for their children and their aging parents. It’s a time when investment dollars can get squeezed out by day-to-day and unexpected expenses, a mortgage and possibly even a college savings plan. In this second of our three-part “Saving for Retirement” series, we take a look at some retirement savings strategies for individuals coping with these mid-life challenges as they themselves begin to look toward transitioning into retirement.

Some key takeaways:

  • Live below your means if possible. Pay down debt.
  • Your retirement must come first. There is no loan for retirement.
  • Retirement planning can be a tricky and emotional business. Count on your advisor to be your objective planning partner.
  • Consider rebalancing your portfolio regularly. Remember: market cycles change.

Great Expectations

Predicting what your life will look like several years down the road is an exercise in squishy figures, so it’s no wonder many people in the mid-stage of retirement planning may not have a realistic view about how much money they’ll need to fuel the retirement lifestyle they have in mind. Given that traditional income-generating investments such as Treasuries have lately been generating next to no yield, perhaps it’s time to look at retirement saving alternatives.

The 2011 Franklin Templeton Retirement Income Strategies and Expectations (RISE) survey revealed that more than three-quarters (78%) of 35- to 44-year-olds were concerned about managing their retirement income to meet retirement expenses – the highest percentage among any age group. The survey also showed that while 41% of 35- to 44-year-old respondents are invested in a workplace retirement plan, a third (34%) of respondents in that age group said they hadn’t thought about their approach to employing different sources of retirement income. 1

Well, there’s no time like the present.

Franklin Templeton’s Gail Buckner, CFP®, believes middle-aged individuals should make retirement planning a top priority, even if it entails a few sacrifices.

“Save as much as you can for your retirement before you save for anything else. Try to live below your means. Pay down your debt as much as possible. It’s about making hard choices sometimes. It sounds really sort of selfish, but while there are loans for your children’s college available, there is no loan to pay for your retirement. Your retirement must come first.”

For those with children, some of their potential retirement savings might be siphoned toward college costs. Some may even take out a home equity loan to finance college costs and plan to stay in the workforce past traditional retirement ages. Buckner believes that’s not a realistic plan. For one thing, the housing market has changed dramatically in the past few years, and the new reality is that you can’t count on your home for equity. In addition, you might not be able to work as long as you think because of illness or another unexpected life events.

The 2008-2009 financial crisis thwarted the retirement goals of many Baby Boomers and GenXers who felt they couldn’t afford to save. According to a late 2011 survey conducted by the Insured Retirement Institute, the crisis caused nearly a quarter (23%) of GenXers (defined as those born between 1962 – 1981) to stop contributing to their retirement accounts; 15% made early withdrawals from their 401(k) plans and more than one-fifth (22%) stopped contributing to college savings plans. Only 41% had tried to figure out how much money they will ultimately need to save. 2

This all sounds pretty grim, but saving for retirement, along with other goals, can be done. That’s where the advisor can be a valuable partner. Having an objective, third-party professional can help you determine how to prioritize your goals and explore strategies to help you meet them.

Rebalancing and Anchoring

Buckner underscores that it’s not only important to determine a target asset allocation strategy when you first start investing, but to continually adjust and rebalance your portfolio as you move toward retirement.

“Once you have an asset allocation appropriate to the amount of risk you are comfortable with, you need to make sure your investments don’t get out of alignment because of market performance. For instance, say you decide that it’s reasonable to invest 20% of your retirement account in foreign stocks. If this asset class has a great return, it will comprise a bigger portion of your portfolio than you intended. That’s why it’s important to re-balance your portfolio periodically.”

Buckner says she sees many people who are reluctant to do this type of rebalancing because it involves selling investments that have done well and re-investing the proceeds in investments that might currently be out of favor, losing sight of the fact that markets tend to move in cycles, and conditions that favored certain stocks or sectors in the past may have changed.

In the realm of behavioral economics, this concept is called “anchoring.” It happens when we get emotionally attached (anchored) to an investment thesis, believing that because investments have done well in the past, they will always continue to do so. Remember back in the late 1990s, when everyone thought technology “dot com” stocks could only go up? Investors who refused to face reality probably wound up losers. Dropping anchor on old investment ideas can prevent people from rebalancing for future success.

Coming up next: Retirement Stage 3: The Big Drawdown.

Looking for more information on How to Retire?  Read more on transitioning into retirement.

“Understanding Allocation” offers a primer on how to incorporate various asset classes in your portfolio.

Important Legal Information

All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments


1. Source: 2011 Franklin Templeton Retirement Income Strategies and Expectations Survey (RISE).The survey was conducted online among a sample of 2,046 adults comprising 1,020 men and 1,026 women 18 years of age or older. The survey was administered between September 15-18 and 19-21, 2011 by ORC International’s Online CARAVAN®.

2. Insured Retirement Institute, “Readiness of Generation X,” January 2012.


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