There was a time in my personal evolution when “financial security” meant having sufficient spending money to finance at least one good date for the weekend. That’s not as superfluous as you may think. Good dates often lead eventually to marriage, which often results in the birth of children, and … the life-cycle merry-go-round rocks on.
At each stage of life, people tend to experience different life events, unexpected challenges, and varying income levels and spending patterns. All of these increase the need for creative, deep-dive financial planning. But life transitions are being pushed forward along the age-wave continuum as people take more time to finish school, enter the workforce, buy homes and start families.
As a result, “The Bank of Mom and Dad” is staying open longer and money implications later in life are shifting. Financial planners harp on themes related to affording retirement, as in “planning for a successful retirement.” A better question may be, “Can you afford adult life-cycle realities?”
Here’s a closer look at those three stages.
Early Adulthood
Early adulthood generally is considered to be from age 18 to mid-30s. Yet today many of these individuals in “adulthood” are still living under Mom and Dad’s roof, or somewhat dependent on Mom and Dad’s financial support. The high cost of living and the more extensive pursuit of higher education are part of the reason. But there’s more at play here.
The National Institutes of Health (NIH) offers an interesting observation concerning young brains: “Although the brain stops growing in size by early adolescence, the teen years are all about fine-tuning how the brain works. The brain finishes developing and maturing in the mid-to-late 20s. The part of the brain called the prefrontal cortex is one of the last parts to mature. This area is responsible for skills like planning, prioritizing and making good decisions.”
This brings up a critical financial-planning point: Have your clients with young-adult children put guardrails in place to protect their own finances?
Financial planners often help parents manage assets for their children’s higher education and career development. Generally, financial planners and parents think of college as a four-year deal. That’s changing, according to student loan lender Earnest.com. The majority of college students in the U.S. take between four and five years to earn a bachelor’s degree, fewer than half graduate four-year colleges in four years, and it’s becoming more common to take six years to earn undergraduate degrees.
Advisors need to consider the impact that taking longer to get the kids out of the financial nest has on The Bank of Mom and Dad. Parents worry about having young singles saddled with debt in an ever-changing economy, but they also need to consider their own retirement needs.
And while young brains are learning to make good decisions (sometimes as a result of bad decisions), planners shouldn’t limit their conversations with parents to college planning. They should also discuss wills, financial and healthcare powers of attorney, and liability insurance limits relative to offspring 18 years or older.
This is especially critical if Junior or Suzy is driving a car owned by parents. Ask your clients, “How much umbrella liability insurance do you carry?” You will find that many are vastly underinsured relative to their net worth.
Wedding costs are another planning point for the Bank of Mom and Dad, as well as the couple involved. According to the 2023 Annual Real Wedding Study from wedding website The Knot, the average age of marriage is 30 for females, 32 for males. The Knot also found that inflation has boosted the cost of getting married to an average $35,000 for a wedding and reception. The costliest places to celebrate nuptials in the U.S., on average, are New York ($63,000), Chicago ($56,000) and Boston ($50,000).
Middle Adulthood
Early middle adulthood, also called “early middle age,” is often pegged as 35 to 44. It is becoming increasingly common for couples to become parents during this period. Besides waiting longer to get married or to find a partner, other reasons often cited for delaying parenting are prioritizing education, career or leisure time. NIH notes that about 20% of women have their first child after age 35.
The costs to raise children in an upwardly mobile family are daunting and the subject of important financial and resource planning discussions. Besides college, many families are concerned about the rising costs for private K-12 education.
Advisors can assist clients in preparing for challenges, including education funding, by encouraging the establishment of professionally managed dollar-cost-averaging investment plans that have the potential to outpace inflation over time.
Make sure, too, that clients have adequate insurance in place to handle risks related to sickness, disability, death, property damage and liability claims. It’s also important to ensure that clients have living and testamentary estate planning documents. That may include wills, trusts, and powers of attorney for assets and health care.
Advisors can also encourage clients in early middle age to invest in personal growth related to their profession to improve earning power. Training under Dan Sullivan, The Strategic Coach, substantially boosted my success as a financial advisor.
‘The Sandwich Generations Squeeze’
Late middle age generally is defined as the period between ages 45 to 64. This is typically the time when the need for comprehensive financial planning ramps up. And because more people are delaying marriage and children, we’re also seeing an exacerbated squeeze on the “sandwich generation” — middle-aged adults caring for their own children and aging parents.
According to an April 2022 report from Pew Research Center, roughly one-quarter of U.S. adults have a parent age 65 or older and are either raising at least one child under age 18 or providing financial support for an adult child.
While sons do step up, daughters ages 45 to 55, or thereabouts, are typically stepping in to care for an aging parent or in-law. Almost every woman in this age range knows a friend or neighbor who is taking care of an ailing loved one in some matter, or she herself is doing so.
There are other adjustments too. Pew Research Center and AARP indicate that “shared living” is on the upswing — aging parents moving in with grown children or vice-versa. Parents with children that have physical, emotional and learning challenges need specialized planning.
Planners are saturating the airways with advertisements promoting a happy retirement. How about planning for the Sandwich Generation Squeeze without losing one’s mind? Knowing that comprehensive plans are in place, along with sources of liquidity and minimal to no debts, plus access to advice from an experienced advisory team, are foundational to mental health and the ability to handle stress and challenge.
Late Adulthood
Late adulthood generally ranges from the mid-60s to death. This is when retirement planning, and “exit planning” for closely-held business owners, comes to the fore.
The oldest baby boomers turn 79 in 2025. By 2030, all baby boomers will be age 65+, and by 2040 approximately 78.3 million will fall into that age group. Their planning concerns will go way beyond the simplicities of retirement that revolve around cruise ships, golf and pickle ball. The accelerating costs of aging have become a critical planning point.
The good news is Americans today overall are healthier and living independently for longer. According to data from the Administration for Community Living (ACL), a division of U.S. Health and Human Services, the average 65-year-old is expected to live approximately another 19 years. In trying to figure out how long the money will have to last, most planners use up to a 30-year timeframe, especially for client couples.
Yet here’s the rub: Although people are living longer, most seniors have at least one chronic condition, and many have multiple health issues. The challenge of co-morbidities, the simultaneous presence of two or more chronic diseases or conditions, grow as one ages. Heart disease, arthritis and diabetes plague those in the age 65 to 75+ age ranges. Nearly 42% of Americans over age 60 are considered obese, a major cause for concern.
In addition, two-thirds of all newly diagnosed cancers affect adults age 60 and older; 66 is the median age at the time of diagnosis. Heart disease, the number one cause of death for all Americans, plagues folks of all ages but especially those 75 and older; it accounts for 24.1% of all deaths.
Add in a few physical or memory loss problems, and the annual care costs can quickly soar beyond $100,000 per year if assisted living or a home health aide is needed.
Help Clients Prioritize
With The Bank of Mom and Dad staying open longer and the sandwich generation getting squeezed tighter, it’s getting harder for many Americans to accumulate assets to fund retirement dreams and to enjoy retirement. Social Security benefits cover only a fraction of what aging adults need for basic living expenses. For many people, even those with financial resources, that “mental movie” of a fulfilling, purposeful and enjoyable retirement may turn out to be an unobtainable fantasy.
For every challenge that worries a client, what is the best alternative for dealing with that challenge?
What resources are needed to power the best likely alternative related to the challenge, in terms of financial or human capital resources or other inputs?
In terms of the challenge, alternatives and resources, what does the client wish to experience and what are their expectations?
Every financial planning need can be framed in terms of challenges, alternatives, resources and expectations — what Dan called “the CARE conversation.”
With adult life cycle challenges generally appearing later and later in one’s life, it is important to accelerate the application of good money habits and disciplines earlier in life. It’s also important to get to know your clients and not assume that the old life-cycle timelines still hold. Like it or not, their needs are a lot greater than cobbling together sufficient spending money for a good date.
Lewis J. Walker, CFP®, graduated with the third class from the College of Financial Planning in 1975. He served for many years on the board of the Institute of Certified Financial Planners (ICFP), and serving as national president and chairman. The ICFP was a forerunner of the Financial Planning Association (FPA). Honored by the FPA as a pioneer in the profession of financial planning, Lewis was a recipient of the P. Kemp Fain, Jr., Award in 2011. Now retired from active practice, Lewis continues to serve as Vice Chairman of the Board of Atlanta-based SFA Holdings, Inc., parent company of The Strategic Financial Alliance (SFA) and SFA Partners, organizations which provide a myriad of support services to independent financial advisors.
