The sandwich generation: Rebuilding and finding the right balance
Although many people are already taking the initial steps toward financial recovery from the 2008 recession, some individuals have found themselves progressing more slowly than others. “This last recession has definitely not treated everyone equally,” states Susan Menke, vice president and behavioral economist at Mintel, a leading market research company. “One reason could be that the younger Boomers are the age group that was just getting started when the severe double dip recessions of the 1980s hit, and they have never fully recovered. Another reason may be that this is the ‘sandwich’ generation…with educational expenses for their kids and, for some, healthcare costs for aging parents.”
According to Mintel’s January 2011 study, the qualities that define this “Sandwich Generation” (ages 45-54) are quite distinct1:
- 47% of the “Sandwich Generation” (vs. 33% overall) say they “have only been spending money on necessities” for at least a year.
- 51% of this demographic— compared to 44% overall—state that they intend to permanently decrease the amount of unnecessary “stuff” they will buy in the future.
- 39% say they worry more about retirement now than they ever have before.
For some Americans, particularly those hit hardest by the recession, this means rebuilding your financial foundation, as well as being more careful when selecting the companies you work with to re-establish your assets. For others, the first goal will be obtaining protection through the purchase of a life insurance product. And for those of you approaching retirement, it may also be time to look into a strategyt provide a guaranteed2 stream of income for life (such as converting part of your retirement funds into a lifetime income annuity).
For the purpose of this article, we’ll start by looking at one of the more basic choices when purchasing life insurance.
Finding a Balance: Permanent vs. Term Insurance: Why Not Both?
As you try to rebuild your financial foundation, you may find yourself asking the same question about life insurance that your parents did, namely: “Should we purchase term insurance, or is permanent insurance the better buy?”
Here are two points to consider:
- Term insurance may be attractive for its initial lower premiums, which let you maximize your coverage, while minimizing the impact to your budget (term rates are generally lower than permanent ones). Term insurance provides temporary coverage.
- Permanent insurance (whole life, for example) provides permanent protection and offers you the benefits of a level, fixed premium and guaranteed cash value accumulation.
While there are no simple answers as to which is better, the two products are hardly exclusive: you can, if you want, own multiple versions of both—whether that’s advisable or not depends upon your particular needs and objectives.
The Best of Both Worlds
Some insurance companies offer innovative products that can provide you with both the affordability of term insurance and the cash value accumulation of permanent insurance in one package. New York Life, for instance, offers a suite of life insurance products designed to meet both your budget and your needs.
For example: say you need $100,000 in insurance coverage and would like to have some cash value accumulation, but you can’t afford the premium for 100% permanent insurance. You can purchase a New York Life Whole Life policy with a term rider at additional cost. It’s an ideal way to acquire the coverage you need and the cash value accumulation you want — all at a price that’s appropriate for you.
Time Passes, Needs Change
As your family grows, you’ll want to adjust your financial strategy accordingly; more children can mean more responsibility, and you’ll want to be sure that they’re all sufficiently protected. Goals such as education, a new home and, eventually, a comfortable retirement3 each require secure and adequate funding, which can be difficult to accomplish when you’re young.
With conversion, however, you can convert your New York Life Term Insurance to a cash value-building permanent policy (there are certain conditions and limitations to exercise this conversion privilege). This allows you to establish initial coverage at a reduced cost, while simultaneously providing a means for building valuable assets as your needs change. Additionally, when you convert your term policy, you’ll be able to access the cash value of the new permanent policy by borrowing against it on a tax-free basis4 (which can help you cover vital needs and expenses).
Lastly, if your policy is with a mutual insurance company, the permanent insurance may be eligible to earn dividends when declared by the insurer (though dividends aren’t guaranteed every year, you can always use the ones you receive to enhance your individual policy).
Your Place on the Spectrum
You can think of your insurance options as a spectrum of opportunities: on the one end you have term insurance, which offers financial protection, a lower initial premium, but no cash value accumulation; on the other you have whole life insurance5, with its guaranteed , permanent protection and cash value accumulation (which can aid in establishing supplemental retirement income as well as your insurance needs decrease). In the middle of this spectrum you’ll find strategies that combine the best of term and whole life policies.
Though each type comes with its own specific advantages and benefits, they will all provide you with a strong and financially secure foundation for you and for the ones you love.
You’ll also have completed the first and most essential step toward financial recovery.
Income Annuities: Another Consideration to Help Balance Responsibilities
If you’re approaching retirement soon and still trying to balance the needs of your aging parents with your own financial concerns, then you’ll want to consider a guaranteed2 stream of income for life to help you plan for your own future security. In the age of dwindling pensions and uncertainty about the future of Social Security, an income annuity is locked in and guaranteed, and can provide protection against losing retirement savings — regardless of the stock markets’ performance.
With a single premium immediate annuity, such as New York Life Guaranteed Lifetime Income Annuity6 you can set aside a reasonable portion of your assets to help cover future living expenses (you designate how much of that money is returned on a monthly basis). These payout (which includes the return of premium), or distributions, are intended to cover essential costs such as food, housing, and healthcare and will continue for as long as you life.To find out more about lifetime income annuities and similar policies, you should review the following article: Guaranteed Lifetime Income: Retirement Lifetime Income from New York Life
Lay the Foundation Now: A New York Life Agent Can Help
Remember, it’s best to lay a foundation for you and your family’s financial security while you’re young.
Having a sound strategy in place is essential to securing a brighter tomorrow and ensuring that your loved ones — children, parents, spouse — are protected. Toward that end, a qualified financial professional is an important part of your team, so be sure to reach out to your agent today for an assessment of your needs and a review of your current coverage.
And, if you need more information on “finding the right balance” and don’t currently work with a New York Life agent, feel free to use the “Consult an Agent” tab at the top of the page. An agent in your area will contact you at your convenience.
New York Life: The Company You Keep®
Since 1845, New York Life has provided quality insurance products to individuals, families and businesses. For more than 165 years, we’ve conducted our business with strength, integrity and humanity and have remained committed to being a mutual company, owned solely by our policyholders. When it comes to the economy, we have just one objective: meeting the needs of our customers, now and far into the future.
During the recent recession, we had no need for a bailout, thanks to our unparalleled financial strength. Instead, we focused on supporting our clients through our dedicated field force. New York Life Insurance Company and New York Life Insurance and Annuity Corporation have the highest possible ratings for financial strength currently awarded to any life insurer from major ratings agencies7 and ensure that we honor the guarantees we make.
But don’t just take our word for it. Talk to your New York Life agent today and find out why we’re The Company You Keep®.
1 Mintel Comperemedia, Jan. 18, 2011, "Younger Boomers have been squeezed most by the recession."
2 Guarantees based on the claims paying ability of the issuer.
3 Policy loans accrue interest and reduce the death benefit by the amount of the unpaid loan, plus interest.
4 If structured properly. Policy loans accrue interest and reduce the death benefit by the amount of the unpaid loan, plus interest.
5 Issue by New York Life Insurance Company. Guarantee based on the claims paying ability of the issuer.
6 New York Life Guaranteed Lifetime Income Annuity is issued by New York Life Insurance and Annuity Corporation (A Delaware Corporation), a wholly-owned subsidiary of New York Life Insurance Company.
7 Source: Individual third-party ratings reports. As of 6/22/12. (A.M. Best: A++, Fitch Ratings: AAA, Moody’s Investors Service: Aaa, Standard & Poor’s: AA+).
This material is for informational purposes only. Neither New York Life nor its agents provide tax, legal or accounting advice. Please consult your own tax, legal or accounting professional before making any decisions.