The Baby Boomers' Triple Whammy

Stacy Phillips has both a husband and a "wife." The latter is her sixtysomething mother-in-law, who moved in with her and her son, Craig Bloomgarden, five years ago. The elder Bloomgarden manages the household and cares for her two-year-old grandson, Andrew, thus earning her keep and her wifely role.

The Los Angeles couple say that supporting the three-generation family is a challenge. Stacy, 33, and Craig, 34, both lawyers, regularly sock money into 401(k) plans, mutual funds, and tax-free bonds, and they have started a college savings account for Andrew, but it means stretching every dollar. "We want to do a lot of saving, but we also have to deal with the here and now," says Stacy.

Stacy and Craig are among the 76 million baby boomers facing an unprecedented financial squeeze. Sandwiched between growing children and aging parents, they need to provide for tuition, their own future, and, in many cases, elder care. The cost of higher education is rising nearly twice as fast as inflation. Retirement living expenses will be only 35% covered by government or corporate benefits when today's workers are ready to quit. And annual nursing-home bills could reach $70,000. But instead of fattening bank accounts, the go-go '80s left much of the sandwich generation running in place.

SPEND AND BORROW. One problem for baby boomers is that the assumptions of the past 20 years aren't holding up. People can no longer take for granted that their houses will appreciate significantly, providing them with a cash cushion later in life. They can't even count on the job market to keep them steadily employed. And today's workers are expected to shoulder a growing chunk of their own health and retirement costs. For many in the sandwich generation, the American dream means just staying in the black.

How did this gigantic slice of the population, born during the fat years after World War II, get into such a fix? Much of it wasn't their fault. Many baby boomers came of age just in time for the first oil shock of 1973 and matured during the high-inflation decade that followed. The powerful lesson of those years--spend and borrow, since money is constantly losing value--has now come back to haunt them. That's one reason so many boomers, now 27 to 46 years old, are wrestling with financial stagnation at an age when their parents enjoyed steady improvement in their standard of living.

Another is that boomers prolonged their youth, often waiting until their 30s before having a family. For their parents, the financial burdens of children's education and their own retirement were spread out more evenly over their earning years.

Clearly, the sandwich generation needs some new financial strategies to cope with the realities of the '90s. The following pages will suggest investment approaches for meeting college costs, retirement expenses, and long-term elder care. But no matter what your specific goal, the first step is learning how to live on less.

There's more to that than simply putting more money away. Baby boomers may need to rethink some basic lifestyle choices. Some have already started. Now that fewer young urban professionals are upwardly mobile, more are moving out of big cities to more affordable places. Former fast-trackers are realizing that putting all their career eggs in one basket could be dangerous. Instead, they're moonlighting, both to earn extra money and to prepare themselves for potential job upheaval.

Americans devote more than 30% of their household expenditures to keeping a roof over their heads--and they're realizing it's too much. Rather than wringing their hands over trading up, debt-strapped homeowners might do better by cashing out and renting or by buying a less expensive property.

Finally, do what smart companies are doing in the 1990s: deleverage. If you're paying a mortgage rate of 11% or higher, refinance. Pay off your credit-card debt, and cut your high-interest cards in half. Instant gratification is a hard habit to break, but you'll feel much better controlling your money than letting it control you.

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