'Sandwich Generation' Inspires Products

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BOSTON (TheStreet) -- Longer life spans and a frustrating job market has meant an increasing number of soon-to-be retirees have financial obligations for both elderly parents and children who otherwise would be employed and out on their own.

Many in the so-called Sandwich Generation face costs for such big-ticket items as tuitions, weddings and mortgages -- all vying for their money as they try to tuck away what is needed for their own (hopefully) golden years.

Earlier this month, Generation Mortgage, the nation's largest privately owned reverse mortgage retailer, and Zogby International released data on the financial hardships facing the so-called Sandwich Generation

Their survey found that 78% of those polled (adults with children who are also caregivers for their own parents) said they are worried about having enough money to retire comfortably and 23% have restructured their retirement plan in the past year due to financial reasons. More than 50% said they plan to work part time during retirement to make ends meet.

"The Sandwich Generation is probably the most financially vulnerable demographic to result from the recession," says Jeff Lewis, chairman of Generation Mortgage. "They are unemployed or underemployed, financially supporting two generations in their family and are saddled with debt from bills and a mortgage. As this group looks to retire, their financial situation, coupled with the state of the economy, is not leaving them with many options."

LIFE INSURANCE AND LINKED BENEFITS
The rising cost of long-term care is a chief concern for the Sandwich Generation, especially for those planning for their later years.

According to a state-by-state analysis by Generation Mortgage, the median annual rate this year for a private nursing home room was $75,190, a nearly $15,000-a-year increase since 2005.

Although there have traditionally been long-term care insurance products to hedge against such costs, they have been costly and inflexible.

"You pay a premium of $,500 to $7,000 a year, every year, and that's a lot of money to be shelling out, particularly when you think about it as something you might never really need," says Link Baker, group vice president of strategic initiatives for SunTrust Investment Services, an affiliate of Sun Trust Banks.

Other issues is that the policies are "use it or lose it," leaving little or no payout to family members upon death. The funds are also locked in and restricted from other uses.

Baker explains those drawbacks have given rise to "linked benefit" products that offer more flexibility and are proving increasingly popular. In the past year, 90% of the long-term care benefit offerings sold by Sun Trust Investment Services were linked-benefit products. They allow a client to put aside a given amount and earmark those funds to pay for long-term care needs if they arise. The assets are linked to a life insurance contract and can potentially grow to three to four times the original premium.

"If they never use those funds for long-term care, or even if they use a portion of them for long-term care, there is a remaining benefit that will pass to their heirs," Baker says. "If they ever find they need to redeploy those funds to something else, for example their daughter wants to go to medical school and they need to pay for tuition, then they have those funds available to them in their current lifetime."

"Linked-benefit products really seem to resonate with these boomers facing long-term care needs," says Michael Hamilton, assistant vice president and linked-benefit product group leader for Lincoln Financial Group.

His company's premier offering on this front, its MoneyGuard product, is nearly two decades old, but its popularity has been renewed by the needs of the Sandwich Generation and marketing focused on them. In particular is the flexibility provided by what he refers to as "the live, quit or die story" -- owners can collect benefits as planned, pull all of their initial premium out or pass the multiplied assets on to their heirs.

RENEWED ANNUITIES
A new wrinkle on the long-term care front comes from the federal Pension Protection Act of 2006, legislation that established several provisions intended to kick in this year. It gave tax-advantaged status to long-term care benefits paid from annuities and has opened the door for new linked-benefit products built on an annuity chassis.

Such offerings are starting to hit the market. Among the handful of companies that have launched them, or are expected to, are Genworth Financial, Lincoln Financial, John Hancock and One America.

The slowness of the launches is really because the insurance industry is taking a look at how to position them, says Steve Turtz, president and executive director of financial planning and insurance for SunTrust Investment Services.

"They are asking whether they position this as an annuity product or as a long-term care product," he says. "They are still trying to figure it out. You would think that once things changed at the beginning of the year everybody would have stepped up to the plate. Instead, I think, everybody has just sort of dipped their toes in the water."

What characterizes retiring baby boomers today? These five investors' profiles might surprise you.

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