Financial
Strategies For the "Sandwich Generation"
Are you one of the more than 700,000 Canadians caring for kids and parents at the same time? If so, you are part of the "sandwich generation." Statistics Canada found that almost 30% of Canadians between the ages of 45 and 64 who had kids at home (under age 25) were also caring for seniors. As the first wave of baby boomers moves into retirement, the ranks of the sandwich generation are expected to continue growing.
The Financial Squeeze
Balancing the needs of your kids and your parents can put demands on your time, your work life, and your emotions. That's why it's important to look after yourself by eating well, exercising, getting enough sleep, and taking some time out to rejuvenate. But balancing the needs of the two generations can also exact a financial toll.
On the one hand, the costs of post-secondary education continue to rise, making it more important than ever to invest in your kids' futures. On the other hand, rising medical costs are making it more expensive to care for your parents. And, at the same time, many in the sandwich generation are paying off their mortgages and trying to save for their own retirement.
Here are some steps you can take to make the financial burdens more manageable.
Start the Discussion
Although money is a touchy subject in many families, the sooner you can start open discussions with your parents about their finances the better. In fact, it's probably easier to talk money before the need arises. If you have siblings, be sure to involve them.
You and your parents might find it easier to speak more frankly about financial matters in a neutral setting and with an objective third party such as a financial advisor (or a financial planner if your parent’s estate is complex).
Review Your Parents Finances
When you sit down with your parents, start by asking what kind of lifestyle they want for themselves. Then, be sure to review the following items: your parent’s retirement income, monthly expenses, insurance policies, health care coverage, estate plan, and even funeral arrangements. Once you have everything on the table, you can then ask the following kinds of questions:
- Are there ways to reduce some of their regular expenses?
- Will your parent’s savings go far enough, or will they soon outlive their capital?
- Can their investments be rebalanced to boost their monthly cash flow?
- Are your parent’s wills up-to-date?
- Do they have powers of attorney (POA) for property (a "mandate in Quebec) in place? A POA designates someone to make financial decisions for your parents if they are unable to do so.
Financial Tip: Many older Canadians are conservative with their savings. To help boost your parents' cash flow, consider adding higher-income producing investments such as dividend funds to the mix. Your financial advisor can help review your parents' portfolios.
Helping Out
Once a thorough review has been done, you and your siblings will have a better idea of the kind of help - if any - that your parents will need from you.
Try and anticipate direct and indirect expenses, including: health care costs; travel (if you live in a different part of the country); potential lost income (if you need to take some time off work to provide care); and any home renovations if your parents move in with you.
Once you and your siblings have an idea of the kind of assistance your parents will need, sit down with your financial advisor and work out a plan to make it happen.
Financial Tip: Building a "rainy day fund" is one of the best financial moves you can make - particularly if you have dependants or anticipate helping your parents down the road.
A high-interest savings account is a good choice for your savings fund. You'll earn a competitive rate of interest, and the money will be completely accessible to you when you need it.
Give Your Kids A Leg Up
Of course, those who are part of the "sandwich generation" are also trying to help their children save for the rising costs of post-secondary education. Your best bet here is a Registered Education Savings Plan (RESP).
If you haven't already done so, by all means consider opening (or contributing more to) an RESP. The money in the plan grows tax-free, and the first $2,500 of annual contributions are eligible for a government grant of 20% (more for low-income families).
Encourage your kids to take some responsibility for their education savings by offering to match what they put away for their education.
Don't Forget Yourself
When caring for your kids and parents, it can be tempting to put your own requirements last. But doing so could affect your own financial health and your ability to care for others. So when it comes to your long-term savings, get a plan and stick to it with monthly pre-authorized contributions.
In fact, pre-authorized contribution plans make good sense whether you are contributing to an RSP or RESP, or building an emergency fund. It's the most convenient and disciplined way to save in the face of all your goals and obligations.
The actual amount that you earmark for each of your goals is not the important point. What's important is setting aside money on a consistent basis, and ensuring that you stay on course to help your kids, your parents, and yourself.
Whether it’s new clothes, gourmet foods, or a big-screen TV, we all have our indulgences. With all these spending temptations, it’s a good idea to remind ourselves of some time-tested principles for getting ahead financially: saving for the longer term, using credit...
Are you turning 71 this year? If so, you need to convert your registered Retirement Savings Plan (RRSP) into an income stream before the deadline. In 2007, the government extended the RSP conversion deadline to December 31 of the year you turn 71.
Regards,
Nino
Pasquariello.
