Advice for the ‘sandwich’ generation

How to escape the financial squeeze

If you’re a member of the “sandwich generation,” your story is typical of many people in your demographic. You find yourselves taking care of both your own family (one or more kids off to university or perhaps living at home) as well as your aging parents as well. This can cause a major financial drain on funds you had hoped to set aside for retirement savings. So it’s important to take steps to plan for this contingency now.

Parents’ finances

First, it’s important to get a fix on your parents’ financial situation, and whether they’ll be able to live on their retirement savings.

Determine what they plan to do with their assets. Discuss their plans for changes in living arrangements if (or when) the need arises. Ensure that there are Powers of Attorney for Property and Personal Care in place. Make sure that they have up-to-date wills and know where the wills are located.

You may discover that your parents are financially strapped, but may have kept that a secret from the family. Unfortunately, this can put a strain on your finances and a major additional stress in your life if you end up having to support them.

Parents who appear to be financially strapped might not be. For example, they may have assets like real estate (principal residence, cottage, timeshares, etc.) where cash value is locked in. These can be liquidated and turned into a productive, tax-efficient income stream to provide for them in case of infirmity or long-term care.

If you have adult children at home

This has also become a worrisome problem for many parents. But supporting adult children at home while also supporting aging parents can become a personal financial nightmare in many ways.

Limiting retirement options. Cutting your personal savings rate while drawing on existing savings can really limit your own retirement options. For example, if you had been saving $1,000 per month and putting it into an RRSP, you’d be saving $12,000 per year and getting a pretty good tax deduction. Over 10 years at, say, an average 7% annual rate of return, you’d end up with about $174,000. Now cut that savings rate in half, because you’re supporting Justin to the tune of $500 per month. After 10 years, you end up with $87,000. Quite a drop, just so good old Justin can go “find himself” in Costa Rica or somewhere.

Cutting capital. Now if you’re also siphoning off existing savings, you’re in even bigger trouble. That’s because you’re slashing the capital you already have available for compounded long-term growth. Do you really want to cut that retirement nest-egg in half so that your 35-year-old son or daughter can buy a new condo in downtown Toronto?

Older old age. These days, old age is getting noticeably older. Lifespans are increasing into the late 80s and early 90s for women. But age-related health issues mean there’s more need than ever to have that retirement nest-egg ready to support yourself when you need to look for assisted living arrangements. But if little Justin or Sarah blow it now hanging with friends in Whistler or Venice Beach, it’s unrecoverable, and it won’t be there for you when you need it.

What to do. Other than closing the ATM outright, there’s no easy fix for untethering adult children from the Bank of Mom and Dad. It can be incredibly stressful on the family dynamic if adult children have become accustomed to the magic cash flow over a long period, which is suddenly cut off.

I urge those who find themselves in this situation to take a really take a cold, hard look at their financial plan, especially if there are aging parents involved. It’s vital to balance the desire to support your kids and help your parents financially with the need to ensure your own long-term security. And that often means some frank, cards-on-the-table financial discussions with all involved.

Many parents with Millennials still at home adopt a “room-and-board” policy. As long as the mature offspring live under the same roof, they will be required to contribute a pro-rated amount of home maintenance, food, and expenses. If this means working as a barista at the local Starbucks until the real things comes along, so be it.

A good way to bring things back into focus is to take a close look at the family financial plan, if there is one, and calculate the one single red-line amount you cannot cross without jeopardizing your own financial future. Then work with that fixed dollar amount if you still feel you must provide something for the kids every month. But you have to be firm. Better yet, start teaching your kids early, while they’re still in grade school, about the virtues of financial self-sufficiency.

Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, financial mentor, and motivational speaker.

Notes and Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.