The optimistic view of a golden retirement has become tarnished for a growing number of baby boomers, due to changing inter-generational factors: as their parents live longer and their children take their time becoming fully independent, this so-called sandwich-generation is feeling the squeeze from all sides.
At the same time, many are struggling to hold onto their jobs, their retirement savings and the long cherished dreams that go with personal and financial freedom in retirement, such as travelling and special interests.
Financial advisors are well placed to help the sandwich generation tackle these challenges, particularly the need to protect their own nest eggs while still providing for their families. Unfortunately, not all baby boomer clients are aware — or willing to face — the trade-offs this may require.
“There’s a real dilemma of trying to make this issue resonate with enough vigour that the client actually wants to do something,” says Bart Mindszenthy, an eldercare expert based in Toronto. “Some of them don’t realize the gravity of what they’re getting into. There’s this reluctance to look deeper into their own personal lives.”
Part of the problem is the growing reality that family obligations just seem to keep going, decade after decade. “The challenges associated with caring for your family don’t appear to diminish at all with age — even when [the baby boomer is] in retirement,” notes Kathryn Del Greco, vice president and investment advisor with TD Waterhouse Private Investment Advice in Toronto.
StatsCan reveals 51% of young adults between the ages of 20 to 29 are still living with their parents. The figure reaches 60% in the case of those between the ages of 20 to 24.
“[Dependent] children are much older now and yet are still financially dependent on parents,” says Del Greco.
Just as the return of adult children to the family home can be unexpected, the costs of eldercare are often an underestimated expense.
Says Mindszenthy: “I know a number of people who have to pay $4,000 to $6,000 a month so their parents can live in an above-average, assisted-living facility. To the average boomer, these [are costs] they never put aside or planned for.”
The same applies to hiring part-time help for elderly parents who wish to stay in their own homes as along as possible. “[Their children] are going to be paying $22 to $25 an hour,” adds Mindszenthy. “So, now they have to ask themselves, how many hours do their parents need and how many are they able to afford?”
Not surprisingly, a recent poll by Credit Canada and Capital One Canada found that baby boomers caught in the sandwich felt obligated to cut back their own standard of living to support both family layers. The poll found that 30% were taking fewer vacations, 43% were eating out less often, 36% had to dip into their savings, and 37% were working more hours.
And providing care directly to elderly parents may have its own costs. “I find those who care for their parents are often overlooked for raises and advancements because they’re viewed as not as ‘dependable’ by their employers,” Mindszenthy says.
As baby boomers prepare for retirement, the rates of return on investments add another layer of concern. The current low-rate interest environment is already a restraint on the income of many boomers who have retired and want to maintain a low-risk, conservative investing profile, according to Del Greco.
“They may not be able to generate the type of income they’re comfortable with, from GIC investing and the like,” says Del Greco. “So, their investment returns are already severely impacted.”
This is the first in a three-part series on the sandwich generation. Tomorrow: Planning for eldercare.