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Avoid sandwich-generation squeeze – start saving early

For the generation managing children and aging parents, it’s important to build a financial buffer by mid-life to handle unexpected expenses


Date: May 14,2014

As someone who has been there, done that – up early every Saturday for his kids’ cross-country ski practices when they were teenagers, heading out of town again in the afternoons to care for an ailing mother-in-law – Peter Drake knows full well the pressures of the sandwich generation.

“They are squeezed for time, and they are squeezed for emotions, if you will, and … if you are a member of the sandwich generation, you are potentially getting hit financially from both ends of the spectrum,” says Mr. Drake, vice-president, retirement and economic research, at Fidelity Investments Canada ULC.

He estimates there are between two million to three million Canadians in this position – “working, raising children, getting them educated, and also active in the care of aging parents.”

These are also, typically, the years when people should be “spending significant time and savings in retirement preparation,” Mr. Drake, an economist, said in a wide-ranging interview conducted recently in Toronto.

“In an ideal world, people would start earlier but we know that, realistically, a lot of people don’t.”

And the longer people wait to start, the more difficult it is for them to find the time and energy to devote to their own financial futures.

“One of the problems with the sandwich generation is that they don’t have a lot of spare time. When you add the fact that they are already stressed by the commitments they do have … this can be really challenging,” Mr. Drake said.

The reality for many Canadians in the 45-to-64 age group is that they had their children later in life than previous generations and their children are staying in school longer. On the other end, elderly parents are living longer and often have health issues to deal with.

There is no set strategy for dealing with this generational squeeze, while still saving for a “psychologically satisfying retirement,” said Mr. Drake. “Financial plans should be tailored to each investor’s personal circumstances.”

Still, there are some fundamental ideas that can be used to help. First and foremost, establish a plan, preferably early in one’s working life, even if the initial investments are small. Mr. Drake says, “You may have to go off that plan [in the early years], but it is much easier to get back on if you have a plan to start with. If you started earlier, you may have gotten a decent financial leg up, and it is that much easier to handle things when you run into unexpected expenses with either children or parents.”

Not many of us think that far ahead, even in mid-life, says Thomas Klassen, author of Retirement in Canada and a professor in York University’s political science department and school of public policy and administration.

“Most of the sandwich generation hopes for the best – that aging parents will remain independent, that children will progress smoothly in educational programs and that life will have few, if any, bumps,” Dr. Klassen said in an interview from South Korea, where he is currently a visiting professor at Yonsei University in Seoul.

“That approach stops working when something unforeseen happens: a job loss, an unexpected child is born, mortgage rates increase, or an aging parent becomes ill.”

By age 45, if they have not already done so, Canadians should be devoting serious attention to their retirement plans, whether they are supplementing future income from employer-sponsored plans or doing it all on their own, Mr. Drake said.

A financial advisor can help – but the choice of that advisor should be made as carefully as one would choose a doctor, “because your financial health is extremely important,” Mr. Drake said. “You want somebody who understands investments, who understands all the technical stuff … but you also want somebody who is able to listen to you and understand your circumstances, understand your concerns, and understand your risk tolerance.

“The important thing is to get good financial advice, but financial advice that is appropriate and tailored to this squeezed generation … a plan that will take them from one year to the next and still get them on track for what they are going to need 15 or 20 years down the road.” Review the plan at least once a year and more often, if necessary, as circumstances change.

It takes an initial time investment, but – at whatever age – automatic deductions from income sources make it much easier to stay on track, Mr. Drake said.

“Things like registered education savings plans can be very beneficial, not only because you are putting money aside and are making investment returns on that money, but also because the government will contribute some money to that.”

Rein Selles, a retirement planner from St. Albert, Alberta, and co-author of Ten Things I Wish Someone Had Told Me About Retirement, says prospective retirees should make sure to secure themselves financially – and “this is not about how much money others think you should have, but ensuring that you have the knowledge and financial resources to allow you to keep paying for the things you need once retired, and the opportunity to afford the things that enhance the quality of life.”

In an e-mail interview, Mr. Selles recommended direct conversations with aging parents about who will make their health-care or financial decisions for them if they become incapable. “The fact is … that many Canadians will not prepare for issues of illness, leaving their caregivers to go to the courts for legal authority to act. A waste of time, money and precious energy.”

Mr. Drake said pre-retirees should also examine their assumptions about how long they will be able to work, and what sort of inheritance they might get from their parents.

Although mandatory retirement has been abolished, surveys conducted by Fidelity over the past several years consistently show that about half of Canadians actually retire before they expected to. Declining health is the main reason, followed by changing job circumstances (such as restructuring and downsizing) and workplace stress. Working past the normal retirement age should be an option, not a necessity, he said.

Another issue high on the radar for the sandwich generation is what sort of inheritance they can leave to their children. “The notion of leaving a legacy for your kids is terrific, and I think it is absolutely right that a lot of people want to do that,” Mr. Drake said.

“But, in a matter of practicality, your kids may really need it [the money] when they are younger and trying to get established. If you need to make that trade-off, you need to say, ‘Look, I am going to give you money now, but it means there is less later.’

“I don’t think that is a bad trade-off.”

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