Life can be hectic and overwhelming, given the general day-to-day and jobs. As if trying to manage the everyday expenses, ensuring you are set for retirement, and paying for the kids’ college isn’t enough, many Canadians often feel the pressures of caring for their aging or disabled parents. Below we will discuss the best financial tips for the sandwich generation.
The term Sandwich Generation began in 1981 after two social workers noticed the challenges middle-aged individuals face when caring for two attention-requiring generations. The term is still very relevant today as a growing section of Millennials, and Gen-Xers are feeling the financial, emotional, and physical strains of taking care of their children and parents, and while caring for an aging parent can be rewarding, it doesn’t come without its challenges.
According to Cision, 30% of Sandwich Generation Canadians expect to provide financial assistance to their parents and children in the future. 25% of those surveyed expect this support to cause a strain on them, while 27% expect to put their own financial goals aside to continue providing assistance to their families.
With the ever-rising inflation, it’s no wonder many Canadians in the Sandwich Generation are stressed about their finances. As with many things in life, financial stress is driven largely by uncertainty. If you’re feeling the financial squeeze of being a part of the Sandwich Generation, the following guide will provide 5 financial tips to prepare you better for the responsibilities of taking care of your kids and parents.
Fund Your Retirement First
If you’ve ever flown before, you’ll know that the cabin crew advises all onboard to always put their air masks on before others in case of loss of cabin pressure. This is because if you pass out from a lack of oxygen, you may be unable to help others.
When planning finances, it may feel selfish to put yourself above your parents or children, but prioritizing yourself is a good idea. Your retirement years are approaching faster than you think, so having a plan before that helps prevent your children from becoming SandGen’d themselves.
Consider several possibilities when planning for retirement and take advantage of your workplace retirement plans. If your employer offers a Workplace Retirement Savings Plan or a Group Retirement Savings Plan, ensure you max out their match.
You can also set up a Registered Retirement Savings Plan (RRSP) to which you and your spouse contribute. An RRSP is a great way of funding your retirement as it is tax-exempt as long as the money you contribute remains in the plan. You only start paying taxes when you start receiving payments from it. A little goes a long way, and with the help of compounded growth, you will find yourself making significant progress toward your own retirement.
Plan for Your Children’s Needs
Education has to be the biggest expense when preparing for your children’s futures. The last thing you want is to max out your income on your parents and your retirement and forget to accommodate your kids’ futures. There are several savings options to consider, but a Registered Education Savings Plan (RESP) is one of the best.
With this plan, you can deposit money for post-secondary education for your kids, and the money will grow tax-free. Using an RESP to save may make you eligible for grants from the Canadian government to help your savings grow faster.
It is also important to teach your children about money. If they are older, have them take responsibility for some of their expenses, such as phone bills. This will instill discipline and financial literacy in them and will teach them the value of money.
Talk to Your Parents About Their Financial Situations
For some people, money is an uncomfortable topic. However, in such cases, it’s important. Talk to your parents about their plans for important financial matters like long-term care and estate planning that will cover them in case they fall ill.
Ensure every important document, including wills, trusts, and power of attorney, are available upon request and up to date to reduce financial stress and uncertainty in the future. Also, ask your parents if they have other streams of income that you can tap into to help them.
Acquiring this information early on prevents rising tensions when you try to do so amidst a crisis. Be gentle with them and openly address the situation while managing their expectations on how much you can afford to chip into their care.
Ask for Help
In most cases, the burden of financial responsibility typically falls on one family member, but it doesn’t have to. If you have siblings or your parents’ siblings are still around, you can ask them to share the responsibility. Sit down with them and set up a plan on how to break down the financial obligation so that at the end of these meetings, you have a clear idea of how much responsibility you’re taking on.
Importantly ensure you create boundaries on such occasions to avoid receiving a huge chunk of these responsibilities. If you want to manage your parents’ legal affairs but don’t want to provide in-home personal care, communicate that in your conversations with other family members so that everyone is aware of their obligations.
Protect Your Income
You may currently be capable of supporting your children and parents, but what happens if the situation changes? If you cannot continue working, possibly due to an injury or sudden death, what would happen to your living expenses and those of your loved ones?
Having good disability coverage and life insurance is important for Sandwich Generations. Although the specifics of these policies vary, they are crucial in ensuring you still have income even if you’re not around or cannot work.
As of 2018, 48% of Canadians had disability insurance through their employers, but it often provides about 50% income replacement. Talk to your advisor about buying your own insurance top-up to ensure even if something happens to you, enough money will continue coming in to meet your household’s needs.
The Takeaway on Financial Tips for the Sandwich Generation
Planning for our financial needs is hard. Doing so for three generations is even harder, but it is, unfortunately, the situation that many in the Sandwich Generation are facing. Always ensure your own finances are straight before trying to help others. Remember, you cannot pour from an empty cup. If you would like some financial advice based in your unique situation please reach out to us here.