Rupert Connor offers advice to baby boomers squeezed by university fees and financially supporting aging parents in the first of our new column, Practical Matters.
Practical Matters: 10 tips for the 'sandwhich generation'
The "sandwich generation" is on the rise. For those not in the know, these are the baby boomers squeezed between paying their children's university fees or helping to pay off their student loans, while also financially supporting their ageing parents. With that in mind, Rupert Connor, a senior financial consultant for Acuma Wealth Management, offers 10 handy hints to help you balance your financial needs with those of your elderly parents and increasingly expensive offspring.
1 Preserve your wealth first
Your children can apply for loans and financial aid for university, but let me be very clear: there are no loans for retirement. Your parents may also have assets that can be used towards their care and medical benefits. It is important, therefore, that you preserve your own retirement fund first and foremost.
2 Don't stop saving
Even if you have to use your current income to help supplement your parents' care while running your own household, do not stop saving for your own retirement. By building up a nest egg, you are helping to ensure your own financial future, which will put your entire family in a better financial position once you yourself reach pensionable age.
3 Discuss the future with your parents
Talk to your parents about their retirement planning and discuss the possibility of them obtaining long-term care insurance. Long-term care insurance can help to secure your parents' choices without putting a burden on you. However, never categorically promise your parents that you will not put them in a nursing home because in some cases it could be the only option as they may need more care than you can humanly provide.
4 Encourage your children to be independent
If you have younger children approaching university, explain to them that they may need to take on more of the financial responsibility of funding their education. For adult children who have moved back home because of their own money struggles, set boundaries around how much you are willing to support them financially and a timeline for them to find a place of their own. This will then free up more disposable income to help provide care for your parents.
5 Choose relevant savings plans
Putting a plan in place for your own retirement as well as your children's education may help to alleviate how tightly your needs are squeezed in between those of your parents and children. Your plan should include a way to grow your assets while saving for retirement, but protect your assets when you retire. Do not forget to take into account your own potential medical needs in the future and the possibility that you, too, may some day need long-term care.
6 Don't delay making a decision
Despite the best advice, most people wait to make decisions about an elderly parent's care until an emergency arrives and they are forced into action. To make proceedings less stressful when, and if it happens, it is wise to keep an emergency fund for yourself, to pay for a last-minute flight, hotel and rental car when you race home to an ill parent.
7 Get the legalities sorted
Make sure your parents have given someone the authority to make financial and medical decisions on their behalf if they become incapacitated. Without creating effective powers of attorney, you could be forced to go to court to have a parent declared incompetent - an expensive, invasive and painful process. Many couples grant power of attorney to each other, but your parents should also nominate a backup person in case the other spouse dies or becomes incapacitated.
8 Do your sums
In terms of actually saving towards your parents' future, decide whether you will contribute a certain percentage of what is needed based on your household income, or come up with a lump-sum goal. Obviously this comes down to affordability and you can only save within your means.
9 Seek some advice
The current and next generation of parents face unique challenges to secure a comfortable retirement, so there's no harm in getting some advice. To help keep your retirement, parents' care and education planning on track, always consult with a qualified financial professional.
10 Get help from others
If the financial planning adviser suggests a long-term care policy, then share the costs with your siblings. It could potentially be a lot less expensive than paying for your parents' nursing home in the future. The key to all of this is to plan early and speak to your siblings before the need arises.