You’re busy raising your children and trying to help your parents as they age. Being a part of the “sandwich” generation is a balancing act.
Before you start focusing on how best to help your children and parents, pay close attention to your own situation. Below are some tips that you might find beneficial.
Create/review your Total Wealth Plan:
A plan is your personal financial roadmap1. First, sit with your advisor to review your existing plan. Are you on track? Do you need to adjust the plan? If you don’t have a plan, contact our office to have one completed, you’ll be glad you did.
Registered Retirement Savings Plans (RRSPs)2 and/or Tax-Free Savings Accounts (TFSAs):
RRSPs and TFSAs each have unique benefits and features. The main advantage of these investment account types is the tax-deferred growth with an RRSP and the tax-free growth with a TFSA3. In both cases, there is no need to report annual investment income. Work with your wealth advisor to determine which option or combination of options is best for you.
Pay down debt:
You’re in your prime working years now, and having the debt paid off for retirement would be a significant achievement. First, look at your current debt repayment structure to see if there’s room for improvement. Perhaps you can negotiate a lower interest rate. Consolidate debt so it’s more easily managed. For example, switching mortgage payments to bi-weekly instead of monthly might not seem like much, but it has a significant impact. A standard 25-year mortgage amortization is reduced to slightly over 21 years by making bi-weekly payments rather than monthly payments. Think of all the interest that will be saved! Sit down with your wealth advisor to review your debt repayment strategy.
Insurance:
Most financial recommendations are dependent on you having financial resources – most likely, that means a steady paycheck. But, what happens if you cannot work for a period? Or pass away? What would the impact be on your family? Disability, Critical Illness and Life Insurance4 are all uniquely positioned to protect you and your family. Speak to your advisor about reviewing your insurance needs.
Estate planning:
Employer-sponsored plans:
One often-overlooked benefit is employer-sponsored saving programs. Perhaps your employer has a pension plan program or a saving program where they match your contributions. Check if your employer has any such programs, and be sure to enrol if they do.
You may not need to have a detailed estate plan at this point, but having a Will and Powers of Attorney (POAs)5 is a must, regardless of age. In addition to having a Will and POAs, review all your accounts/products for which you can designate a beneficiary and ensure you have a beneficiary listed.
With respect to helping your children, consider the following:
Financial literacy:
Perhaps the most important thing you can do to help your children is to teach them some finance basics. Focus on the most relevant topics for your children; bank accounts, credit cards, car loans and student loans are great topics to explore. Speak with your wealth advisor for some tips.
Allowances:
Providing your child(ren) with an allowance, or having them get a job, is a great way to teach children about money. Having them assume responsibility for some of their expenses will teach them the value of money, the difference between a need and want and the lesson of deferred gratification.
An RESP is an excellent tool to help save for your children’s post-secondary education. The government provides a grant of 20% up to $500 per year for each dollar you contribute to the plan (up to the end of the year your children turn 17). The lifetime contribution limit to a plan is $50,000 per beneficiary and the lifetime grant limit is $7,200.
RESPs:
An RESP is an excellent tool to help save for your children’s post-secondary education6. The government provides a grant of 20% up to $500 per year for each dollar you contribute to the plan (up to the end of the year your children turn 17). The lifetime contribution limit to a plan is $50,000 per beneficiary and the lifetime grant limit is $7,200.
Accumulate RRSP contribution room:
Many teens start working part-time. If your child earns an annual income below the basic personal exemption ($12,298 for 2020), they may not need to file a tax return. Even though it may not be required, it can benefit them in the long run, to file a return since they will start accumulating RRSP contribution room7. Since accumulated RRSP contribution room can be carried forward, your child can potentially make larger RRSP contributions in the future when they enter the workforce full time.
TFSA for adult children:
It may not seem like it, but they are considered an adult when your child reaches 18 years of age. Regardless of the debate of whether they are or are not an adult, if you have the resources available, funding a TFSA for your child8 is an excellent way to support them. You can’t technically deposit into your child’s TFSA account, so your child will need to open an account independently. From there, you can gift them funds to deposit into the TFSA. The funds in the TFSA will grow tax-free, and if they start at age 18, the potential for compounded, tax-free growth is powerful.
With respect to helping your parents, consider the following:
Open communication:
It may seem odd to have a financial discussion with your parents at first but being open is essential. Until you understand their situation, you aren’t really equipped to help. So sit down with your parents and chat about their needs, goals and resources.
Financial inventory:
Gain an understanding of your parent’s financial situation – assets, liabilities, income and expenses. Also, know where important documents are kept so you can access them easily if needed.
Living arrangements:9
Your parents may be at the point in their lives where they would like to downsize. Perhaps they are determined to stay where they are. Maybe they want to move to a retirement community. Maybe they want to move in with you – gulp. Discuss what they would like with your parents and look at potential options with them.
Estate planning:10
Much like having your own Will and POAs drafted, your parents must do the same. If they already have these documents in place, have them review them to ensure they are still relevant and reflect their wishes. Discuss what their wishes would be should they not be able to manage their own affairs. Know where these important documents are kept – you’ll have enough to worry about if they’re ever needed, and locating them shouldn’t be one of the worries.
Insurance:
Your parents may not need insurance as a form of income replacement in the same respect you might. However, that does not mean they can’t benefit from insurance. Life insurance11 can protect the value of your parents’ estate. Since most assets are considered disposed of when you pass away, there can be significant taxes on an estate. A tax-free life insurance payout can assist in preserving the value of your parents’ estate by replacing what is lost with taxes. If your parents are under the age of 70, Long Term Care Insurance is also worth considering; private nursing homes can be pretty expensive and deplete a person’s savings in a hurry. Long Term Care Insurance can provide coverage if your parents cannot care for themselves and/or need assistance managing daily living activities.
Summary
Being part of the sandwich generation has its challenges. Between managing the finances of your aging parents, your children, and your own, you may find yourself overwhelmed at times. Meeting with our team to review these tips may help alleviate some of your stresses.
1 https://richarddri.ca/is-my-financial-plan-crisis-proof/
2 https://richarddri.ca/how-to-maximize-your-rrsp-contributions/
3 https://richarddri.ca/taking-advantage-of-tfsas/
4 https://richarddri.ca/insurance-plans-for-the-sophisticated-investor/
5 https://rosenbergdri.ca/the-role-of-power-of-attorney/
6 https://richarddri.ca/resps-and-other-ways-to-save-for-learning/
7 https://rosenbergdri.ca/how-to-maximize-your-rrsp-contributions/
8 https://richarddri.ca/taking-advantage-of-tfsas/
9 https://rosenbergdri.ca/planning-how-to-care-for-aging-parents/
10 https://richarddri.ca/why-you-dont-want-to-die-without-a-will/#full-text
11 https://richarddri.ca/wondering-about-buying-life-insurance-here-are-some-things-to-consider/
source https://rosenbergdri.ca/caught-in-the-middle-financial-strategies-for-the-sandwich-generation/
Dri Financial Group 