Helping aging parents financially without spending their own money can be a challenging task, but with careful planning and resourcefulness, individuals in the sandwich generation can make a significant impact in both the short term and the long term.
According to the results of a surveyOpens a new website in a new window completed by 926 Canadians aged 18 or older who are financially supporting their parents, just over 52% indicated that it was due to a lack of retirement savings, while another 10% indicated it was because their parents had outlived their savings altogether.
Whatever the reason is, the challenge of supporting your parents financially is quite common and there are some important questions that need to be answered:
- What is the financial problem?
- How can it be solved?
- How quickly can it be resolved?
- Is it simple/complex?
Scenario: Meet Sarah, a typical member of the sandwich generation
To illustrate the challenges that someone living in this generation would encounter, let's consider the case of Sarah, a 45-year-old Canadian living in Toronto. Sarah has two children, ages 12 and 14, who are actively involved in school and extracurricular activities. At the same time, her parents, who are both in their late 70s, are dealing with health issues that require ongoing medical care and assistance with daily living activities.
Sarah's situation is not unique. Many Canadians like her are finding themselves navigating this complex terrain, struggling to meet the needs of both their parents and their children while maintaining their own financial stability.
Some financial challenges that Sarah is facing while supporting her parents
As a typical member of the sandwich generation, Sarah faces a multitude of financial challenges that can be emotionally and financially draining. Here are some of the key financial challenges she would encounter:
- Increased expenses
- Reduced income
- Balancing priorities
- Lack of retirement savings
- Having to take time off work
- A negative impact on credit and debt
- Managing legal and financial complexities
What strategies can you take to support her aging parents without depleting your own finances?
You can utilize some of the following strategies to help financially support your parents without draining your finances:
Research government assistance programs
Explore all available government assistance programs specifically designed for seniors in Canada. These programs can provide financial support to your parents without you having to directly contribute. Some notable programs include:
- Old Age Security (OAS): Ensure that your parents are receiving the OAS pension, which provides a monthly payment to eligible seniors.
- Guaranteed Income Supplement (GIS): This program provides additional financial assistance to low-income seniors. You can help your parents apply for GIS if they meet the criteria.
- Canada Pension Plan (CPP): The CPP¹ provides retirement and disability benefits to eligible individuals who have contributed to the plan during their working years. If your parents have worked and contributed to the CPP, they may receive CPP retirement benefits, which can be a valuable source of income in retirement.
- Québec Pension Plan (QPP): Similar to the CPP, but applying only to Québec residents, QPP provides retirement and disability benefits to eligible individuals who have contributed to the plan during their working years.
- Employment Insurance (EI) Caregiving Benefits: Explore the EI caregiving benefits if you need to take time off work to care for your parents due to illness or medical issues. These benefits provide temporary financial support to caregivers.
- Veterans Affairs Canada (VAC) Benefits: If your parents are veterans or spouses of veterans, they may be eligible for various benefits and services provided by Veterans Affairs Canada, such as disability pensions, allowances, and healthcare support.
- Pension Income Splitting: Depending on your parents' financial situation, they may be able to split eligible pension income for tax purposes, which can reduce their overall tax liability.
- Tax Credits and Benefits: Explore tax credits and benefits available for seniors, such as the Age Amount Tax Credit, the Disability Tax Credit, and the Medical Expense Tax Credit. These credits can reduce the amount of income tax your parents owe.
Assist with benefit applications
You can assist your parents in applying for various benefits and credits they may be eligible for, such as the Canada Pension Plan (CPP) and the Canadian Disability Tax Credit. These benefits can alleviate some of the financial strain.
Downsize and liquidate assets
If your parents have unused or underutilized assets, such as a second property or a vehicle that doesn’t get used, you may suggest downsizing or liquidating these assets to generate additional income. You could also help them get rid of additional credit or debit cards, close accounts that are open and not being used with other banks, or even help them streamline or combine any retirement accounts they may have.
Budgeting and having a financial strategy
Create a detailed budget that includes all your parents’ income sources and expenses. You could also identify areas where they can cut unnecessary spending and reallocate funds to essential needs. Help them with short-term goals like paying off credit card debts and reducing their weekly expenses, or long-term goals of paying off outstanding debts and making sure her parents have enough money to live on.
Additionally, you can show your parents how they can budget their paycheques from any current pensions or government assistance they’re already receiving.
Healthcare navigation
Assist your parents in navigating the healthcare system effectively to minimize unnecessary medical expenses. You can ensure they’re aware of the services covered by their provincial healthcare plan and help them choose healthcare providers who accept their insurance.
Seek free or low-cost community services
Look for community organizations and services that help seniors, such as meal delivery programs, senior centers, and volunteer-driven transportation services. These services can provide crucial support without financial strain.
Legal and financial advice
Encourage your parents to consult with professionals, such as lawyers and advisors, who can provide guidance on estate planning, wills, and the efficient management of their assets. Often, a one-time investment in legal and financial advice can lead to long-term savings.
How can you be sure to address your own financial obligations as well?
While juggling the financial responsibilities of caring for your aging parents and providing for your own children, it's crucial that you also take steps to address your own financial obligations as well. Here are several strategies and actions you can take to ensure your financial responsibilities are not getting lost in the mix:
- Create a detailed budget: Create a comprehensive budget that outlines all sources of income and all expenses.
- Prioritize financial goals: The allocation of income to future financial goals. These may include retirement savings, children's education funds, and emergency savings.
- Set up separate accounts: Maintain separate bank accounts for different financial purposes.
- Automate savings: Set up automatic transfers to her savings and investment accounts.
- Insurance coverage: Make sure she has adequate insurance coverage, including health insurance, disability insurance, life insurance, and homeowners or renters' insurance.
- Retirement and education savings: Continue contributing to education and retirement savings accounts, such as a Registered Retirement Savings Plan (RRSP) or an employer-sponsored retirement plan like a Registered Pension Plan (RPP), Group Registered Retirement Savings Plan (GRSP), or a Registered Education Savings Plan (RESP).
- Debt management: Create a debt repayment plan to eliminate outstanding debts quickly.
- Self-care and professional development: Prioritize physical and mental well-being so stress and burnout doesn’t start to impact your goals. Investing in career development could help lead you to higher earning potential.
In conclusion, being a part of the sandwich generation is a challenging and complex situation, but it’s also a testament to the love and commitment that individuals have for their families. By understanding the financial challenges and adopting practical strategies, Canadians can navigate this unique position while ensuring the well-being of both their aging parents and their children.
Remember, you’re not alone in this journey, and seeking support from professionals and community resources can make a significant difference in your financial stability and overall quality of life.