People retiring today are among the most financially fortunate Canadians ever because they've had the opportunity to hit home runs in both the housing and stock markets.
But they don't have it made. Not with the potential for them to be supporting both their adult children and their aging parents as part of what we call the sandwich generation.
One side of the sandwich, the struggles of young adults, has been documented lately in this column and elsewhere. Some university and college grads have had trouble finding their place in the work force, and parents are helping them with everything from house down payments to monthly bills.
The cost associated with supporting older parents hasn't received as much attention, but it's a factor as well. As they age and lose their independence, these parents may require financial help to afford either home care or the cost of living in a well-run retirement or assisted living facility.
We are in the early days of understanding the sandwich effect. Longer lifespans mean an increasing percentage of seniors will themselves have parents still living. The problems of young adults have barely begun to play out in the economy in terms of reduced capacity to spend and be taxed.
However, there are already some signs of financial stress in the insolvency numbers for seniors. Against a backdrop of broadly falling consumer insolvencies (bankruptcies and proposals to repay debt), the proportion of total insolvencies accounted for by seniors rose to 9.5 per cent from 9.2 per cent in 2012 and 9.1 per cent in 2011.
"It appears to be people in their 60s and even 70s," said Blair Davidson, president and trustee in bankruptcy at BDO Canada Ltd. "They're often taking care of ailing parents … and have nursing home costs that they're trying to support. And then they have children who may have student loan debt or are underemployed based on their education."
Mr. Davidson said there's usually an event that triggers a bankruptcy – divorce, health problems, having to take time off to care for an ailing parent. Whatever the event, it results in a person exhausting their financial resources.
Bearing the costs of supporting adult children or aging parents may put people in a precarious position to begin with. Check out these notes on the cost of caring for a parent from a 67-year-old reader who lives in Southwestern Ontario. She wrote me about her mom, who had a stroke at 81 and passed away a year ago in her late 90s.
The daughter took early retirement from her job, moved in with her mother and covered the cost of utilities, food and clothing so that her mom's money could be used for her care. Total home care costs in one particular year came to $33,587. When the mom moved to a nursing home, the annual costs in one year came to $26,329.
Some thoughts on personal finance for people who are members of sandwich generation:
The emergency fund is more important than ever
It's for surprise home and car expenses, and it's a reserve fund in case you need to back up a parent faced with emergency medical costs not covered by provincial health-care plans.
Add two new angles to retirement financial plans
Can you afford to use a block of savings to help your kids pay off student loans or buy a house? Can you afford regular monthly payments to help your parents with home care, etc.?
Know your parents' financial situation
Don't assume your parents have the cash flow and assets to cover the cost of home care or a retirement residence. Find out the costs of these services and match them against your parents' resources.
There are estimates that as much as $1-trillion in wealth will be transferred from seniors to their baby boomer children in next two decades. But if the financial stress on seniors seen by Mr. Davidson is any indication, there could be some families where wealth is transferred the opposite way. From children back to parents, in other words.
Mr. Davidson wonders what the effect will be on boomers if their parents don't have money to pass along. He sees these inheritances as providing a cushion to help people overcome financial obstacles.
"We all have challenges with parents and health and job loss and one thing or another," he said. "Without the benefit of inheriting a financial nest egg that helps us bear through those tougher times, we could ultimately see increasing rates of personal bankruptcy."
These same boomers are Canada's most financially fortunate generation, so they do have resources of their own. But the expenses are piling up.
Older Canadians under financial stress
This chart breaks down insolvency filings by age group over the past three years. Note how the percentage accounted for by people in most cohorts from age 50 and older are increasing.
Distribution of insolvency files (%) broken down by age group (yrs)