|The Baby-boomers' retirement sandwich
Wednesday June 13, 2012
Baby-boomers are now near or at what used to be the typical
retirement age – around 65. But increasingly, polls show that
a large portion of Baby-boomers expect to keep working into
their late 60s, with retirement pushed off to age 70 or later.
Many are still supporting adult children while also dealing
with aging parents. They’re the sandwich generation, and they’re
feeling the bite. So how did it come to this?
It wasn’t that long ago when a typical retirement couple’s
situation looked something like this: Retire somewhere between
age 55 and 65 depending on assets and pension income in retirement.
Homes were usually paid off. The people who could retire at
55 frequently had a generous defined benefit pension plan, were
very successful with their careers or received a generous inheritance,
which helped them retire sooner than most.
Their children were long gone, leaving the nest at ages 18
to 20. This left parent free to build their retirement assets
at a much faster pace with fewer expenses.
Their parents had either already passed away or were in a retirement
home (for a short stay). This left the couple with a nice long
retirement with nobody to worry about except themselves.
That was then…
For most Baby-boomers these days, retirement looks more like
this: Retire around 60 to 65 – with many more working full or
part time well into their 70s for a variety of reasons. Sometimes
this is because they can’t afford to retire at their desired
standard of living. Many will carry debt into retirement, which
again is different from the previous generation.
Baby-boomers also are not forced to retire like the previous
generation. Sometimes it’s because they really like their career
and the people they work with. People are also living much longer,
so the capital requirements for funding a retirement has grown
too. Retirement could last 30 years now, not seven.
Children are staying at home for a variety of reasons. Moving
out is much tougher than it was. This is especially true in
big cities like Toronto and Vancouver where the cost of living
is much higher. Young adults want the big TVs and like buying
$60 video games, which are difficult to afford while paying
rent, food, car expenses, and other costs associated with independent
So today it is common to see young adults who are in their
mid- to late-20s still living with Mom and Dad. During this
extended stay in the nest, parents are still on the hook for
most of the household expenses, which decreases the amount of
excess cash they might direct to their impending retirement.
Baby-boomers moving towards pre-retirement must also consider
their parents’ situation – their health, accumulated assets,
debt, living insurance to handle serious health issues, and
the high cost of elder care if a residency in a retirement home
is in the future. Retirement living in these facilities can
cost anywhere from $3,000 to $8,000 a month, and these costs
will not decrease with the wave of Baby-boomers heading in their
direction. Demand will outstrip supply, and Economics 101 tells
us the likely outcome when that occurs.
A parent facing major health challenges isn’t just about the
money challenges either. There can be considerable time spent
helping parents through the recovery process and visiting doctors
and specialists. Taking all that time off can affect your earning
for a long period of time, which again is something the previous
generation didn’t generally have to be concerned with.
One other reality is that our government will be less generous
with you than it was with your parents, largely because of the
new economics (poor investment returns for CPP, higher percentages
of people using benefits versus working to pay for those plans,
and slower economic growth).The government has already made
changes to Old Age Security, which reflects this new reality.
This leaves us with the following conclusions. Retirees today
will live much longer and enjoy a longer retirement on average.
But the flip side of the coin is that their children are staying
home longer, which increases living expenses for them. Add to
this the fact that their parents are also living longer, which
could dramatically affect baby-boomers’ retirement income and
There are no easy answers here. Life is always going to throw
you some curveballs, but if you ask the right questions and
do your homework, you will be fine. Follow the old adage of
“Expect the best, but be prepared for the worst.” So if you’re
facing the baby-boomer retirement sandwich, your best preparation
is to consult with a financial planner who can bring some much-needed
perspective to what at first appears to be a completely untenable
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