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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 living.

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 lifestyle aspirations.

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 situation.



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