Boomers, there's a more important way to help your adult children financially than giving them money for a house down payment.
Save enough money to look after yourself in retirement. Don't neglect your finances so your children have to help pay your way.
A report issued this week by CIBC Economics found that close to two million Canadians incur out-of-pocket expenses in looking after parents aged 65 and older. The average expense is $3,300 per caregiver each year, an amount that doesn't factor in wages lost by taking time off work.
So far, supporting aged parents financially is a burden that falls on a fairly limited slice of the population. CIBC says 14 per cent of people with parents over 65 are helping them cover costs, and this group is skewed to lower-income families.
But Canada's population is aging fast. We now have more seniors than children for the first time in the history of the census, and it's expected that almost one-quarter of the population will be 65 and older by 2031. If we have a lot more seniors, we're going to have more adult kids helping to support them. CIBC estimates that the cost of looking after elderly parents will rise 20 per cent on an after-inflation basis over the next 10 years.
Parents are supporting their adult children longer these days, so there would be a certain fairness to tomorrow's seniors getting help from their kids. But just how prepared will these adult children be to help their boomer parents financially?
Last week, we presented some data showing the extent of the difficulties today's young adults are having in the work force. Many are succeeding, but a substantial number are working contract jobs, with no pension or benefits. Also, many are working more than one job or working outside their field of study.
These millennials will need to save long and hard for their own retirement. Their prime years for doing that will come right around the time their boomer parents are discovering whether they have a retirement saving shortfall of their own.
The line on boomers is that they're a generation of lottery winners – they got into the work force when defined benefit pensions (payments are set for life) were still common, they were able to invest during some prime years for stocks and they bought their houses before the real estate boom began. A lot of boomers have big bucks – enough to help their adult children buy houses and pay for retirement.
But boomers are also big on debt. A Statistics Canada survey shows that the total amount of debt held in households led by people aged 55 to 64 almost quadrupled between 1999 and 2012, while the level for the overall population did little more than double (these are inflation-adjusted numbers). One third of households led by people aged 55 to 64 still had a mortgage and 38 per cent had credit-card or instalment debt (basically a payment plan for purchasing an item).
As a group, boomers will also live far longer than they expect. We ran a couple of articles about delaying Canada Pension Plan benefits past age 65 earlier this year and the pushback from readers was fierce. Boomers seem to fixate on the chance that they'll die young and leave CPP benefits on the table (there's only a limited survivor benefit). They ignore the risk of living to 95 and incurring unexpected costs that aren't covered by provincial health care plans.
Boomers also face unprecedented family-related costs. They may be helping their own aged parents, and their adult children. The young adults of Generation Y are getting parent support when they move back home after graduation, and they're commonly being subsidized by their parents in putting together a down payment to buy a house.
The full cost of looking after aged parents is actually much larger than the $3,300 average for out-of-pocket expenses. The CIBC report says close to 30 per cent of people with aged parents take time off work, which means lost income or doing without vacation. If you combine direct and indirect costs, you get an estimated total of about $33-billion annually.
Boomers, give your adult children the gift of not having to worry about your finances. Let them help you because they want to, not because you didn't save enough when you had the chance.
Rob Carrick