Financial advisors are used to talking to clients about saving and investing to raise a family, maybe start a business and eventually retire, but what about supporting their aging parents financially?
As Canadians live longer and long-term care costs continue to climb, advisors are also talking to clients about how to help pay for their parents’ living situations. The COVID-19 pandemic has also put many people out of work, including seniors who may fall short of their retirement goals. That could mean they need some financial backing from adult children – a reversal of roles from decades past.
Adult children looking at supporting their parents need to consider the impact on their own financial goals, says Rona Birenbaum, founder and certified financial planner at Caring for Clients, a fee-for-service financial planning firm in Toronto.
“Understanding what impact supporting another lifestyle will have on your own affairs is important. Often, these arrangements aren’t temporary. If you don’t make adjustments anywhere else in your financial planning, you could undermine your own future,” she says.
“Ask yourself if helping your parents financially for the next number of years, or even decades, means you’ll have less for yourself in retirement. If yes, is that okay with you?”
According to 2019 survey commissioned by FP Canada and Chartwell Retirement Residences, many Canadians expect that providing financial support to their elderly parents will have “a major impact on their personal finances.” Of more than 1,500 Canadians surveyed, 14 per cent expect that supporting their parents financially will cause them to postpone their retirement. Another 12 per cent said it will prevent them from paying off debt.
Ms. Birenbaum recommends “a triage approach” for members of the so-called “sandwich generation” – often people in their 40s, 50s and 60s who are supporting their kids and parents financially – for whom money is tight.
“If you feel responsible for everyone – your parents, yourself and your kids – you have to evaluate where the greatest need is and attack the situation in order of priority,” she says.
For example, adult children might need to choose between paying for a more expensive long-term care facility for their parents and spending extra to send a child to a university out of province.
Adult children will need to talk to their parents and ask them about what assets they have and their sources or income, such as a pension or income from a registered retirement income fund, says Loren Francis, vice-president and principal at HighView Financial Group in Oakville, Ont.
She says that information will help both the adult children and their parents figure out their different financial plans. However, she acknowledges that talk may not be easy for either side to initiate.
“A lot of people don’t talk about finances with their parents, and parents may not easily open up about it, but I think you need to ask the questions,” Ms. Francis says. “You need to make it a family affair.”
She also recommends these discussions begin sooner rather than later to give the adult children more time to plan for the additional expenses.
“If you can see yourself heading toward it, try to have the conversation early enough with your parents,” Ms. Francis says.
Advisors can often be used as conduits between adult children and their parents to help open up the financial conversation, says Sean Lasko, senior investment counsellor with Manulife Private Wealth in Toronto.
“If you can add in a third-party buffer to flush out the discussion, it works better,” he says.
Mr. Lasko says an advisor can also help families figure out if they qualify for tax credits, grants and other financial tools that may help reduce the financial impacts of caring for aging parents.
For example, an elderly parent using a wheelchair may qualify for home-renovation credits to make the house more accessible, or an adult child might be eligible for the Canada caregiver credit if they’re looking after a parent with a mental or physical impairment.
The FP Canada/Chartwell survey shows that only 28 per cent of Canadians are familiar with tax credits, grants and other financial tools available to help alleviate the financial impact of this support.
“There are lots of different avenues available and it’s imperative that [people] look into what’s available to them,” Mr. Lasko says.
He also recommends adult children make sure their parents have an updated power of attorney, will and health directives in place, which may be part of the financial plan.
For example, an adult child may pay for the cost of a long-term-care facility, but with the understanding that they will recover some or all of the costs from their parents’ estate.
Supporting a parent financially can also be considered an opportunity “to create meaning in your own life,” Ms. Birenbaum says, especially for adult children who believe family comes first.
“It would be nice if it didn’t cost dollars and cents, but we don’t always get to choose where our opportunities to express our love and to have an impact on somebody’s life comes from,” she says.
“One day, when your parents are no longer here, you may want you to be a position to say, ‘I’m proud of the son or daughter I was.’ It’s about finding the motivation in all of it, so that it doesn’t feel like a burden, but instead an opportunity to make a difference.”