A Registered Retirement Savings Plan is often seen as a tool to help fund a carefree retirement. But if you are also supporting an elderly parent and adult children, how can you ensure your retirement plan is well-funded? Georgia Swan, Tax and Estate Planner, TD Wealth, joins Greg Bonnell to look at ways the so-called Sandwich Generation can manage their RRSPs.
- So how do you ensure your RRSP is well-funded enough for all of it? Georgia Swan, Tax and Estate Planner with TD Wealth, joins us now to discuss. Georgia, always great to see you.
* Good to see you too, Greg. How are you?
* I'm doing pretty well. The sandwich generation-- let's talk about them and some of the pressures they may be feeling. It sounds like a tough place to be in for some people.
* It certainly is. Originally, this demographic were people who had a living parent over the age of 65 and were supporting children under the age of majority. So we're looking at people roughly between 40 and 59 years of age, with a few that maybe were younger than 40 or older than 60. The thing is nowadays, that's expanding.
- More and more people are supporting their children financially well into that child's adult years-- giving them money to buy a home or to just basically make ends meet. And not only that, but a lot of our parents, when they were planning for their retirement, were not banking on the economic conditions that exist these days. So now that sandwich generation is actually also helping elderly parents financially.
- So they're really being squeezed. Even more so, you've got another part of this sandwich generation that's also taking care of grandchildren-- sometimes formally because they got custody or guardianship of those children because their children are struggling, or maybe they're just helping with those extra things like sports classes, or music lessons, or education. I call that group the club sandwich generation, because they've got an even added layer of pressure there.
* When you go back about 20 years or so, Georgia, I recall the discussions around retirement. And I was thinking by the time I got really close to where I am right now, you'd be thinking about a carefree existence of travel and of leisure. Obviously, this whole sandwich generation thing means a very different environment for a lot of people around my age and a bit older. So how important is it, then, to really plan ahead, to use the RRSP as a vehicle that can really help out with some of these pressures?
* There isn't language strong enough to convey the importance of planning ahead. So you should be walking lockstep with these decisions with your investment advisor or financial planner. You should really be looking at the RRSP, of course, as one element of a really healthy financial plan.
- And some of the good parts about it is when you make that contribution in the year that you make it and hopefully get that refund back, that's money that comes back into your household budget right away. And then, of course, the growth in the RRSP, basically it's allowed to grow on a tax-deferred basis for the most part until you convert it to a RRIF and start withdrawing from it.
- At that point, of course, you do have to withdraw at least the minimum amount, which does increase as you get older. So, really, working with your investment advisor or financial planner as to what that looks like for you right now, what do you anticipate your needs are going to be, who else you're going to be helping-- and, of course, all that has to be looked at through the lens of what your income is going to be in retirement.
- So if you are banking on a pension that you know you're going to get, or maybe you'll have income from something else, that all has to factor into the decision of how much you should be putting away in your RRSP each year.
* Let's talk about that. And you listed some of the benefits of an RRSP. How do you ensure that plan is well-funded?
* Well, first and foremost, the deadline for contributing to your RRSP so it counts to your 2023 tax return is February 29, 2024. And what often you see happening is around February 15, everybody starts thinking, oh, my goodness. I have to make this contribution. Where am I supposed to get the money?
- And they start scrambling, sometimes even having to borrow from a line of credit. You're better off trying to budget those contributions regularly throughout the year. It might be like a $200 amount that automatically goes into your RRSP each month because it's much easier to come up with $200 a month than it is to come up with $2,400 all at once in February.
- And of course, if your employer does offer a matching program, make sure you take advantage of that. There's no use leaving that sort of thing on the table.
* Now, when it comes to the sandwich generation, how do you have the discussion about helping-- it is very nice to be in an economic position where you can help the people you love, whether it's the people who raised you or whether it's your children and adult children. But there are limits. Money, for most of us, is finite.
* Absolutely. And that comes down to, of course, family dynamics, financial literacy. But I think if you have other people in your life that have an expectation of your financial support-- and remember, that support isn't always directly financial. Sometimes if you're providing free child care to your grandchildren, if you're shuttling elderly parents around to medical appointments, you're still spending your money to do that.
- So having these conversations when there is an expectation that you're going to assist with the finances of another generation, then the budgeting becomes a family affair. It can't be a situation where people are just coming with their hand out. I had a client once that was becoming increasingly concerned because their child was coming to them requesting funds, but they had no idea where that money was going to, and they were beginning to be concerned about their own financial well-being.
- So they basically said to the child, look, we're still willing to help you within reason, but from now on, we want to know and see where that money is going. So these have to be family conversations with everybody at the table and everyone's expectations being thought about, because more and more now not only am I seeing clients who are asking me, how do we give to our children effectively?
- But I've even seen people drafting wills where they are actually providing for their parents as well just in case they predecease their parents. And that's so different than generations past. You certainly don't want to get yourself in a position where someday you're asking for help because that just creates a vicious cycle that won't end.
* All right, so very important conversations to have. It sounds like there's a lot of things to consider as well in that if you are in this situation, you probably need to speak to someone.
* Absolutely. Like I said, this is something you need to be walking in lockstep with your advisors on. So make sure you make those appointments on a yearly basis because your needs, your situation, and the needs of those two generations that are pushing on you are going to change. And you need to make sure you keep up with those changes.