Is your client's mother-in-law about to move in?

Modern families are reverting back to their old ways, as the average North American lives longer and the pressure to save for retirement surmounts, suggests one Ontario advisor.

“It’s the cycle of living pay cheque to pay cheque and then you’ve got to live off your children and they’ve got to do the same thing,” explains Ottawa-based financial advisor, Mark Freedman. “Generations are living together ... parents are taking care of the grandparents. Maybe the economy is forcing us back into these circumstances again.”

Freedman’s thoughts fall in line with conclusions from a Merrill Lynch study, Family & Retirement: The Elephant in the Room, released in the U.S. last week. The study brings to light the interdependencies and challenges facing boomers (aged 47-67) who are entering – or on the cusp of – retirement, and find themselves monetarily supporting other family members, including children, parents and siblings, in financial trouble. A pay out that, overall, remains unaccounted for in their financial planning.

According to the study, which surveyed 5,400 Americans in August 2013, the average assistance provided to family members in the last five years was about $15,000 and much higher for wealthier families. This support was either a one-time sum or ongoing assistance over several years, often without any expectations for reimbursement. (continued on Page 2.)

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“Professionally I see it with a lot of people,” says Jim Yih, owner of Retirehappy.ca. “I hear things like, ‘we don’t have a enough money for retirement, we just paid for three weddings, we just put two kids through school, my kids just got divorced and they need financial assistance.’”

As a financial planning educator, Yih highlights the importance of avoiding cash hand outs to assist children. He believes the healthy handling of money starts in the formative years, while watching what goes on at home.

“I think the most important thing for parents to consider is to set a good example. If they are not saving for their own retirement or paying down debts, what are they teaching their kids?” asks Yih. “If we give our kids too much we are creating a generation of entitlement. If you constantly give your kids money, they don’t learn to earn it themselves.”

Freedman agrees adding that the younger generations he has come into contact with are accumulating too much debt due to unrealistic expectations, leaving investing for their future or retirement little more than a pipe dream.

“It’s more about managing debt than anything else,” says Freedman. “The situation I have found with a lot of the younger people in their 30s, is that they come out of university and they’ve immediately gone into buying a home that is too big for them, furnishing their home on credit and now how are they going to manage investing?” (continued on Page 3.)

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Concerning trends identified in the study include:

• 50 per cent of pre-retirees (age 50+) said they would delay or compromise their retirement to help family members.
• 19 per cent of pre-retirees said they have had at least one ‘boomerang’ adult child, who moved back into the family home.
• 68 per cent of pre-retirees have provided financial support to adult children over the last five years (36 per cent without knowing where the money was used).
• 33 per cent of of pre-retirees feel well prepared for retirement.
• 24 per cent of pre-retirees feel prepared financially if their spouse was to pass away.
• 23 per cent of pre-retirees feel prepared financially if their spouse was forced into retirement due to health problems.
• 91 per cent of pre-retirees said they would not feel prepared if an aging parent or relative needed long-term care.
• Though becoming a burden to family is the No. 1 retirement concern for 31 per cent of respondents (aged 68-88), 66 per cent of pre-retirees have do not have a plan to avoid having to living with a family member if they were not able to live independently.
• 70 per cent of adult children (age 25+) have not discussed retirement or or aging with their parents.
• 56 per cent of pre-retirees have not discussed financial issues such as a will, inheritance or retirement plans with their adult children.
• 24 per cent of siblings (age 50+) have discussed how to provide financially for aging parents.

“This is unchartered territory,” says Freedman. “We have the baby boomers who are now retiring, but the economy is not the same as it was 10 or 20 years ago. We’ve moved from the industrial age to the technological age and there is no paradigm to follow. We don’t know the effects further down the road.”