Sandwich generation: Canadians feeling caught in money vise

Mona Dodd admits that when she thinks about her retirement, she gets anxious. A member of the sandwich generation, her responsibilities are divided between two school-age daughters and parents who are in their late-70s. She also lives in Vancouver, Canada's most expensive housing market. The financial pressure from multiple generations is enough to keep her up at night.

"When I start thinking about it, I get heart palpitations," the part-time jewellery-store clerk says of saving for her retirement while trying to put money aside for her kids' education and her parents' potential needs. "It just all seems totally overwhelming."

Dodd's hardly alone. Balancing financial priorities on the road to retirement seems to fray nerves in younger and older Canadians alike.

In fact, the vast majority of Canadians aged 18 to 34 and 55 to 69 say if they were to outlive their savings in their so-called golden years, the notion of their families stepping in to take care of them "would not be very appealing" (82 per cent and 91 per cent, respectively), according to RBC's 22nd annual RRSP Poll.

Furthermore, a majority in each age group (78 per cent and 72 per cent) say they worry about how to save for immediate priorities while simultaneously putting money aside for longer-term goals or retirement.

"The idea of having financial independence is extremely important," says Jason Round, head of financial planning support at RBC. "That's the challenge, especially for the sandwich generation. Having to rely on your family members for your own needs when you reach a certain age and run out of money is certainly not appealing."

Retirement savings on the back burner?

Granted, having family members take care of their aging parents isn't ideal, but it's happening more and more. Saving for immediate or impending priorities, like caring for loved ones, often takes precedence over saving for retirement.

But that doesn't mean people shouldn't try, financial experts agree.

"The best thing people can do is to plan," Round says. "That's the first and biggest step."

Certified financial planner Odette Morin, founder of Vancouver's You First Financial, says people need to prioritize objectives and plan cash flow.

"People will say, 'I want to make sure the mortgage is paid off; I may have to renovate or move to a bigger place in case my parents need to move in. I'll just save later for retirement.' Unfortunately, it doesn't work that way," Morin says. "You have to juggle many balls at the same time.

"It's a lot better to do a little bit of everything than one thing at a time, especially with retirement because it's such a big goal," she adds. "Most people will need between $1 million and $2 million. You need about 20 times your revenue. You can't start that when you're 50; it's too late. You need to start this as soon as you get a job. You really have to work at it slowly but surely."

Finding balance: The 10-percent rule

There are many steps people can take to keep their retirement secure while taking care of more immediate needs.

Take the 10-percent rule: Put 10 percent of your earnings into a separate, high-interest savings account that you don't touch.

"It's just a rule of thumb, but hey, it works," Morin says.

Having an emergency fund is also crucial for when, say, your roof starts to leak or your furnace dies. Setting aside three to six months' worth of earnings is a good benchmark.

"You also need to have money dedicated in your budget to replenish it," Morin notes. "Put $100, $200, $300 a month into a high-interest savings account, something totally liquid and accessible so you're not tempted to take money out of any long-term investments when something comes up."

Track your spending

Tracking spending carefully can be an excellent tool for helping people direct their resources to their most important priorities, says Rogers Group financial advisor Anne Hammond.

Paying down debt should also be a priority.

"Focusing on paying off debts as quickly as possible, starting with the highest interest debts like credit card balances, has a couple of major benefits," Hammond says. "It can dramatically reduce the amount of interest paid, so people can use those funds for other things. Second, once the debt has been paid off, there is more cash flow available for current needs and savings, which makes unexpected expenses much easier to handle."

Automate your savings

Hammond also suggests seeing up automatic savings plans for RRSP contributions, tax-free savings account contributions, and that emergency fund.

"This takes advantage of an investing strategy called dollar-cost averaging, which lowers the overall cost of investments and helps to get the most mileage out of people's savings," she says. "And because the saving is automated, people tend to treat it like a bill, which enforces the discipline of saving. Plus, saving automatically means it happens without requiring constant attention, freeing up busy people to focus more on their family members and less on worrying about their money."

A family affair

For those feeling the sandwich-generation squeeze, getting the family involved in financial discussions and strategies is one more piece of the puzzle, according to Morin.

If someone's in a situation where their parents end up moving in, Morin recommends finding ways they can help contribute.

"A lot of parents who sell their home to live their with children help with a lump sum to reduce the mortgage," she says.

And it's important to communicate the financial reality to children.

"I see a lot parents who love their children and want to give them everything—and they can't say no," she says. "The best thing you can do for your children is to empower them to be responsible and teach them how to manage money. You don't have to give them exact numbers, but explain how much money comes in, how much goes to the mortgage, and how much is left over. They can help not have you be dependent on them later in life.

"If they know how to manage cash flow early they'll know for life," she adds. "That's a legacy."