My generation

Sometimes, instead of a pie, you get a sandwich. There are costs associated with being part of an interdependent, intergenerational family unit. It is not uncommon today for Boomers, also referred to as “The Sandwich Generation,” to be simultaneously providing financial assistance to their grown children, ageing parents and, in some cases, even their grandchildren. One quarter of Canadian Boomers surveyed had one or more parents who require regular assistance, and the majority (59%) of Boomers who had children age 18 and over were still providing financial support to their children. On the other hand, a U.S. survey found that 40% (or 2.5 million) of all grandparents whose grandchildren live with them reported being responsible for most of their basic needs. These added responsibilities not only diminish the Boomers’ inheritances and existing retirement nest-eggs; they may also reduce or eliminate any hopes of inheritance for subsequent generations.

Risk factors such as longevity, the rising cost of living and intergenerational obligations, threaten to consume legacies that would have otherwise been transferred to future generations. But subtle differences in the way each generation views the world and the impact of outside forces beyond their control may also significantly shape the way money is channelled to the next generation.

Both seniors and Boomers agree on the importance of leaving an inheritance. However, seniors are likely to feel more obligated than Boomers to do so. The reason for this distinction may be that seniors grew up with an intimate understanding of deprivation, first surviving the Great Depression, and then fighting in the Second World War. Because they had endured such hardships, some seniors may feel compelled to provide financial assistance to others. In contrast, Boomers were raised in a time of relative peace and affluence, and have generally grown up accustomed to a life of abundance. Socially, they are idealists who value financial self- sufficiency, making the world a better place for all and enjoying a high standard of living. Unlike the seniors, they may consider leaving a legacy as a bonus instead of a requirement. As a result, intergenerational differences in perspectives on inheritance will affect the distribution of wealth.

When you fall

We have had many workshops on fall prevention strategies this fall. as we get older it is not a matter of if you will fall, but a matter of when you will fall. The National Institute on ageing has some good tips to help you if you fall.

If you do fall, stay as calm as possible and follow these steps:

Take several deep breaths to try to relax. Remain still on the floor or ground for a few moments. This will help you get over the shock of falling.

“Decide if you are hurt before getting up. Getting up too quickly or in the wrong way could make an injury worse.” When my wife fell, people tried to help her get up right away when what she needed to do was to adjust to the pain and mentally check her body to see if she was all in one piece. Insist on time to do this when people try to help."

“If you think you can get up safely without help, roll over onto your side. Rest again while your body and blood pressure adjust. Slowly get up on your hands and knees, and crawl to a sturdy chair.

“Put your hands on the chair seat and slide one foot forward so that it is flat on the floor. Keep the other leg bent so the knee is on the floor. From this kneeling position, slowly rise and turn your body to sit in the chair.

“If you are hurt or cannot get up on your own, ask someone for help or call 911. If you are alone, try to get into a comfortable position and wait for help to arrive.

“Carrying a mobile or portable phone with you as you move about your house could make it easier to call someone if you need assistance. An emergency response system, which lets you push a button on a special necklace or bracelet to call for help, is another option.”

Factors impacting size of your inheritance

An inheritance can be impacted by:

·       Life expectancy and retirement age

·       Unanticipated events and health care expenses

·       Challenging markets, interest rates and inflation

·       Taxes on death

·       Family size

Life expectancy and retirement age

Thanks to healthier lifestyles and medical advances, we are living longer, almost ten years longer than the average life expectancy five decades ago. This is good news – in terms of retirement dollars, those additional years demand a significant amount of retirement savings – especially if one considers the extra health care needs that typically go hand-in-hand with ageing.

Unanticipated events and health care expenses

Longer lives mean an increased risk of needing costly medical care or daily living assistance within one’s lifetime. While some government funding kicks in for all Canadians, there are limits, and coverage varies across provinces. In 2006, 45% of mature Canadians (50 years and older) reported spending more money on living and medical expenses than they had planned. This is not unexpected, as the charges for basic accommodation in publicly supported long-term care institutions ranged from $540 to $3,960 a month per person. Hence, Canadians can anticipate paying more out of their own pockets to cover medical essentials and long-term care services in the future.

Challenging markets, interest rates and inflation

Seniors, who typically invest more in fixed-income products such as GICs and bonds, are forced to balance a low rate of return with a higher rate of taxation, as compared to capital gains and Canadian dividend income. As a result, many may be forced to use up more of their assets than originally anticipated simply trying to keep up with rising inflation costs, leaving little behind for their successors. Meanwhile, Boomers on the brink of retirement may be faced with smaller nest eggs with which to fund their retirement lifestyles if their portfolio value declined with the stock market. The potential result is an inheritance that could shrink from one generation to another.

Taxes on death

Although there are no estate taxes in Canada, a significant proportion of an inheritance could be consumed by probate fees and capital gains taxes due upon death Not only can taxes and probate fees erode the value of an estate, they could force the sale of assets. For instance, a family cottage or investments may have to be sold as heirs try to come up with the funds to pay the taxes, probate, executor, trustee and legal fees. Being forced to sell assets to cover fees could negatively impact the net value of the estate.

Example: How taxes could reduce an inheritance

Margaret is a widowed mother of three adult children who live in Ontario and has significant assets registered in her name only. Her assets include RRSPs worth $250,000 and investments valued at $100,000 (for which she paid $50,000). Upon her death, the total estate value will be $350,000. However, this is not the amount that will be distributed to her children, because there will be taxes charged on her investments. The estate will need to pay approximately $115,000 in taxes on her RRSPs and $11,500 on her investments (assuming a top marginal rate of 46%15). Assuming she has no other outstanding debts to be settled by her estate, the net value of her estate will be $223,500 which may be further reduced by probate, executor, trustee and legal fees.

Family size – Many ways to split the pie

Boomers represent a large percentage of the world’s population. In Canada, Boomers account for approximately 30% of our population. It stands to reason that any legacy that the Boomers’ parents leave behind is likely to be split between multiple siblings.

But the demand for a slice of the pie does not end there. Children are not the only ones to inherit this wealth. In the recent BMO Retirement Institute Inheritance survey, both seniors and Boomers indicated that they are planning on leaving an inheritance to someone other than their spouse/ partner or child. Moreover, seniors are more likely than Boomers to plan on leaving an inheritance to a grandchild (37% vs. 18% respectively) or to a charitable organization (28% vs. 18% respectively). Ultimately, this may reduce the size of the inheritance that many expect.

Passing it on: What will future inheritances look like?

I was talking with one of the people who raise funds for a local charity that I support and we talked about the idea of legacy giving, and she said that many seniors are thinking about this idea, but are not ready to move forward on it yet. This is a shift that I think is encouraging. Back in the 90’s I used to see bumper stickers that said, “I am spending my kids’ inheritance.” I thought it was a great plan, seniors worked hard and so they should enjoy the opportunities life gives when they retire. I am still of that opinion, but I do hope that I will leave my children a small amount, but the idea of leaving a legacy to a charity is also appealing.

When my mom died, she left my brothers and me a small amount of money. I used mine to take my family on a trip to Hawaii and it was money well spent, as we still talk about that trip.

However, many of my generation still expect that they will get some money from their parents, and our children still think they may get some money from us (Boomers). The reality of this may be a bit different. The Bank of Montreal did a study of this issue and has some interesting results.

Over the last decade, many studies have attempted to quantify the magnitude of the wealth that will transfer between generations. In Canada, it has been estimated that Boomers stand to inherit approximately $1 trillion over the next twenty years. In the U.S., the numbers were even higher, with some estimates around the US$41 trillion range

While the size of the pie is up for debate and continues to be influenced by market conditions and other factors, there is certainly an expectation that an unprecedented shift in wealth from one generation to the next will take place over the next few decades as seniors pass on. According to a recent BMO Retirement Institute survey, 30% of Canadian Boomers polled are expecting to receive an inheritance from someone in their immediate or extended family.

There are risks to incorporating an expected inheritance into a retirement plan without considering all possible scenarios (e.g., a smaller inheritance than expected). In 2006, a study showed that about 1.5 million Canadians are relying on their inheritance as the primary source of capital to fund their retirement. The report stated that, on average, Canadians expected to receive a total of $150,600 in cash or cash equivalents, and $151,200 in non-cash inheritance. But in reality, inheritance sums received were significantly less – the average inheritance received that year was $56,000. Don’t count your chickens before they hatch, is the moral here. If you as a Boomer are relying on your parents, or other relatives to fund your retirement, you should start to think differently.

Obviously, there are uncertainties involved in the transfer of wealth, such as timing and the actual monetary value of the inheritance. Some of these uncertainties can be solved through discussion between family members. However, particularly with the older generation, discussions of their death and the transfer of their estate, including writing a Will may be considered “taboo.” The lack of candid conversation between generations appears to be a major contributing factor to poor retirement and estate planning. 

Moreover, the problem with this lack of dialogue is that it often leads to misgivings and financial insecurity in retirement for Boomers and seniors. For example, an increasing number of individuals are planning to bequest a portion of their wealth to charities as part of their legacy, leaving their children empty-handed or with a smaller inheritance than expected which helps those in need, but may harm family who is depending on this money to fund retirement.