Are you a 'sandwich boomer'?

I found this article online. The author Robert Powell, talks about the realities of a specific slice of the 'baby boomer' generation. We are 'sandwich boomers'. We not only worry about raising and educating our kids, we also are concerned about our parents, in some cases elderly, who will need care and financial support in the years ahead. Thus, we are caught in the middle - hence the term 'sandwich'.

BOSTON (MarketWatch) -- I spend my nights worrying about my nearly 80-year-old father and stepmother. My wife and I spend our days worrying about funding college bills for four children (expected cost $1 million at Harvard with no scholarships, loans, grants and the like). And in between those worries, I think about saving $3 million (give or take a million) for retirement.

Yes, I am member of the sandwich generation. The good news is that I am not alone. There are millions upon millions of us caught in the middle. And the even better news is that there seem to be experts aplenty ruminating on solutions for this generation.

Consider: In recent weeks and months, AARP, MetLife, Merrill Lynch, Charles Schwab & Co. and likely many others have all released something having to do with the sandwich generation. The surveys don't necessarily reach the same conclusions. But there are nuggets and tips worth sharing.

The findings

If you're in the sandwich generation, and especially if you're a woman, and your household has $250,000 or more in investable assets, perhaps you can relate to these findings from the recently released Merrill Lynch Affluent Insights Quarterly. You're probably making some lifestyle sacrifices to support your family, cutting back not just on personal luxuries but also saving less for retirement or delaying retirement or both. What's more, you may have invited your adult children or your parents to move in with you to cut down on expenses.

Meanwhile, many Hispanic boomers who are members of the sandwich generation find themselves stretched pretty thin as well, struggling just like affluent Americans to maintain their own finances and prepare for retirement, AARP recently reported.

And MetLife's Mature Market Institute found in a recent survey that "middle boomers" (the 28 million Americans who are ages 52 to 58) have at least one parent still living and half still have children living at home. Nearly three in four of the middle boomers have been providing financial assistance and support to their children and grandchildren and that's averaged about $38,000 over the past five years. Some 14% are providing care to older parents.

Another survey found that boomer parents aren't spending as much on their adult children, but that it's still significant. Four in 10 sandwich generation parents continue to provide at least some financial support to their young adult children, according to the 2010 Families & Money Survey recently released by Charles Schwab & Co.

Caring for elder parents

So what to make of those findings? What's in the tea leaves?

If you're a certified, genuine member of the sandwich generation and you're caring for elder parents, soul-searching is the first order of business, according to Andy Sieg, head of Bank of America Merrill Lynch Retirement & Philanthropic Services. "You have to do as much soul-searching as you do portfolio planning," Sieg said. "You have to identify your core values and priorities."

In some cases, you might be able to do that on your own. In other cases, you might need a shaman or an adviser who has a good deal of experience dealing with the trials and tribulations of those in the sandwich generation. No matter whether you go it alone or not, you'll need to address the potential issues and trade-offs in as forward-looking and proactive a manner as possible.

In a zero-sum world, fulfilling a responsibility to a parent -- paying for a geriatric-care manager for instance -- means cutting back on your lifestyle or saving less for retirement or for college. "It's no fun talking about trade-offs," said Sieg. So, it helps to talk about the financial realities and priorities in a rational and calm conversation, long before there's a crisis.

Make no mistake about it: You don't want to talk about such things in an emotion-filled moment; It will bring out the worst of your family history and sibling rivalries.

By the way, a good book that could help you get a sense of your values and priorities is "Family: The Compact Among Generations," by James E. Hughes Jr. Hughes is a legend in helping mostly wealthy families get a handle on what's important to them, but even average Americans can benefit from his wisdom. Learn more about Hughes at this website.

Another issue that those caring for elderly parents should address, according to Sieg, is this: As your parents age, it's quite possible that their mental faculties might diminish. And as that happens, you'll find yourself increasingly involved in decisions about their medical care and finances.

Indeed, even though you're not even close to being eligible for Medicare, you'll likely need to become expert in Medicare and all its parts. What's more, you'll need to determine who your parents' doctors, financial advisers and lawyers are and get a sense of the care and advice they are getting. You might find that some professionals don't have as good a handle on your parents' affairs as you might want and have to take matters into your own hands. In some cases, you might need to get a power of attorney and in some cases become your parents' guardian.

Raising children, adult and otherwise

The other side of the coin for those in the sandwich generation is raising children and, in some cases, supporting adult children, even up to age 30.

There are reasons why some sandwich-generation parents are helping their adult children. According to Carrie Schwab-Pomerantz, president of Charles Schwab Foundation, some adult children have an overwhelming amount of college debt and are unemployed. But the adult children of sandwich-generation parents are dependent for other reasons as well: Some have overspent and have a tremendous amount of consumer debt.

According to Schwab-Pomerantz, sandwich-generation parents who are supporting adult children need to help their children acquire the money skills necessary for financial independence and they need to create a timeline for their children to achieve that independence. "Parents have to teach their children how to budget and save and live within their means," she said.

For instance, she said parents need to teach their children to save more and reduce their expenses. "They have to find creative ways to make it part of their everyday life, just like brushing their teeth," she said.

In addition, she suggested that parents help their children create résumés and search for a job, even if it's an entry-level job or temp work. "It might not be the ultimate job, but at least it puts food on the table," she said.

Parents have to help their children think rationally about their future; it might be better, for instance, to work in a job you don't love than to be unemployed searching for the job you love.

For parents with adult children living at home, Schwab-Pomerantz also suggested creating a timeline for them to leave the nest. "You want to be fair to your child," she said "But you don't want to enable them."

As for sandwich-generation parents with young children and teenagers, the advice is similar -- with a twist. Besides teaching money skills, Schwab-Pomerantz said parents should make sure their children have chores. "Chores play a role in children becoming financially responsible. In addition, she said there's seems to be a correlation between having summer job and being a stellar saver.

So, you might be in the middle, but there are ways out of this, er, sandwich.

Robert Powell is the editor of Retirement Weekly.

Royal bank announces yet another mortgage rate increase

I hate people who say " I told you so", but the fact is, I have been warning everyone for months that the incredible mortgage rates we have been enjoying would not last much longer. So far, we are only seeing changes to fixed rate mortgages. Variable rate mortgages are still attractively priced, since the prime rate is only 2.25% today. Here is the latest announcement.

Royal Bank of Canada, the country’s largest bank, is leading the way on another round of mortgage-rate hikes, boosting borrowing costs Monday for the third time in recent weeks.

The rate on a five-year closed mortgage is now 6.25 per cent, an increase from the previous rate of 6.10 per cent. A one-year closed rate will, as of tomorrow, be priced at 3.80 per cent. All rates were increased by 15 basis points.

It’s the third move in a month as Canadian banks prepare for an era of rising interest rates. The Bank of Canada last week signalled that its key lending rate will rise, as early as June, as the economy recovers.

Banks can adjust the rate they charge, so customers could still pay a lower rate than what’s posted. Other banks tend to follow with rate hikes once one does, and the actual rate a customer pays depends on a variety of factors, including their financial situation, whether they use a mortgage broker, and how good they are at negotiating.

The hike comes the same day as Canada Mortgage and Housing Corp. released a study showing that 81 per cent of recent home buyers feel comfortable with their current level of debt.

Two thirds of the 2,500 people surveyed said there is a chance they will pay off their mortgage sooner than required, while 27 per cent said they have increased regular payments to eliminate their mortgage sooner.

For advice on mortgage and other financial matters, email Ross at rosst@rosstaylor.org, or give him a call at 416 989 1000.

For our thoughts on debt and credit problems, visit our website at www.doctorcredit.ca

Higher dollar - higher interest rates coming soon

We've already seen fixed term mortgage rates rise twice in the past few weeks. Yesterday, the Bank of Canada went on record as again warning us to expect higher rates. The need for low rates has dissipated.

Bank of Canada warns higher rates ahead

The Canadian dollar rose sharply Tuesday as the Bank of Canada warned that it will be raising interest rates.

At midday, the dollar was up 1.63 cents to 100.17 cents US.

The Bank of Canada kept its key lending rate unchanged Tuesday, but warned that its low-rate policy has a limited future.

The bank held the overnight rate at 0.25 per cent, as economists had expected.

But with the economy recovering and inflation running above the bank's two per cent target, the need for rock-bottom lending rates "is now passing," it said in a statement.

The extent and timing of any change in the key rate "will depend on the outlook for economic activity and inflation," the bank said. The bank also noted growth is "proceeding somewhat more rapidly" than it expected earlier this year, increasing the chance of a rate rise in the early summer.

"Simply put, this statement marks a dramatic change in tone by the bank, and doesn't rule out possible 50 basis point moves," said Douglas Porter, deputy chief economist with BMO Capital Markets, in a commentary.

Porter predicted a June rate hike is now "likely," adding that the central bank is clearly much more concerned about inflation than previously indicated.

The bank sets a target level for the overnight rate, which is often called the key interest rate or key policy rate because it indicates the bank's thinking about the economy.

The overnight rate is the interest rate major financial institutions charge each other for one-day loans.

The rate has been at a very low 0.25 per cent since April 2009, when it was cut from 0.50 per cent as the recession worsened. It was at a recent peak of 4.5 per cent in October 2007.

The bank's "extraordinary policy" of ultra-low rates was introduced to boost the recovery, the statement said.

The bank is forecasting growth of 3.7 per cent this year, reflecting stronger global activity, strong housing activity in Canada and the bank’s conclusion that policy stimulus advanced some spending into late 2009 and early 2010.

It's forecasting that Canadian economic growth will slow to 3.1 per cent in 2011 and 1.9 per cent in 2012.

Competing pressures

Bank governor Mark Carney is juggling competing pressures: the need to control inflation with a higher rate; the need to keep the cost of loans low to encourage business and consumer borrowing; and the strong dollar.

A bank rate increase could push the dollar even higher, hurting exports and jobs. While recognizing that growth is strong, the bank warned Tuesday about economic negatives: "the persistent strength of the Canadian dollar, Canada’s poor relative productivity performance and the low absolute level of U.S. demand."

Although Carney expressed concern about inflation in March, the bank said it is expecting the rate to ease slightly in the second quarter, and remain slightly above the target two per cent rate this year before easing in the second half of 2011.

With files from The Canadian Press

Huge disparity in consumer proposals

This week I met two new clients both in the early stages of consumer proposals. The service they received from their trustee was remarkably different.

The first couple were struggling to make ends meet, with a mortgage, and two kids, not withstanding net take home pay of around $6,000 per month. They had owed almost $70,000 in total debts when they went to the trustee - who settled them into a five year proposal paying $1100 (!) per month. Effectively, their interest was reduced to zero, which certainly helps, but the monthly payment obligation of $1100 after tax dollars is causing a real strain and they already missed one payment. If they miss three payments, their proposal is automatically cancelled. Not good.

Today I met the husband of a younger couple with no kids. They bring in around $5,900 per month net income. This guy was carefree and stress free. He had already made a few payments and he had a monthly surplus, after all his expenses, of close to $2,000 - he is saving up for a new house!

He had owed just over $100,000 in unsecured debts, and HIS trustee had negotiated that down to only $425 per month for sixty months. This means he will pay back only 25% of his original debt load, whereas the first couple will pay back almost 95% of their original debt.

This discrepancy seems totally unjust to me. It should not be that two similar cases can get such disparate results.

One independent trustee we spoke to about the first case said they are seeing more and more cases like this - where the main benefit of the proposal is being reduced to elimination of interest, as opposed to an additional slashing of the original debt load. He blames this on the new rules to the Bankruptcy and Insolvency Act which came into effect last September.

OK, except both these proposals began after September, and around the same time at the beginning of 2010.

The lesson here is to be very careful about what you agree to if you are contemplating a consumer proposal. I can tell you that had the first clients come to us first, we would have represented their interests to a suitable trustee and NEVER agreed to the kind of payment structure they were put into.

And I don't think anyone benefits, since if they miss three payments, it's all for naught and the proposal will be voided.

If you want to speak with someone first, before you trundle off to see a trustee - call us first at 416 989 1000, and check out our website at www.doctorcredit.ca