Raising grandkids wasn’t in their retirement plan. Now what?

Many grandparents, including Clare and Tom, have stepped in as primary caregivers for their grandchildren due to their adult children’s struggles with addiction. In a report by Financial Post, Clare and Tom have been legal guardians to their two grandchildren, now aged nine and 16, for the past three years. Before taking on this responsibility, they were preparing for a comfortable retirement. Tom, now 63, retired a decade ago and manages the couple’s income property, while Clare, 59, planned to retire from her federal government job in October 2023 after 30 years of service but has postponed her retirement. Raising their grandchildren has brought joy but also financial concerns. Clare is worried about covering unexpected expenses, such as braces and the need for a second car, despite having fully funded their grandchildren’s registered education savings plans (RESPs) since birth. The family lives in northern Ontario, owning a home worth $300,000 and an investment property valued at $400,000, with a remaining mortgage of $80,000 to be paid off in seven years. Clare’s annual income is $103,196 before tax, and her expected pension income will be $43,753 after tax, bridged to age 65. Tom receives $5,803 annually from the Canada Pension Plan (CPP), and the couple also receives $11,087 in child tax credits and social services payments. Their rental income amounts to $7,225 annually, with an additional $700 from dividends. Their monthly expenses total $6,000, plus $1,264 in mortgage payments. Clare and Tom’s investment portfolio includes $17,000 in cash savings, $321,000 in a registered retirement savings plan (RRSP), $37,699 in a locked-in retirement account (LIRA), $12,672 in Manulife Financial Corp. shares, and two RESP accounts worth $81,217 and $38,877, respectively. Clare is uncertain whether to continue contributing to their older grandchild’s RESP, which has already reached $81,000 and received the maximum grant allowance. Their grandson is interested in becoming an electrician and may benefit from provincial grants and funding for skilled trades, in addition to special government education funding available to Indigenous students. Before their grandchildren came to live with them, Clare and Tom spent two months each year in Arizona, with plans to extend their stay to three months after Clare’s retirement. Now, with the grandchildren in their care, they have had to reconsider these plans. Clare wonders if she should continue working, not out of necessity, but to ensure they can enjoy activities with their grandchildren while they are still healthy and mobile. Eliott Einarson, a retirement planner, suggests that Clare should consider retiring soon, as their financial situation can support it. Their combined pensions, investments, and government benefits should provide sufficient income for retirement. Einarson recommends that they work with a certified financial planner to create a comprehensive retirement plan, allowing them to visualize their financial future and gain the confidence Clare needs to retire. Clare and Tom aim to generate $7,000 per month in retirement income. With Clare’s pension and bridge benefits, which will provide $4,885 per month before tax until she turns 65, and Tom’s CPP, they can reach their goal by drawing from their RRSP and LIRA accounts. This strategy will sustain their income until they are in their 90s, with future adjustments as they begin receiving Old Age Security (OAS) payments. Einarson notes that child tax credits and social services payments should be included in their financial plan to ensure a detailed approach to structuring their retirement income. Einarson also advises shifting their focus to tax-free savings accounts (TFSAs) once they have maximized the RESP grants for their youngest grandchild. Contributing to TFSAs offers tax-sheltered growth with greater flexibility compared to RESPs. He further recommends using the RESP funds during their grandchildren’s schooling to avoid potential tax implications or grant clawbacks. Regarding their rental property, Einarson suggests that selling it and investing the proceeds could be more beneficial. This approach could improve their tax efficiency, simplify estate planning, and potentially leave a larger financial legacy for their grandchildren. Einarson emphasizes that careful financial planning can help Clare and Tom secure a stable and fulfilling retirement, even as they navigate the challenges of raising their grandchildren.