Caring for an aging parent is a compassionate—but often stressful—undertaking. It can take a huge emotional toll on everyone in a family, but for women the financial impact can hit especially hard. "Women who become caregivers for an elderly parent or friend are more than twice as likely to end up living in poverty than if they aren't caregivers," says Cindy Hounsell, president of the Women's Institute for a Secure Retirement (WISER). If they take time off work, not only do they lose pay, but those lost wages can affect their Social Security, pension payouts, and other savings—threatening their future finances.
Nearly half of caregivers report high emotional stress.1 So what can women do to take care of themselves while they care for others? While helping an aging loved one can easily become all-consuming, there are steps you can take to protect your finances and your retirement. And because women tend to live longer, every penny counts.
Understand the long-term impact
"For many women, fewer contributions to pensions, Social Security and other retirement savings vehicles are the result of reduced hours on the job or fewer years in the workforce," explains Suzanne Schmitt, vice president of family engagement at Fidelity. "Women caregivers are likely to spend an average of 12 years out of the workforce raising children and caring for an older relative or friend."
Women enter and exit the workforce more often than men, usually to care for their children or their parents. Others make some sort of workplace accommodation, such as going in late or leaving early, shedding job responsibilities, dropping back to part-time status, or opting for reduced hours, when possible. This can mean lower wages, lost income, and missing out on potential promotions, which can add up. Consider this example: Laura, age 56, left a $70,000-a year job to care for her mother for three years. The cost to her: $287,000 in lost salary and $63,000 in lost Social Security benefits, for a total of $350,000.2
The long-term price can be even higher. You lose the opportunity to contribute to a 401(k) plan, (or other workplace retirement saving plan) as well as contributions from your employer. Those periodic absences also significantly slice into your Social Security benefits. That's because Social Security is calculated on 35 years of earnings. Skip any of those years and the Social Security Administration will average in zeros for any years less than 35.
If you are caring for an aging parent, what can you do to soften the effect of these financial changes?
Explore all your options to keep working
Because leaving a job means losing not only your paycheck but also your benefits, try to continue working at least until you're vested in your company's pension or profit-sharing plan. You may be able to scale back your hours, but put in enough time to continue to get benefits like health insurance or retirement plan contributions. Also, check with your employer's human resources manager to see whether the company offers services to employees who are also caregivers.
You can also consult Eldercare Locator (www.eldercare.gov), sponsored by the U.S. Administration on Aging, to find local services that might help you find a way to balance your job with your caregiving responsibilities.
If you are still able to work for a while longer, then be sure to participate fully in your employer's 401(k) plan and matching contributions. Remember, if you are over age 50, you can make additional contributions.
If your employer also offers a high-deductible health plan (HDHP) paired with a health savings account (HSA), it can play a valuable role in your financial future. Generally, an HDHP with an HSA enables you to set aside pretax dollars—many employers offer this as a payroll deduction—that can accumulate tax-free and can be withdrawn tax-free to pay for current or future qualified medical expenses,3 including those in retirement. Since health care is likely to be among your largest expenses in retirement, planning for medical expenses both now and in the future can be an important part of your overall savings plan.
If you must give up your current job in order to become a full-time caregiver, consider asking your family to pay you as an independent contractor for the care you are providing. If you are paid, you can set up a self-employed pension plan, such as a Simplified Employee Pension Plan (SEP), or an IRA. If you are married and have the support of your spouse, take advantage of a spousal IRA contribution (available to non-working spouses) to help keep your retirement savings growing. And, fund these accounts to the limit, if you can.
Beware of taking on too much on your own
While sons and daughters care more or less equally for their parents, a MetLife study4 found that daughters tend to take care of physical caregiving, while sons tend to help financially. Despite this, the disparity comes with long-term financial consequences for daughters.
For example, if you're a woman providing more hands-on assistance, you're likely to be the first to notice that the supply of nutritional supplement is running low or that it's time for your father to begin using a walker. And, if you're providing more hands-on assistance, it's natural to reach for your own wallet to cover the costs. Yet, such miscellaneous expenses can cost an average of $12,000 a year, according to MetLife research, and can seriously eat into the money available to set aside for your retirement.
"Do not be a martyr," warns WISER’s Hounsell. "Ask for financial help from brothers and sisters." Work with a financial adviser to create a budget that encompasses both present and future care needs, as well as a system to record all costs to prevent family disputes.
Find time for yourself
Research from the National Alliance for Caregiving shows that, on average, adult caregivers spend nearly 19 hours a week in their helping role—or nearly three hours a day. So finding ways to save time is essential for reaching your personal and financial goals.
Investors interested in something to assist parents in handling their financial affairs might consider a managed account. For an annual fee, a professional adviser manages the assets, freeing the family from spending time on administrative chores—or having to justify your decisions to other family members. That's what Polly Walker, from the Boston area, chose to do when she took charge of her mother's care and finances nearly 10 years ago. Although she is a Chartered Financial Consultant® and a financial writer, having a managed account gave her important peace of mind, she says, "Because it eliminated any concerns among my brothers and sisters about who was making the investment decisions."
Finally, with that bit of extra time you've gained, remember to protect your own health. That's especially important for women, who are more likely than men to feel the emotional stress of giving care, says the National Alliance for Caregiving study. Stress can affect your mental and physical health, as well as your ability to work productively—with unpleasant repercussions for your financial health too.
While it’s natural for women to want to do all they can for their aging loved ones, the most important lesson to take to heart is this: Taking care of yourself first will enable you to do a better job of taking care of others.
Tip: Know when to get involved. "On average, children step in when parents are 75 years old—often after a loved one has made a direct request for financial assistance, when the parents' health becomes a significant factor, or when you notice a change in your parents' ability to handle daily living tasks," explains Schmitt.
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