Caring for an aging parent is a compassionate—but often stressful—undertaking. It’s easy to see how caregiving can take a huge emotional toll on everyone in a family. To add, if caregivers take time off work, not only do they lose pay, but lost wages can affect their Social Security, pension payouts, and other savings—threatening their future finances.
While helping an aging loved one can easily become all-consuming, there are steps you can take to help protect your finances and your retirement.
The impact of caregiving on women
Historically, women have assumed the responsibility of caring for others and this often means balancing multiple roles, including within their career and family obligations.
"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).
"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 Ann Dowd, Vice President, Chief Editor at Fidelity.
Women enter and exit the workforce more often than men, usually to care for their children or their parents. Still, some women 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. Depending on the situation, this could mean lower wages; lost income; missed opportunity to contribute to and receive matching employer contributions for a 401(k) plan (or other workplace retirement savings plan). It could also mean missing out on potential promotions. Periodic absences from work could also cut into Social Security benefits.
Balance your job with caregiving responsibilities
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, sponsored by the US 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 make 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), the HDHP 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,1 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 leave your current job 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 small business retirement plan, such as a Simplified Employee Pension Plan (SEP) IRA. If you are married and have the support of your spouse, consider taking advantage of a spousal IRA contribution (available to non-working spouses) to help keep your retirement savings growing. If you can, fund these accounts to the limit.
Balance expenses
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 3 hours a day.2 This is a significant amount of time and finding ways to prioritize your personal and financial goals is essential.
If you're providing more hands-on assistance, it's natural to reach for your own wallet to cover some costs—and that can add up. Must-have expenses (like medical bills and medications) and miscellaneous expenses (like home modifications (ramps, grab bars) and transportation) can cost thousands of dollars a year and can easily (if not managed) deplete pre-tax income set aside for retirement and personal savings. If you're a sibling, it's okay to ask for financial help from your brothers and sisters. You could also work with a financial professional 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. Taking action may help manage or even reduce long-term financial consequences that could result from caregiving.
Additionally, if you're interested in assisting your parents with handling their financial affairs, consider a managed account. For an annual fee, a professional planner manages the assets, freeing the family from spending time on administrative chores—or having to justify their decisions to other family members. Having a managed account may offer peace of mind and may even help to eliminate any concerns between siblings when it comes to who should make investment decisions.
Tip: Don't forget to tap into resources from advocacy groups (e.g., the National Council on Aging) that help people aged 60+ meet the challenges of aging by partnering with nonprofit organizations, government, and businesses.