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How to take care of aging parents and yourself

Some ways for women to protect their financial future while caring for aging loved ones.

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The number of people providing care or financial assistance to at least one parent has more than tripled over the past 15 years. Today, nearly a quarter of baby boomers (ages 50–68) are caring for an aging parent, and more than two-thirds of those caregivers are women.1

Caring for an aging parent has always been one of the rhythms of life. But Americans are living longer—a recent Met Life1 report shows men’s life expectancy now at 76 years and women’s at nearly 81. Add to our increased life spans a rise in chronic disability and you can see why the need for long-term care is also on the rise. For example, according to the Alzheimer’s Association, more than 5 million Americans today are living with Alzheimer’s disease or another form of dementia. By 2025, the number could rise by 40%, to over 7 million.

Caregiving can take a huge emotional toll on everyone in a family, but for women the financial impact also hits especially hard, according to Cindy Hounsell, president of the Women’s Institute for a Secure Retirement (WISER). 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, she says. 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.

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

Women enter and exit the workforce more often than men, usually to care for their children or their parents. A study by the Center for Talent Innovation found that 30% of white-collar working women “off-ramp,” or take a voluntary, non-job-guaranteed leave of six months or more to care for aging elders—a 25% increase in the percentage of women taking a leave compared to five years ago.2 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 $350,000.3

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 matched 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, participate fully in your employer’s 401(k) plan and matching contributions. Remember, if you are over age 50, you can make additional contributions. For 2014, the contribution limit for a 401(k) or other workplace plan is $17,500 if you’re under age 50, and $23,000 if you’re age 50 or older.

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 future qualified medical expenses,4 such as 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. The IRS maximum annual contribution limit for HSAs in 2014 is $3,300 for those individuals selecting single coverage and $6,550 for those electing family coverage under an HDHP. Individuals who are age 55 or older in the calendar year may contribute an additional $1,000 (applies to both single and family coverage).

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 (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. For 2014, the contribution limit for an IRA (Roth or traditional) is $5,500 if you’re under age 50, and $6,500 if you’re age 50 or older.

Beware of taking on too much on your own

While sons and daughters care more or less equally for their parents, the Met Life study 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, says the Met Life 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.

One way to handle your parent’s financial affairs more efficiently is to set up a managed account. For an annual fee, usually about 1%, a professional adviser manages your parent’s assets, freeing you 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 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.

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3. Laura recorded over 35 years of employment earnings subject to the Social Security payroll tax. But her top 35 earnings years, which are utilized to determine her Social Security retirement benefit, were impacted by the three years she provided full-time caregiving. It resulted in lost income of approximately $225,000: three years of her last salary of $70,000 and forfeited annual salary increases for inflation and merit of 3.5% annually. Laura is projected to return to the workforce at approximately the salary level she was at when she took leave for caregiving. The three year break in service also contributes to an additional earned income loss of $62,000 per each remaining year of employment because of the lowered earnings because of career interruption. In regard to Social Security, the three years where no income was realized, followed by seven years of reduced earnings, results in a lowered average indexed monthly earnings estimate (AIME) for Laura by the Social Security Administration. Laura paid less into Social Security over the top 35 years of earnings than she would have if no interruption was experienced. Consequently her benefit is lower over the projected 25 years she will receive monthly Social Security benefits. The resulting cumulative Social Security benefit loss projects out to be $63,000.
4. Tax advantages are with respect to federal taxation only. See a tax professional for more information on the state tax implications.
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