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Becoming a caregiver for a family member is rarely a responsibility that people are financially prepared to undertake.
Adult children of aging parents are often thrust into a position of taking parents to medical appointments, providing financial support for unexpected illnesses, or managing financial affairs amid declining abilities. Likewise, parents are often caught off guard by a child’s illness or disability and must scramble to adapt to a new reality.
Most of the care for aging Americans is provided without pay by family members, creating serious financial burdens. Those who provide care for an ill or disabled child also face enormous financial challenges. Research indicates that parents with ill or disabled children often need to leave their jobs, and even if they remain employed, they tend to earn less and accumulate less wealth over time than their peers with healthy, nondisabled children.
Caregivers face the risk of shortfalls in retirement, potentially placing similar financial burdens on family members in the future. Finding a balance between caregiving and saving for retirement isn’t easy, but caregivers can take steps to help secure their financial future while still providing support for their loved ones.
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Lead with your own needs
Caregivers may be tempted to deprioritize their retirement savings when focusing on their family’s immediate needs. This can lead to significant shortfalls, perpetuating a generational cycle of dependence. According to the Organization for Economic Cooperation and Development, the average U.S. worker must put 9% of their salary into their 401(k) to maintain two-thirds of their current income during retirement. A 9% contribution rate is difficult to reach for those without caregiving responsibilities. It can seem hopeless for those who have additional caregiving expenses. Caregivers should not give up.
Maintaining financial independence and saving for retirement are acts of self-care and self-preservation that allow caregivers to better focus on their aging parent or their child with a disability. While a savings rate that approached 10% may be aspirational in the near term, keeping the habit of retirement contributions, even if it is just a small percentage of your current income, can help psychologically and ensure you’ll have some resources required to fund your own care needs in retirement.
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Set clear financial boundaries
Financial discussions about caregiving responsibilities can be difficult for a variety of reasons. Aging parents, for instance, may not want to reveal personal financial information. They may also struggle to communicate in a clear, assertive way about their needs. Their battle with health and aging may trigger grief over a loss of independence, which can be a traumatic process for them and everyone in the family. Disabilities and diminished capacity can complicate financial conversations further. It is still imperative that caregivers set healthy boundaries and be prepared to communicate their own needs and limits to family, healthcare providers, and community resources.
Caregivers should determine the level of support they are able to provide and do their best to stay within those limits. Setting these boundaries means evaluating your own needs and being prepared to handle some discomfort. If you struggle to maintain boundaries, a therapist or counselor can help you cope with the feelings of guilt that arise as a caregiver. Community mental health centers can often provide some counseling sessions for free or on an income-based sliding scale.
Nail the basics
Caregivers realize quickly that they have less wiggle room in their budget, which means less room to make financial errors. To keep on track with savings and caregiving expenses, make sure that your personal finances and the finances of those within your care are clearly delineated. Establish written plans, including records of long-term-care insurance, mortgage and credit card accounts, health contingency plans, and contact information for family and healthcare providers.
Having an emergency fund is more important when there’s a real possibility of unexpected health expenses. And if you haven’t done so already, create a will — this step should be nonnegotiable for anyone with dependents or caregiving responsibilities.
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Maximize tax-advantaged savings
Taking advantage of any available tax breaks can help when savings rates are limited. Try to contribute to your 401(k) at least to the level matched by employers and consider contributing to HSA accounts to fund health expenses.
Parents and grandparents caring for children who have become disabled before age 26 should consider establishing an ABLE account. ABLE accounts provide a tax-advantaged way to save for disability-related expenses, including higher education costs. Because anyone can contribute to a disabled child’s ABLE account, parents can establish an account and transfer savings habits to their children. Importantly, the accounts do not jeopardize eligibility for crucial government benefits.
Leverage assistance programs
There are myriad government and nonprofit assistance programs that may help with transportation, medical services, and food and housing. Check to see if you are eligible for Medicaid waiver programs that can compensate you for your time providing care for disabled parents or children.
Government programs vary widely from state to state. They can be complex, with understaffed offices and lengthy wait lists. It may be helpful to contact support groups and speak with caregivers in similar situations for insights on qualifying for aid. While payment for caregiving services isn’t available for every situation, it can help some families recapture a portion of their lost income and help bolster retirement savings.
If you are facing the challenges of providing care to a loved one and need help creating a financial plan, reach out to a financial adviser. Being a caregiver can be an isolating experience, and establishing a robust support system of experts can make a tremendous difference in the long-term quality of your life.
Faron Daugs, CFP, is a wealth adviser and the founder and chief executive of Harrison Wallace Financial Group.
