Serving as a caregiver for a family member is rarely a responsibility that people are financially prepared to take on.
Adult children of elderly parents are often forced to take their parents to medical appointments, provide financial support for unexpected illnesses, or manage finances amid declining capabilities. Likewise, parents are often surprised by their child's illness or disability and are forced to adapt to the new reality.
Most unpaid care for older Americans is provided by family members, creating serious financial burdens. Those who provide care for a sick or disabled child also face enormous financial challenges. Research suggests that parents with sick 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, non-disabled children.
Caregivers face the risk of shortfalls in retirement, which may place similar financial burdens on family members in the future. Finding a balance between caregiving and saving for retirement is not easy, but caregivers can take steps to help secure their financial future while continuing to provide support for their loved ones.
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Lead with your own needs
Caregivers may tend to deprioritize their retirement savings when focusing on the needs of their immediate family. This can lead to significant inefficiencies, perpetuating the cycle of intergenerational dependency. According to the Organization for Economic Co-operation and Development, the average American worker should put 9% of his salary into a 401(k) to maintain two-thirds of his current income during retirement. It is difficult to reach a 9% contribution rate for those who do not have caregiving responsibilities. It may seem hopeless for those who have extra care 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 parents or children with disabilities. While a savings rate closer to 10% may be aspirational in the near term, maintaining a habit of retirement contributions, even if it's just a small percentage of your current income, can help psychologically and ensure you have some of the resources needed to fund your care needs in the future. the retirement.
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Set clear financial limits
Financial discussions about caregiving responsibilities can be difficult for several reasons. For example, aging parents may not want to disclose their personal financial information. They may also have difficulty communicating clearly and assertively about their needs. Their battle with health and aging may bring up grief over the loss of independence, which can be a painful process for them and the entire family. Disability and diminished capabilities can further complicate financial conversations. It is still essential that caregivers set healthy boundaries and be prepared to communicate their needs and limits to family, health care providers, and community resources.
Caregivers must determine the level of support they can provide and do their best to stay within these limits. Setting these boundaries means assessing your own needs and being prepared to deal with some discomfort. If you have difficulty maintaining boundaries, a therapist or counselor can help you overcome feelings of guilt that arise as a caregiver. Community mental health centers can often offer some counseling sessions for free or on a sliding scale based on income.
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Nail basics
Caregivers quickly realize that they have less room to maneuver in their budget, which means less room to make financial mistakes. To stay on track with savings and care expenses, make sure your personal finances and those in your care are clearly defined. Make written plans, including long-term care insurance records, mortgage and credit card accounts, emergency health plans, and contact information for family and health care providers.
Having an emergency fund is even more important when there is a real possibility of unexpected health expenses. And if you haven't already, create a will – this step should be non-negotiable 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 become disabled before age 26 should consider setting up an ABLE account. ABLE accounts provide a tax-advantaged way to save for disability-related expenses, including higher education costs. Since anyone can contribute to a child with a disability's ABLE account, parents can create an account and pass on saving habits to their children. Most importantly, the accounts do not jeopardize eligibility for important government benefits.
Take advantage of assistance programs
There are countless government and non-profit assistance programs that may assist with transportation, medical services, food, and housing. Check to see if you qualify for Medicaid waiver programs that can compensate you for time spent providing care to parents or children with disabilities.
Government programs vary greatly from state to state. It can be complex, with understaffed offices and long waiting lists. It may be helpful to contact support groups and talk with caregivers in similar situations to get insights about qualifying for assistance. Although payment for caregiving services is not available for every situation, it can help some families regain some of their lost income and help bolster retirement savings.
If you are facing the challenges of providing care for a loved one and need help creating a financial plan, reach out to a financial advisor. Being a caregiver can be an isolating experience, and creating a strong support system of experts can make a huge difference in your quality of life in the long run.
Varun Dooj, CFP, is a wealth advisor and founder and CEO of Harrison Wallace Financial Group.
