Financial Planning for Caregivers

The US population is aging. In over 20 million households across the country, an adult is providing full or part-time care to an older family member, spouse or friend. With the advantages of living longer, comes increased demands on families to help a growing number of older individuals who cannot manage daily life on their own. And women are particularly affected as many are expected or choose to become the primary caregiver of a family.

If you have an older family member or disabled partner, sooner or later you or another family member may be called on to provide assistance as a caregiver. For many, it requires the development of an entirely new skills set, endless amounts of patience and a modified financial plan.

Few of us are prepared for the financial responsibility of caring for an aging parent, spouse or loved one. Family caregivers often assume multiple responsibilities, including control of an elderly loved one’s finances, paying for health care, and managing day to day necessities. Given the cascade of mounting medical expenses, confusing tax codes, home improvements, and daily care costs associated with elder care, it’s no wonder so many caregivers have trouble paying bills or saving for their own retirement.

When it comes to managing money, every caregiver needs a helping hand to get organized and stay in control. Planning together with your family members will help to avoid costly personal finance mistakes.

As a caregiver to the elderly, your schedule may be erratic: situations can arise at any hour of the day. Since most people cannot do it alone, caregivers often will decide to work part-time, stop working, decline a promotion requiring longer hours or pass up a training opportunity requiring travel.

Other subtle consequences include forfeiting employer benefits, losing compound returns on 401(k) matching contributions, reduced savings and sluggish investments. One study found that an average caregiver lost $659,130 over a lifetime in reduced salary and benefits.

Whether you will be caring for an older parent or other relative, or whether you or your spouse will have special care needs – caregiving is a life event you will be facing. As you sit down with your financial advisor, make caregiving part of your long-term financial plans. It could mean the difference between sinking and swimming – financially speaking. And if you are already a family caregiver, take these steps to protect your finances for a more secure financial future.

Care for an Aging Parent, Loved One or Spouse Without Losing Your Nest Egg

Create a Household Budget

If you are the family caregiver, living within a household budget is a must. A budget will enable you to live in a way that protects you from financial crisis. It will also let you make realistic plans for how you will deal with reduced pay and benefits.

You may find yourself paying expenses without adding it up all or considering the long-term consequences. Check in with your monthly household budget to ensure someone else’s care costs are not eating away at your disposable income. Small expenses add up quickly and could be preventing you from saving enough for your own retirement.

If there is a shortfall, think of ways to reduce spending. There are ways to get assistance with medical costs, stretch income with an annuity or tap into home equity for additional income.

Plan Carefully Before Leaving a Job or Working Part-Time

It is important to understand and plan for financial and retirement implications. If you are in a crisis situation, think carefully about leaving a job or reducing your hours. Take time to check into what will happen to your benefits as a result. Key decisions you make now can have a tremendous impact on your financial future. Be sure to exhaust your other options before leaving a job or reducing your hours.

Leaving your job could mean losing compensation, benefits, skills and networking contacts. If you are leaving behind a pension plan, you will lose years of service toward vesting or increased benefits that build up while you work. The longer you stay with a job, the more valuable those pensions and benefits become. If you have a defined contribution retirement plan, you must stay a certain number

of years to receive the benefits provided by your employer (usually 3 – 6 years). If at all possible, try to stay at your job until you are vested in the company’s pension plan.

If you leave your job, resist the urge to spend your 401(k) money! Now is the time to protect and build your savings, not deplete your accounts. Budget for regular contribution to an individual IRA to make up for lost pension contributions at work. And try to keep your skills updated and maintain professional contacts so returning to the workplace will be easier.

Prior to leaving a job or reducing your hours, try to pay off all credit card or loan debts. This will put you in a better position to save money after the job change.

Save Enough for Your Own Secure Retirement

If you are caregiving and working, be sure to participate in any workplace retirement plan. If you think you may leave your job, or reduce your hours in the future, maximize your retirement savings in preparation for this time. Look at purchasing long-term care insurance for yourself.

Take the time to sit down and see where you stand right now on retirement savings. Make a list of all of your sources of retirement income, and estimate of what the monthly benefit will be. Include Social Security, pensions, IRA and 401(k) retirement savings. Review your Social Security benefits and pension plans. Calculate the value of your savings, investments and any property you may own.

Now that you have an estimate of what you have, calculate the amount of income you will need in retirement. Many experts recommend on planning on 80% of your pre-retirement income to maintain your current standard of living. Don’t forget to account for inflation and medical cost factors.

Finally, calculate the gap between your current retirement income and your retirement goals. The gap is the amount you will need to save between now and your retirement date. If working is impossible as a caregiver, explore options for cash-value life insurance and annuities to supplement your other savings vehicles.

Start Planning For Your Own Long Term Care Now

Caregivers are on the front lines of seeing first-hand how much long-term care facilities cost. However, too many don’t think about their own long-term care needs. Long-term care is an insurance policy that covers costs that arise when a person needs on-going care including home care, hospice care, nursing home care or care in an assisted-living facility.

The best time to buy long-term care insurance is usually in your 50s or earlier, when premium prices are affordable and you still qualify for full policy benefits. Before you buy, know the terms, and fully understand the policy you choose.

Some questions to ask about any long-term care policy you are considering: What are the maximum daily benefits? How long will coverage last? Is coverage transferable between spouses? If you don’t use it, does it turn into life insurance? And does the policy take inflation into account?

Find a Trusted Expert Who Understands the Caregiver Experience

Caregiving can be difficult but it does not have to come at the cost of our own security. Be sure you can survive the cost of caregiving.

Many of us turn to experts in helping us map out our financial future, navigate the “what ifs” of aging, care for older parents and protect that nest egg. Speak with a trusted financial advisor to review your budget, current financial needs and make contingency plans to handle the unexpected when a parent or spouse becomes disabled, ill or needs assistance with completing daily tasks.

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