Wednesday, October 20, 2021
Oct. 20, 2021

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Personal Finance: Navigate high cost of being a caregiver


If you have yet to step into the role of caregiver, there’s a good chance it may be in your future. A 2017 joint survey by Merrill Lynch and Age Wave estimated that 40 million Americans have already served as a caregiver. With the advancing age of baby boomers, 20 million more are expected to join the caregiving ranks each year.

While caregivers are overwhelmingly grateful to step in and help a loved one, their generosity comes at a high cost. Many caregivers provide financial assistance, and the average annual cost is about $7,000. Seven in 10 caregivers surveyed by Merrill Lynch and Age Wave said the financial cost of caregiving causes them stress.

If a 55-year-old adult child spends $7,000 a year for five years that’s $35,000 unavailable to pay down debt or save for retirement.

That $7,000 just happens to be the maximum contribution anyone at least 50 years old can make to an IRA this year. If $7,000 was invested in a Roth IRA for five consecutive years and then left to grow for another 10 years (to age 70 for our 55-year-old), that works out to about $65,000 in tax-free savings, assuming a 5 percent annualized rate of return. So, caregiving work can impact retirement planning.

Then there are less apparent costs. The physical demands of caregiving can make it hard to keep the same hours at work, or give the same effort. That can mean reduced income. An empathetic boss today may not be supportive when the next recession hits, moving you higher up the layoff list.

None of that is a reason to question the role of caregiver. Your desire (and need) to care for a loved one supersedes all, including financial cost. Needed by a loved one, you step in and do what needs to be done. Yet you can — and should — be as strategic as possible in lessening financial strain. In the Merrill Lynch/Age Wave survey, seven in 10 respondents said they gave little or no thought to their financial situation as a caregiver.

That’s potentially setting up your own kids’ need to step in and help you. Taking time to consider ways to limit financial strain today can help you protect your children’s future.

• Lower living costs free up more money for care. Most older Americans want to age in place.

If you wait until loved ones need care, a move becomes harder. Helping a 70-year-old parent see the financial wisdom of a move today is likely more practical than the emotional and physical toll of a move at 85.

• Resist quitting work as long as possible. It’s not just the salary you are giving up. Your health insurance could also become a huge cost if you quit.

• Set generational priorities. An all-too-common pressure point for many 50- and 60-year-olds is providing support to adult children.

Get paid. That you are doing this out of love is not in question. But that doesn’t mean you shouldn’t be compensated. If you have stopped work, a basic goal should be to get paid enough to cover your own personal health insurance and not have to touch your retirement savings until you are at least 65. If the person you are taking care of has the resources, you should discuss being paid. You may want to consult with an elder care attorney for advice on drawing up a personal care agreement (a contract). The National Academy of Elder Law Attorneys has a free online search tool.

Also explore state-run plans that provide income to a caregiver. The most common programs are limited to individuals who are on Medicaid, but many states have programs that are not tied to Medicaid. The Paying for Senior Care website has state-by-state information on financial assistance for caregivers.