The Financial Implications Of Caregiving
We’ve written from time to time about aging and its impact on retirement and investment planning, the importance of having proper estate documents in place as well as long term care considerations and the dilemma of elder fraud.
In terms of caregiving, it’s instinctive for most of us to want to provide care for our spouse and parents as we get older. Part of this is an innate, compassionate response (we tend to turn our attention away from our own needs to others as we get into middle age) and sometimes there is an underlying selfishness to it in that we want to do it ourselves in order to spend as little of our potential inheritance in the process.
Regardless of the motivation, caregiving can place a toll on a family, especially women. Statistics show that 25% of baby boomers today are caring for an aging parent, the majority are women and most frequently the primary caregiver in the U.S. today it is the first-born daughter.
The drop in U.S. female labor force participation over the past two decades compared to other advanced economies is primarily attributable to the lack of paid family leave policies in the U.S., according to Cornell University economists.
As a result, women enter and exit the workforce more than men not only to take care of children, but also their parents and other family members. This impacts public health, productivity (including a loss of talent) and overall U.S. economic activity (GDP). At a personal level, the negative effects of caregiving include emotional stress, physical ailments and a drain on the caregiver’s personal finances.
Adjusting your career for this purpose (dropping responsibilities, hours or even cutting back to part-time status) can mean lower wages, lost income and missing out on career opportunities or promotions.
If you take two years off from your $100,000 per year job to care for Mom, then the result is that you’re losing more than $200,000. You’re losing the ability to save in your company retirement plan (401(k)) along with any employer matching contributions and you are potentially cutting into your future Social Security retirement benefits (as you’ll have few earning years on your record).
Leaving a job has further implications as well, so before going this route, it’s important to see if you can work an arrangement out with human resources first. You may be able to cut back to a point where you can still keep your health insurance, health savings account (HSA) or retirement plan benefits (including catch-up contributions if you are over 50 years old) in place. And if you have other pension or profit-sharing benefits that at are still “vesting”, then it may make even more sense to try to work something out until you cross the necessary thresholds.
You should be aware that the Family and Medical Insurance Leave Act (FMLA) is the only federal leave policy in the U.S., but it is narrowly defined and leave is unpaid and therefore usage is low. Pay closer attention to the state you live in as a handful of states now guarantee paid family and medical leave (CA, NJ, RI, NY) and more are coming as the issue is not going away.
If you have to quit work
If you have no choice but to give up your job to become a full-time caregiver, then remind your family of the financial impact. All children generally feel obligated to help, however, daughters tend to take care of the physical caregiving more often. Being more hands on means that, in addition to lost wages and career choices and retirement savings, female caregivers are more likely to notice missing items (like the supply of nutritional supplement or a need piece of equipment – walker, etc.) and will pay for these items out of pocket, which exacerbates the financial impact of caregiving.
If you find yourself in this situation, keep all of the above in mind and consider asking to be paid by your family as an independent contractor. This way you can at least set up a self-employed IRA (SEP-IRA) to continue saving for retirement (if you are married, have your spouse make a spousal contribution to your IRA, preferably to the annual limit, if you can swing it). Sons typically to want to help out, but are less likely to be hands-on. By asking to be reimbursed, you may actually be helping siblings to feel less guilty by providing them with an opportunity to help out financially. They’ll also feel more involved by knowing what’s going on with Mom and/or Dad. Even if it’s a casual arrangement, however, remember to good keep records of your time and actual dollars spent.
Take care of yourself first
While it’s natural for most of us to want to do all we can for our aging loved ones, the most important message is that taking care of ourselves first will enable us to do a better job of taking care of others. And while it may go against your natural instinct, getting help sooner rather than later is actually more important than it may appear, particularly in the midst of a caregiving crisis.
The U.S. Administration on Aging sponsors an elder locator (www.eldercare.gov) to find local services that might help you balance your job with your caregiving responsibilities. Home health care aides and adult day care centers can provide a needed break from the stress and routine of caregiving.
Another way is to partner with a firm like ACM, to have your investments managed for you and to have a resource to turn to for immediate and long term planning needs. This approach can be applied to the assets of elderly parents as well, which cannot only save time, but can eliminate concerns among sibling about who is making the investment decisions.
With a bit of extra time gained, you can focus on protecting your own health. Adult caregivers spend almost 19 hours per week helping out (about three hours per day) so finding ways to save time is essential to reaching your personal and financial goals.
Women are more likely than men to feel the emotional stress of giving care, which can affect their mental and physical health. While your role as a caregiving may turn out to be a “temporary assignment”, it can cause long term physical and/or financial damage if you don’t recognize this risk. Getting help when you can will help you to stay physically healthy and more productive, which is better for your financial health as well.
The foregoing content reflects the opinions of Advisors Capital Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.