As the nation’s primary unpaid caregivers, women face a few extra financial burdens as they plan for and live out their retirements. According to the Family Caregiver Alliance, the average female caregiver loses $324,000 in wages, pension payouts and Social Security benefits over her lifetime.
It doesn’t help that today’s pre-retirees are part of the “sandwich generation,” caring for aging parents and children alike. A near majority of adults aged 40 to 59 have an elderly parent and a dependent child, and 15 percent are providing financial support to both.
Unpaid care is only going to become more common as clients’ parents age and lose their independence without adequate long-term care coverage. Because women bear the brunt of the responsibility for caring for aging loved ones, advisors need to be ready to help them and their families cover the costs and preserve their own retirement plans.
Who among your clients may become caregivers? The FCA National Center on Caregiving says most older people with long-term care needs – around 65 percent of the elderly population – rely solely upon family and friends.
About two-thirds of their caregivers are female, and the average caregiver is a 49-year-old woman, married and employed, taking care of a mother who lives in a separate home. Roughly one-third of them have to decrease working hours, over one-fifth take leaves of absence and more than 15 percent have to leave their jobs altogether. On average, they spend 24.4 hours per week providing care.
“There are three big costs for caregivers – financial, physical and mental,” says Mike Lynch, vice president of strategic markets for Hartford Funds.
Financially, they face significant out-of-pocket expenses for transportation and materials – over $5,000 for co-residents and over $8,000 for caregivers in different homes. There are also the long-term impacts of reduced 401(k) contributions, Social Security benefits and pension payouts, “the biggest measurable cost,” says Lynch.
Physically and mentally, caring for an aging parent is a tough job. Female caregivers are almost six times as likely to suffer depression and anxiety, and 25 percent experience health problems, including coronary heart disease, hypertension, poor immune function and increased mortality.
Saving, investing and budgeting
Fortunately, there are more than a few ways for women to reduce their financial burdens while providing care.
“The most important thing for a woman in this position is to plan ahead,” says Kimberly Foss, founder of Empyrion Wealth Management. “I would ask her to sit down with her financial planner and take a careful look at spending and savings. Often, budget adjustments can free up money for savings, including tax-qualified accounts, without seriously limiting one’s lifestyle.”
To that end, Foss recommends future caregivers and their spouses max out their 401(k)s, IRAs and 403(b)s while also taking advantage of catch-up contributions, if age allows. As of 2017, investors 50 and older can contribute an extra $6,000 to a 401(k) and $1,000 to an IRA. Similarly, a spousal IRA allows a caregiver’s husband to make contributions on her behalf if she’s already left work, effectively doubling the family’s IRA savings.
After-tax contributions are also crucial for weathering the out-of-pocket costs of care.
“We’re big proponents of tax diversification,” says Lynch. “Fund or convert to a Roth in addition to a 401(k); that after-tax money will be more important than you’d assume.”
If a client’s parent experiences a medical emergency or sudden need for care, a large Roth or brokerage account distribution won’t bump them into a new tax bracket like a 401(k) withdrawal would.
Finally, “It’s worth finding out if the care recipient has any long-term care insurance policies in place,” says Foss. Some LTCI policies will pay for informal care, as well as in-home care, transportation and medical equipment – all of which will leave the client with more money and time. The same is true for certain life insurance policies, particularly those with long-term care riders.
Clients often see their parents’ health decline for years, giving them time to prepare for the financial (and emotional) realities of caregiving. When the need arises without warning, however, planning, budgeting and saving to the extent possible become even more important.
“This is a big challenge, and it’s where you’ve got to start asking your clients a lot of questions,” says Lynch. “It has to be a two-way street.” With less time to save, clients may need to streamline their budgets and lower their living standards, but with smart asset allocations and savings strategies, they can still avoid dipping into their nest eggs.
“I would also suggest talking to other caregivers and caregiver support groups, who can be huge assets,” says Foss. The National Alliance for Caregiving and the AARP provide myriad resources for women and families in caregiver roles, including information on insurance, legal affairs and affordable in-home help.
A variety of legal concerns may also arise during the caregiving process, particularly when the caregiver needs to use the recipient’s assets. “Have honest conversations when the parents are healthy, and consolidate, clean up accounts and make everything as easy as possible,” says Lynch. A dependent parent’s savings could save a child from financial ruin, but if nobody of sound mind knows the account locations, passwords or even that the money exists, it’ll all be for naught.
“Another thing a potential caregiver should look for are any powers of attorney that might be in place,” says Foss. It might become necessary to sell the parent’s home or take out a reverse mortgage to pay for professional long-term care, for instance, but the proper documents must grant the caregiver that authority.
“It may also be important to establish a caregiving contract that clearly sets out the responsibilities of day-to-day care, financial contributions, payment of expenses and so forth,” Foss adds. These agreements can prevent conflicts between parents, siblings and other interested parties and remove suspicion that the primary caregiver is taking unfair advantage of family finances.
Prioritization and Proactivity
While women tend to prioritize the well-being of their parents and children, it’s imperative that they consistently save for their own retirements. To that end, Foss urges her caregiving clients to first keep their own financial houses in order, and to consider whether aging parents really need physical, emotional or financial support. If financial support is necessary, determining the amounts needed is crucial for long-term planning and the well-being of caregiver and parent alike.
On the advisor’s end, keeping an eye out for clients is key. “One of the biggest things we stress is to ask the question, ‘Who in your book of business is potentially going to be a caregiver down the road,’” says Lynch. “Make sure they have the right team members on their side ahead of time.”