Caregiving takes an emotional toll on everyone in a family. But for adult daughters, who tend to shoulder a disproportionate amount of the burden, the financial costs of caring for an aging parent can be devastating. And they’re likely to grow.
Americans are living longer, but their increased longevity unfortunately comes with an increasing need for care. Chronic disability is also on the rise. According to the Alzheimer’s Association, today more than 5 million Americans (1 in 9 of them, age 65 and over; 1 in 3, 85 and older) are living with Alzheimer’s disease or another form of dementia. By 2025, the number is estimated to reach 7.1 million – a 40 percent increase.
Women are Hit Especially Hard
The number of adult children providing personal care and/or financial assistance to a parent has tripled over the last 15 years. Currently, a quarter of adult children, mainly Baby Boomers, are caring for an aging parent at a time when they also need to be planning and saving for their own retirement. More telling, more than two-thirds of those caregivers are women.
The financial impact hits adult daughters especially hard. Not only do they lose pay when their caregiving responsibilities force them to take time off from work, but those lost wages affect their Social Security and pension payouts, threatening their own financial futures. And since women tend to live longer (men’s life expectancy is now 76; women’s, nearly 81), every penny counts. Women who become caregivers for an elderly person are two-and-a-half times more likely to end up living in poverty than those who aren't caregivers, according to Cindy Hounsell, president of the Women’s Institute for a Secure Retirement (WISER).
Calculating the Costs
While sons and daughters provide comparable aid in many respects, daughters are more likely to provide hands-on care and sons are more likely to provide financial assistance. That disparity comes with enormous long-term financial consequences.
Largely because of caregiving, women enter and leave the workforce more often than men. A 2010 study by the Center for Talent Innovation found that 30% of white-collar working women off-ramp – take a voluntary, non-job–guaranteed leave of six months or more to care for aging elders – a 25% increase over the previous five years. Others make some sort of workplace accommodation, such as shedding job responsibilities, dropping back to part-time status or opting for reduced hours, when possible. In the short term, this results in lower wages, lost income and forfeited promotions. This is estimated to cost $142,693 in lost wages over the course of a woman’s career.
The long-term price is more pernicious. Without a consistent workplace presence, women lose the opportunity for compounded returns in their 401(k) plans and matching contributions. Those periodic absences also significantly slice into their Social Security benefits. That’s because Social Security is calculated on the highest 35 years of earnings; skip any of those years and the Social Security Administration will average in zeros for any years fewer than 35. Adding in a conservative estimated impact on pensions of $50,000, the total cost impact of lost wages and Social Security benefits for the average female caregiver comes to $324,044. (For men, the impact averages an also significant $283,716, lower because men don’t take as much time off from work.)
Protecting Yourself While Providing Care
What can you do to secure your future without skimping on care?
– Hang on to your job. Because leaving a job means losing not only your paycheck but also your benefits, try to continue working at least until you’re vested in your company’s pension or profit-sharing plan. If you’re scaling back your hours, aim to put in enough time to continue to get benefits such as health insurance. Check with your employer’s human resources manager to see if the company offers services to employees who are also caregivers. Also consult Eldercare Locator, sponsored by the U.S. Administration on Aging, to find local services that might eliminate the need for you to quit your job. Meanwhile, while you are working, participate fully in your employer’s 401(k) plan and matching contributions.
– Watch out for out-of-pocket expenses. Whether you’re providing actual hands-on help or taking on the role of care supervisor, you’re on the front lines and are among the first to notice that the supply of Ensure is running low or that it’s time for your dad to graduate from a cane to a walker. It’s natural to reach for your own wallet, yet such miscellaneous expenses cost an average of $12,000 a year. Ask your siblings to contribute to a petty-cash cache. Work with a financial advisor to create a budget that encompasses both present and future care needs, as well as a system to record all costs to prevent family disputes.
– Make it official. If you intend to give up your job to become a full-time caregiver, consider asking your family to pay you as an independent contractor for the care you provide. If you are paid, you can set up a small-employer type pension plan, such as a Simplified Employee Pension (SEP).
Care for the Caregiver
On average, caregivers for adults spend 18.9 hours per week in their role. That shaves more than two hours a day from your regular schedule, which puts time-saving efficiencies at a premium.
One way to facilitate handling your parent’s financial affairs is to set up a managed account. For a small fee (usually about 1%) a professional advisor manages your parent’s assets, freeing you from spending time on administrative chores. It also alleviates any suspicions among family members about investment decisions. Setting up a managed account is simple, requiring only that you either have a joint account with your parent or power of attorney. Most accounts can be linked to a checking account and debit card, so it’s easy to keep track of care-related expenses. In addition, every family member can receive a bank statement.
Don’t hesitate to use that little bit of extra time to protect your health. Three in 10 caregivers say their situation is emotionally stressful; women are more likely than men to feel high stress. Stress, of course, can affect both your mental and physical health, which in turn can curtail your ability to work.
The Bottom Line
It’s natural to want to do all you can for your aging loved ones. But it’s not worth sacrificing your own financial future. Taking care of yourself first will enable you to do a better job of taking care of others.Take the time to calculate the true cost of leaving your job, or reducing your responsibilities, before altering your career to become a caregiver. Further, don't hesitate to involve other members of the family. Establishing a petty-cash fund and/or a managed account can keep the caregiver from feeling overwhelmed or even going broke.