According to a recent Mintel Comperemedia study, 53% of all Gen Xers surveyed said they anticipate becoming the primary caregiver for an aging parent or relative at some point. Caregiving - providing physical, emotional and financial support for another individual - can be a demanding, and expensive, position.

The Cost of Care
An Evercare® Study of Family Caregivers found that surveyed caregivers annually spend an average of $5,531 of their own money to care for their loved ones. That number is 10% more than the median income of the group, which was $43,026.

Long-distance caregivers had the highest annual expenses ($8,728) compared to caregivers whose relative lived with them ($5,885) and caregivers who cared for a relative that lived nearby ($4,570). To meet those financial demands 34% used their savings, 32% cut back on their own home maintenance and 23% cut back on their own health and/or dental care spending.

If you anticipate becoming a caregiver at some point here are some steps for how you can begin financially preparing for that role now.

1. Save and invest. Do you have the financial resources to begin spending $5,000+ annually on caregiving expenses? If you're carrying a credit card balance that you can't pay off (meaning that you're probably using credit to supplement your income for regular expenses), the short answer is probably no. (Managing your debt could mean the difference between spending $45,000 or saving $184,000. Check out Expert Tips For Cutting Credit Card Debt.)

2. Begin preparing for your role by creating a budget and regularly putting money aside for your eventual caregiving expenses. Make it easy by having the money automatically deducted from your paycheck and deposited into at least an interest-bearing money market deposit account (which is FDIC-insured) and then begin investing those savings in other instruments as they accumulate.

Consider meeting with a financial advisor to determine the best possible investments for your savings depending on your time horizon. At the very least you'll want to invest in an instrument that will earn a return that outpaces inflation (which averages between 3 - 4% annually). Having a separate saving and investment account for your caregiving funds can help ensure that you don't dip into that money for other needs in the meantime.

3. Keep investing for yourself. While caregiving can become a consuming role it's important to keep saving and investing for your own personal future goals including your retirement. Try to keep contributing to your employer's 401(k) plan if one is available or contribute regularly to an IRA.

The same goes for your children's college education funds. You don't want to sacrifice the potential compounding interest and tax benefits (through tax-deferred or pre-tax investing) you could realize by continuing to contribute to these accounts.

4. Create emergency savings. Do you have the financial resources you would need if you had sudden, unexpected expenses like a car repair bill or a medical emergency that required you to pay a high health insurance deductible? What would happen if your income were suddenly eliminated or reduced due to a job loss, layoff or leave of absence?

It's especially important that you, as a caregiver, have a minimum of 3-6 months of savings to make sure that you can financially withstand any unexpected changes to your income and/or expenses. Among Evercare® survey respondents 37% reported that they had quit their job or reduce their work hours as a result of their caregiving responsibilities.

Could you meet your current monthly financial obligations if you or your spouse had to leave the workforce to be a full-time caregiver? If so, for how long? Examine the financial assumptions are you basing your current lifestyle on and think through what you would do if any of those factors changed. (Do you have enough savings to cover the costs of unforeseen crises? We show you how to plan ahead in Build Yourself An Emergency Fund.)

5. Insure yourself. Don't make yourself financially vulnerable by not having the insurance you need to protect yourself and your family who are counting on you. You should at least have health insurance, homeowners' or renters' insurance and car insurance (if you own an automobile).

If you are married or have children you should also look into purchasing life insurance. Depending on your age, health and retirement preferences you may want to consider purchasing long-term care insurance, which provides you with a financial tool to be able to cover your own long-term housing and health needs as you age.

6. Identify resources available to you. As you get closer to becoming a primary caregiver, you'll need to look around for local resources to help you best manage the role. For example, can you take advantage of employer-assistance programs (EAPs) for caregivers? Does your doctor's office have information on medical resources and health-related financial aid for caregivers and their loved ones?

Could you qualify for financial assistance to make home modifications enabling your loved one to live with you? Are there local support groups that can provide encouragement and practical tips? Contact your local Area Agency on Aging (AAA) or visit to learn more about community-based resources.

7. Evaluate your loved ones' resources. Depending on the extent of your caregiving role you may need to figure out what resources your loved one can tap into to help offset their expenses and, in turn, perhaps lower your caregiving costs. For example if your loved one owns their home would they consider taking on a reverse mortgage to create a regular stream of income?

Will he or she have health insurance or qualify for Medicaid? What insurance benefits does he or she have that will directly help with caregiving i.e. in-home health services, adaptive devices, etc? You'll need to have some regular, frank discussions with your aging parent or relative about their wishes and their resources so you can jointly make plans that work for both of you. (Don't assume you're insured. Find out what you can expect from this healthcare program by reading What Does Medicare Cover?)

The Bottom Line
Caregiving is a noble and important role. However, it's important that you financially prepare for the additional responsibilities and find the help you need to manage them well, and not sacrifice your own financial future in the process.

Related Articles
  1. Insurance

    How Life Insurance Works in a Divorce

    Learn the implications of life insurance in a divorce situation, and identify the steps you should take to ensure your policies are sorted out post-divorce.
  2. Insurance

    What's The Difference Between Medicare And Medicaid?

    One program is for the poor; the other is for the elderly. Learn which is which.
  3. Entrepreneurship

    Identifying And Managing Business Risks

    There are a lot of risks associated with running a business, but there are an equal number of ways to prepare for and manage them.
  4. Insurance

    Cashing in Your Life Insurance Policy

    Tough times call for desperate measures, but is raiding your life insurance policy even worth considering?
  5. Insurance

    Avoiding The Modified Endowment Contract Trap

    To avoid MEC status, flexible-premium policies must cap the amount that can be paid into the policy over a period of seven years.
  6. Taxes

    10 Money-Saving Year-End Tax Tips

    Getting organized well before the deadline will curb your frustration and your tax liability.
  7. Professionals

    Young Investors: Dodge These Frequent Mistakes

    Young investors are especially prone to financial mistakes. Here's what you can do to help them.
  8. Savings

    Your Flex Spending Dollars: How to Use Them All

    Your flexible spending account is about to expire. Don't throw money away; here's how you can spend every cent (or roll it over).
  9. Retirement

    Getting Through the Medicare Part D Maze

    Having trouble sorting through your prescription drug coverage options? Try these solutions to finding the right Medicare Part D option.
  10. Insurance

    Do You Need Short-Term Health Insurance?

    Yes, if you've no other coverage options. Here’s what you need to know about how it works and how it differs from employer-provided and marketplace plans.
  1. Are Flexible Spending Account (FSA) contributions tax deductible?

    The contributions you make to your Flexible Spending Account (FSA) are not tax-deductible because the accounts are funded ... Read Full Answer >>
  2. Does a Flexible Spending Account (FSA) cover Lasik?

    Flexible spending accounts (FSA) can be used to pay for qualifying LASIK procedures. LASIK is not the only laser eye surgery ... Read Full Answer >>
  3. Are Flexible Spending Account (FSA) expenses tax deductible?

    Flexible Spending Account (FSA) expenses are not tax deductible. The U.S. Internal Revenue Service (IRS) states you cannot ... Read Full Answer >>
  4. Does a Flexible Spending Account (FSA) cover acupuncture?

    A Flexible Spending Account (FSA) covers acupuncture. The Internal Revenue Service (IRS) has defined acupuncture as a qualifying ... Read Full Answer >>
  5. Do Flexible Spending Accounts (FSAs) expire?

    Flexible Spending Accounts (FSAs) do expire and are considered to be a "use it or lose it" type of plan. They are savings ... Read Full Answer >>
  6. Do flexible spending accounts (FSA) funds roll over?

    An individual can utilize an employer’s cafeteria plan of employee benefits to establish a flexible spending account (FSA). ... Read Full Answer >>

You May Also Like

Trading Center