Staggering reductions in income
One final, often-overlooked consequence of bringing a parent to live with you is that the arrangement could diminish your income in dramatic ways. If you're forced to provide care yourself rather than hire professionals, that typically means losing time from work.
AgingCare.com reports that 43 percent of caregivers have had to take time off work due to caregiving responsibilities, and 48 percent say they are earning less money as a result.
For women caregivers age 50 and above, the total amount of lost income due to leaving the labor force early and/or reduced hours of work because of caregiving responsibilities is $142,693, according to MetLife.
Plus, total Social Security benefits are $131,351 lower due to the lost income. And a very conservative estimated impact on pensions is approximately $50,000.
So MetLife officials conclude that an average individual female caregiver ultimately takes an astounding financial hit of $324,044 in terms of lost wages and lower retirement income. For male caregivers age 50 and older, the total figure is $283,716.
Government aid lowered
Then there's the potential impact on benefits an aging parent may be receiving, such as Supplemental Security Income. "Unless the parent is paying rent, if that parent is getting SSI benefits they're going to be reduced by one-third," says Hetherington. That's because SSI treats free room and board as "in-kind support and maintenance."
For this reason, Hetherington says it's best for many families to have a rental agreement under which parents pay fair market rent. Plus, if the adult children are going to be caregivers, it's always best to put everything in writing.
By not charging rent, "people think it's a good, humanitarian and loving thing," Hetherington says. "But my job is to tell them the consequences of their options. And frankly, it will be to your detriment financially to have no written agreement," Hetherington says.
Why? "The law presumes that immediate family members doing things for each other and taking care of one another without an agreement did it out of love and affection," he says. That could impact a parent's eligibility for government benefits, like Medicaid.
Besides, other thorny issues could arise. "Suppose the children have a failed marriage. What's the position of the parents after that? And what happens if the adult children divorce, but the parent has invested money into the home?"
Tax breaks available
Fortunately, if you take in a parent under your roof, it doesn't always mean money will constantly flow out of your pocket. You may even get some financial benefits.
For example, you might be eligible for cash payments or tax deductions for expenses like dentures, hearing aids, walkers and the cost of transporting the parent to the doctor. Also, if you pay more than half of an elderly parent's expenses for food, housing and medical supplies, you may qualify for a deduction worth thousands of dollars, by claiming the parent as a dependent, according to AgingCare.com.
There are also some circumstances where you may be eligible for direct cash payments or federal income tax breaks.
The key is to keep good financial records, and have a caregiver agreement that demonstrates that your parent is paying for your services, and not merely receiving care as a gift. Don't be sentimental — put it in writing!
Also of interest: 5 tips for easing into retirement. »