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Planning for Retirement? Don't Forget Caregiving Costs

Budgeting for care during sickness and health is a good first step

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What do your retirement goals look like? Extended travel, more quality time with your children and grandchildren, picking up hobbies or personal pursuits, owning a beach cottage or mountain cabin? Before you start putting money aside for that RV, be sure to contemplate caregiving as a part of your postretirement years.

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About 85 percent of older adults have at least one chronic disease and 60 percent have at least two, according to the U.S. Centers for Disease Control and Prevention. At some point in the progression of these illnesses, these people will need caregiving assistance.

On top of this, many older adults are caregiving for a spouse or adult child with an illness, disability or special needs. So, the majority of us will both need care and provide care in our 60s and beyond.

The reality is that illness and aging are expensive: More than three-quarters of family caregivers spend out of pocket on caregiving, a 2021 AARP study found, with expenses averaging more than $7,200 a year. Average annual costs for long-term care run from around $50,000 for assisted living to more than $100,000 for a private room in a nursing home. And hospital bills can pile up quickly after a major medical event.

It's a bad bet to take a wait-and-see approach to whether you or your caregivers will have enough assets to cover your needs. Developing a long-range plan ensures you and your loved ones have strong support and less overall stress when the time comes.

If you need a caregiver

Even if you’re currently as healthy as a horse, incorporate caregiving-supportive tools into your longevity planning. Run the numbers through retirement and benefits calculators and work with advisers to guide you on the different options available. This may include:

1. Saving and budgeting

Calculate the amount of money you expect to need in retirement, in times of good and poor health, and budget for both. For example:

  • Save or earmark certain assets specifically for caregiving needs. At some point, you may wish to simplify your finances to meet this goal. The older you are, the more likely you'll rely on both paid and unpaid caregivers for assistance. 
  • Downsizing your living space at a certain age may open up assets to bring in paid help, such as aides or housekeepers. Or consider home modifications that will let you live at home independently with less reliance on caregivers and without moving into an assisted living or nursing facility.
  • If you’ve already been diagnosed with a chronic condition, research the costs of your treatment and potential future needs to determine how expensive your care will be in the long term.
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2. Purchasing insurance or annuities

These policies can be significant financial contributors if you are facing extraordinary medical needs, but they may not be available to you after diagnosis of a chronic disease. Don't wait for the ship to sail if you can comfortably afford premiums for insurance or annuities that will offset the costs of long-term care or disability.

3. Public benefits planning

Will you be able to privately pay for long-term care, or will you require public benefits, such as Medicaid or veterans assistance? It is possible to have some assets and income and still qualify for benefits.

Tools like personal services contracts will allow you to pay your loved one who is taking care of you. Other techniques like reallocating income or assets, paying off certain debts, purchasing allowable Medicaid spend-down items or setting up trusts can help maintain the maximum amount of assets for your spouse and provide extra support to you in your retirement years.

If you will be the caregiver

Of the estimated 53 million family caregivers in the United States, nearly 1 in 5 experience significant financial strain. I am one of them.

Out-of-pocket expenses wiped out my savings. I lost my income when my employer let me go at the end of family medical leave. Suddenly, my family could not pay our mortgage or other fixed monthly bills, like student loans. We weren't making ends meet in the day to day and certainly weren't saving for the future. Years later, we are still nowhere near where we want to be for our projected retirement goals.

Younger caregivers are more likely to feel more financial impacts, like reduced savings, additional debt and trouble covering expenses. But caregivers in their 50s and 60s are most likely to deplete their savings, right on the cusp of their own retirement.

So whether you become a caregiver at age 35 or 65, you have to account for your personal financial strength when you undertake the job. Mitigating the impacts and pitfalls that caregivers face will help you maintain future security.

Understand your expected contributions

Knowing what your care recipient will expect — or need — from you is the first step. Figuring things out during a medical crisis can result in hasty decisions. Although people can be uncomfortable talking about money, it's a necessary conversation. If you work together, you may find ways to minimize your personal outlay.

Secure your future financial strength

If you have been saving toward your own retirement, it's important to preserve those assets.

I can't stress this enough: Learn which bills you are — and are not — responsible for. For example, you are not responsible to pay another person's medical debts. Be sure you have the proper legal documents in place so you can help your care recipient without assuming any of their financial obligations.

Think twice before tapping your own retirement accounts to cover expenses. Your retirement accounts are protected assets; taking money from them early or unnecessarily can come with tax consequences, penalties and a reduction of your future well-being.

Weigh the advantages of continued employment versus stepping away to take on caregiving. People experience lost wages, pensions and benefits when they are caregivers during their working years.

If you are deliberating reducing your work hours (and, therefore, work pay) or are leaving the workforce to take care of a loved one, run the numbers. Will paying for help provide you more job security and assets in the long run? This may require a change of employment, possibly to an employer who offers caregiver-supportive benefits, like paid family leave or respite care.

Whether you're thinking about caregiving or being cared for, a family plan that includes financial matters is helpful for everyone on both sides of the equation. Fewer than half of caregivers surveyed in 2020 by AARP and the National Alliance for Caregiving reported that their care partner had created plans for future care, and only 2 in 5 caregivers had such plans in place for themselves.

Caregivers whose care partner has done this planning report less overall caregiver stress. And who couldn't use less stress?

Starting family conversations about expectations, objectives and abilities to contribute is a good first step. Working with a qualified financial adviser, insurance professional and elder law attorney, you can create a comprehensive longevity strategy that will make a more comfortable retirement for you and your family, no matter what the future holds. And just maybe it can include that RV, too.

Editor’s note: This article, published Nov. 20, 2020, has been updated with more recent data on caregiving costs.

Amanda Singleton is a recipient of's national Caregiving Visionary Award and serves caregivers across their life span through her law practice. Follow her on Twitter and Facebook

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