The finances of family caregiving
Caring for an adult child or aging parent can be a blessing, but it can also be a burden. Providing care to a family member may save money, but it may also prove to be financially and professionally damaging to the caregiver. And, as much as caregiving can be empowering and rewarding, it also can be emotionally depleting.
In short, caregiving is a complicated issue, particularly when it comes to finances. Research shows that caregivers suffer lost wages and job benefits, while also sacrificing retirement savings and Social Security benefits. For example, 10 million caregivers over the age of 50 who care for their parents sacrifice an estimated $3 trillion in lost wages, pensions, retirement funds and benefits, according to the MetLife Mature Market Group.
What’s more, the family caregiving issue is one that could very well impact you if it hasn’t already. An estimated 29% of the U.S. adult population, or close to 66 million people, find themselves in the role of providing care to someone with special needs, according to the National Alliance for Caregiving and AARP.
Given the financial ramifications, it’s vital for families with a caregiving need, whether it involves an adult child or an aging parent, to take financial planning steps to keep the caregiving situation from causing monetary problems and strife within families.
Here’s a look at seven key issues to discuss in a caregiving situation:
1. Is there a person (or people) in the family who’s willing and able to become a care provider?
Someone in the family must have the wherewithal and the willingness to commit to becoming a caregiver. Depending on the needs of the person requiring care, the potential caregiver may also need some level of training to provide for those needs.2. The direct costs of care and who will cover them:
The costs of providing care to someone with special needs can mount fast, so it’s worth sitting down with relevant family members, your Vermillion Financial Advisor, and/or a caregiving specialist (such as an elder care advisor) to come up with a budget that lists all the costs of caring for the person, along with a plan for covering those costs. The budget should include items such as medical/healthcare, additional care (in-home or at a facility), transportation, food, housing, special equipment, updates to the home, and more.Once the budget is in place, the discussion can turn to paying those expenses. Does the person requiring care have enough money to cover them? If not, how will they be covered? To what extent are vehicles such as Medicare, reverse mortgages and immediate annuities viable options for covering the cost of care?
3. Compensation for the family caregiver(s):
In many caregiving situations, the caregiver is paid by the family as an independent contractor for the care he or she provides. If that’s the case, it often makes sense to set up a retirement plan, such as a Simplified Employee Pension (SEP), for the care provider as part of their compensation package.4. The indirect and opportunity costs of care:
The financial ground a caregiver may lose in order to provide care can be substantial and difficult to regain, which is why it’s important to carefully weigh the impact and effects of becoming a caregiver.What impact might leaving a job have on the potential caregiver’s household income and on their retirement savings? What employee benefits might be lost and at what cost can they be replaced? What opportunities for career advancement might be foregone?
These are just some of the financial issues to consider in deciding whether to become a caregiver, and the extent to which care will be given. In cases where the costs of becoming a caregiver outweigh the benefits, other alternatives such as arranging for another family member or an outside caregiver to provide care, are at least worth considering.
5. Identifying Plan B (and C):
Where will the aging parent or adult child get care and a sustainable income stream if the family caregiver dies? Families in a caregiving situation need to develop a contingency plan that specifies living arrangements and guardianship if the caregiver passes away. Meanwhile, in some situations, establishing a life insurance-based trust makes sense as a means to cover caregiving costs should the caregiver die (using the insurance policy death benefit to do so).A special needs trust is a viable option for families who have an adult with special needs. Those families should also have a “letter of intent” that details the special-needs person’s daily routine, wants, needs, likes, dislikes, preferences, hobbies – essentially anything that the caregiver’s successor should know, just in case.
6. Getting professional guidance:
Given what’s at stake and the complexities involved, these are issues to discuss with experienced professionals, such as an elder care and/or Medicare specialist/counselor, estate planning attorney (for issues related to trusts, etc.), your accountant, and of course your Vermillion Financial Advisor.7. Relying on other outside (often free) resources:
The “resources” page of the National Alliance for Caregiving website at www.caregiving.org/resources/general-caregiving offers information plus links to a range of other organizations in the field. The site www.caring.com and the Family Caregiver Alliance site at https://caregiver.org/national-center-caregiving are also worth visiting. For support and guidance from people in situations similar to yours, search the web or ask around for a caregivers’ support group in your area.
A well-considered and well-crafted plan for providing care to a special needs family member will help to ease the burden of this critical task.
Note: The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendation for any individual. Please remember that past performance of investments may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this post serves as the receipt of, or as a substitute for, personalized investment advice from Vermillion Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed within this newsletter to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.
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