Caring for an adult child or aging parent can be a blessing, but it also can be a burden. Providing care to a family member may save money, but it also may prove to be financially and professionally challenging to the caregiver. And as much as caregiving can be empowering and rewarding, it also can be emotionally draining.
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. What’s more, the family caregiving issue is one that could very well affect you if it hasn’t already. An estimated 29 percent 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.
Five key issues to discuss in a caregiving situation
1. Is there a person (or more than one person) 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, a financial planner you trust, 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/health care, additional care (in-home or at a facility), transportation, food, housing, special equipment, home updates, and more. Once the budget is in place, the discussion can turn to paying those expenses.
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 impacts of becoming a caregiver.
How might leaving a job affect the potential caregiver’s household income and retirement savings? What employee benefits might be lost and at what cost can they be replaced?
These are just some of the financial issues to consider in weighing whether to become a caregiver. In cases where the costs of becoming a caregiver outweigh the benefits, other alternatives (arranging for another family member or an outside caregiver to provide care) are at least worth considering.
5. Identifying plan B (and C): Families in a caregiving situation need to develop a contingency plan that specifies living arrangements and guardianship if the caregiver passes away. Establishing a life insurance-based trust makes sense 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.
Used by permission of Life Advantages LLC. Written byFinancial Planning Association © 2023.
Getting professional guidance
Given what’s at stake and the complexities involved, these are issues to discuss with experienced professionals. Our LifeSolutions employee assistance program (EAP) offers professional financial assistance with debt management, credit counseling, retirement planning, and other issues. In addition, our EAP offers legal consultations for life insurance, guardianship, and living trusts.
Employees can access EAP benefits and online resources anytime they choose. Our website offers a wealth of resources for caregivers, including skill builders, educational information, and webinars on caregiving.
For more information on how Workpartners can provide support for your employees who are caregivers, contact us today.