At some point, it is highly likely that many Americans will find themselves in the position of needing to provide care for an older family member or friend. And with the aging of baby boomers, these numbers will only increase over the next decade and beyond.
While the desire to provide care is fueled by good intentions, there is a lot to be aware of before taking on such responsibility. Much attention is paid to the time and emotional commitment of caregiving, however, the financial impact on caregivers is one area that warrants a closer look.
The immediate financial impact of being a caregiver usually presents itself early on. Doctor and other professional appointments, home maintenance and the usual daily and weekly chores of shopping, cooking and cleaning can easily require a commitment that cuts into the ability to maintain a standard work day. The result of having to possibly reduce hours at work translates to lower pay, which creates an immediate impact on the caregiver’s own household budget.
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In addition to wage reduction, there are often out-of-pocket expenses to consider. The recent Allianz Life Safeguarding Our Seniors study indicated that the average caregiver spends more than $7,000 per year in cash support, which may include paying for groceries or supplies, delivering meals and social engagement.
Taking a closer look, there is a longer-term financial impact of caregiving to consider. Less time working and out-of-pocket expenses directly correlate to less saving toward retirement investment vehicles such as 401(k)s, individual retirement accounts, etc. In addition, the reduction in funding means less of a pool of money to potentially grow or compound during the accumulation phase.
One of the lesser known issues associated with caregiving is elder financial abuse. It is well established that elder financial abuse can have a significant impact on the victim. However, less known is the financial impact of elder financial abuse on the caregivers of those victims.
Our study indicated that nearly 90 percent of both active and potential caregivers said they experienced a financial impact when their elder was financially abused, with the average cost to those caregivers reaching a staggering $36,000.
In addition, those providing care for past victims are spending significantly more than those caring for elders with no history of financial abuse.
[See: 12 Steps Toward a Strong 401(k).]
While not without risk, the rewards of caregiving are still plentiful. Here are some tips to consider before embarking on the caregiving of a loved one.
Have an open and frank discussion with the person being cared for. While not necessarily an easy conversation to have, establishing a clear set of expectation and guidelines will set the path for a better experience. As part of that discussion, involve other family members and professionals such as financial planners and attorneys and discuss finances in detail so there is full awareness of all accounts, trusts, wills and other financial and legal documents (including their actual location). Is there a power of attorney in place? What are the monthly expenses and income? What kind of insurance is in place? In addition, make sure to talk with other family members about your role as well as the time and financial commitment. If you are to be reimbursed by the person being cared for, letting other family members know and agreeing upon the given reimbursement parameters can go a long way later on in avoiding potential family questioning and/or conflict over expenses.
Develop a budget from both a monthly and longer-term perspective. Taking on the caregiving role presents new financial demands. On a monthly basis, be diligent about tracking all of your expenses to ensure your potentially changed income can keep pace with your current lifestyle. After a couple of months of caregiving, it will be easier to ascertain what to expect from an expense standpoint. In addition, taking on the role of caregiver may also increase the chance of unexpected and significant new expenses. Now more than ever, making a concerted effort to set aside money for an emergency fund is important.
Protect your own retirement. While it might be tempting to cash in a 401(k) or not contribute as much (or to other retirement investment vehicles), doing so may have a significant negative impact down the road. The Safeguarding Our Seniors Study revealed some eye-opening data in that two-thirds of active caregivers said the cost of providing care is having a significant effect on their finances, and they worry about having enough money to retire. Staying on track for retirement can help alleviate this issue.
Be alert for elder financial abuse. As mentioned earlier, elder financial abuse has fast become an issue that needs to be addressed given its impact on the victims and those who care for them. Caregivers have a unique opportunity to help combat elder financial abuse by remaining vigilant for any signs of fraud or other illegal activity. They are often in the best position to protect the person they are caring for by watching for any red flags such as account changes, changes to other legal documents, inexplicable transactions, changes to purchase patterns and sudden changes in behavior.
[See: 10 Tips to Boost Your IRA Balance.]
Taking on the role of caregiver is sometimes by choice and other times by necessity. Regardless, there are simple financial steps to consider that can help ensure caregiving does not negatively impact both short-term and long-term financial goals. Many of us will be caregivers someday and being ready for when that day might come can create a more positive outcome for all involved.
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4 Important Financial Tips for Caregivers originally appeared on usnews.com
