How to Prepare for Your Own Retirement While Caring for Aging Parents
Almost 80% of caregivers routinely spend their own money while caring for aging parents. While everyone’s situation is different, a recent study found that caregivers spend on average 26% of their annual income, or $7,242, on caregiving.1
Caregivers, while more than willing to share their resources with their loved ones, can feel financially squeezed for several reasons. Not only are they likely to pay out of pocket for their parents’ expenses, but it’s possible they’ll pass up promotions, take a less demanding (and lower paying) job, or work fewer hours.
Leaving a job, or working less, doesn’t just impact your paycheck. It can also impact your future Social Security benefits since your payments are based on your highest earning years. If your employer offers a 401(k) or other retirement account, leaving a job means losing the ability to contribute to it — not to mention, missing out on employer matching. Or, if your employer offers a pension plan or company stock, those benefits may be impacted as well.
If you’re someone who’s balancing your own future financial goals (like retirement) and caring for a loved one, you’re certainly not alone. In fact, this is a journey that may be best traveled alongside a knowledgeable financial professional. Let’s take a look at the ins and outs of preparing for retirement as a caregiver.
Review Your Parents' Financial Situation
Retirement planning is based on your estimates of how much you’ll need to cover your expenses in retirement. Part of determining that estimate is understanding your future liabilities including debts (mortgage, car payment, personal loans, etc.) and recurring financial obligations (utilities, gym memberships, insurance premiums, etc.).
As the caregiver of an older loved one, you also need to consider how much you’ll expect to spend in order to continue caring for your parents while in retirement. To do that, take stock of your parents’ current financial standings, resources, and insurance policies. The more they’re able to financially provide for their needs, the less strain this will put on your resources (especially once you enter into retirement).
Take a look at things like:
- Savings accounts
- Brokerage accounts
- Retirement accounts
- Pension plans
- Social Security payments
- Long-term care policy
- Life insurance policies
Of course, trying to have an open and honest dialogue with your parents about their financial situation is often easier said than done. Most people struggle to have their parents open up, especially if they’re embarrassed about their spending habits or experiencing cognitive decline. Remember to go into the conversation with empathy and patience, and help them understand that you’re there to help not judge.
This is one example of where a financial advisor can help by facilitating these tough conversations and serving as an unbiased, but caring, third-party expert.
Set Clear, But Flexible, Financial Goals
As a caregiver, sometimes you just have to roll with the punches and expect the unexpected. But as someone preparing for a long and fulfilling retirement, goal-setting is incredibly important too. Goals are what give your retirement savings plan structure, purpose, and a clear benchmark to compare your progress against over time. Once you have goals in place, it becomes much easier to create smaller milestones and feel more confident in your ability to retire comfortably.
But as you know, preparing for your future retirement isn’t just about your financial independence — it's also about being able to care for your parents for as long as you need to. When developing your goals, work with your advisor to incorporate the expected costs of caregiving and build out goals that can easily be adjusted or changed as needed. It’s possible that your circumstances will change and you’ll need to cut back hours at work, adjust your investments, change your insurance coverage, or otherwise reassess your saving and spending strategies.
Keep Your Financial Well-Being a Priority
You care deeply for the people you’re caring for, which makes it hard to build boundaries and prioritize your own well-being. But think about what they say before every flight, “You must put your own oxygen mask on before helping others.” If you’re not caring for yourself (mentally, physically, emotionally, or financially), you’re not going to have anything left to give to others.
Here are a few tips for prioritizing your financial well-being while being a part-time or full-time caretaker.
Track Expenses
Whether you’re the primary caretaker or the person who lives closest to your parents, it’s natural to want to address your parents’ needs without thinking about the cost. You might see they’re out of soap, or maybe you pick up their prescriptions at the pharmacy. If you cook for them, you likely do the grocery shopping too.
They may not feel like major expenses in the moment, but they can add up — and you shouldn’t have to carry the financial load all on your own. Track these expenses (however small) throughout the month, so you can get a good idea of how much you’re spending on caring for your parents. If you have siblings or aunts and uncles, consider reaching out to them to split the cost of care. Or, if your parents have a savings account, talk to them about reimbursing yourself for these expenses at the end of each month.
Max Out Contributions
If you’re still working and have access to contribute to a 401(k), consider maxing out contributions each year. Depending on your situation, it’s possible that you’ll need to leave work sooner than anticipated to provide more comprehensive care for your loved ones. Use the opportunity to save in a tax-advantaged account now while you still have the opportunity (not to mention, take advantage of employer matching contributions).
Striking the Right Balance Takes Time
For many people, there’s no better way to give back than to care for their loved ones in their time of need. If you’re caring for aging parents while preparing for your own retirement, it can be hard to prioritize your own financial needs. But there are ways to reduce the financial impact of caregiving while continuing to save for retirement. To learn more about how a financial advisor can help you navigate and address your financial priorities, feel free to reach out to us anytime.
Sources:
1Caregiving Can Be Costly — Even Financially
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