What Is the Financial Impact of Caregiving? New Report Offers Interesting Insights and Valuable Tips

November is National Caregiving Month, a time to acknowledge the family caregivers who provide assistance to older adults, Veterans, people with disabilities, and those with serious and/or chronic health conditions. These caregivers voluntarily assume this responsibility, often with little or no training or support and with little or no financial compensation.

Anyone who is a family caregiver knows that the opportunity to provide care for a loved one can be rewarding and a source of connection that is often taken on without hesitation, but it also requires sacrifice. Much of this sacrifice is financial, as the average family caregiver spends almost $7,000 a year out-of-pocket to help care for their loved ones. So, in addition to managing a loved one’s well-being, it’s also important for every caregiver to manage their own emotional and financial health.

Many People Overlook the Financial Costs of Caregiving

A new report by the TIAA Institute and the University of Pennsylvania School of Nursing reveals that one in five adults now provides uncompensated care to their loved ones with health issues, and these caregivers encounter a range of financial and professional challenges because of it.

As mentioned, on average, caregivers spend more than $7,000 annually on uncompensated expenses, including housing, health care, and transportation. This financial strain forces nearly half of them to experience financial difficulties, resorting to actions such as withdrawing money from savings accounts, taking on debt, delaying bill payments, or reducing retirement contributions. These are some of the findings from the report:

Caregiving typically demands around 24 hours a week and affects approximately 60 percent of individuals who also have jobs outside the home.
Sixty-one percent of caregivers report experiencing work-related consequences, such as arriving late, leaving early, taking time off, or retiring earlier than planned.
The financial burdens of caregiving are often steeper for women and millennials.
o Women already have 30 percent less income than men during retirement, and a disproportionate number of caregivers (60 percent) are women.
o About 25 percent of caregivers are in their 20s or 30s.
o Becoming a caregiver at a young age is especially difficult, because it’s a time when people often have smaller salaries and should be taking the biggest strides in their careers.
o Many people in that age range are also raising children, making them part of the “sandwich” generation, which creates even more emotional and financial burdens.
The report also warns that the demand for caregivers is expected to rise, particularly with the aging baby boomer population. As people live longer, caregivers face lower levels of financial assets and higher levels of debt compared to non-caregivers. For instance, one in four caregivers has less than $1,000 in savings and investments, while the proportion among non-caregivers is closer to one in seven.
The impact on lifetime earnings, savings, Social Security benefits, and retirement readiness can be severe for caregivers. Especially today, as people are living longer, caregivers should plan for these costs at various life stages.

According to Mary Naylor, PhD, Director of Penn Nursing’s NewCourtland Center for Transitions and Health, “(a)s younger generations increasingly take on caregiving roles, they face different financial pressures and trade-offs. The financial choices made at younger ages have ripples for years to come.”

What Can Be Done to Manage Finances While Caregiving

Caring for your loved one may feel overwhelming at times, but there are many opportunities to manage the cost over time. The report and other sources outline the following tips for caregivers to manage their emotions, finances, and careers:

Pay off any debt you already have as soon as possible. You’ll be in a better position financially if you step into a caregiving role debt-free.
Set aside money in a savings account each month to build an emergency fund. Have enough to cover at least three to six months of expenses. Build an even bigger emergency fund if you expect to become a caregiver for longer.
Make sure you are contributing to a retirement savings account, especially if your employer matches your contributions. Getting a jump-start on your retirement savings will pay off if you must stop working and pause retirement account contributions for a while to care for a parent or loved one.
Prepare for the long haul. Very few people plan to become a caregiver, and it’s difficult to gauge how long your caregiving duties might last. The average duration of caregiving is four and a half years, according to data from the AARP, but the number of caregivers who provide care for five years or longer is on the rise. When you enter this situation, it’s crucial to acknowledge the potential impacts. You should be prepared on some level that this may go on for several years — perhaps for the rest of your life.
Itemize expenses and budget. When you first start caring for someone, you may be tempted to use your own money without focusing on a budget. Don’t immediately reach into your own bank account with the belief that the expense will be a onetime cost. In fact, according to data from AARP, unpaid family caregivers spend nearly 20 percent of their personal incomes on out-of-pocket costs. With that in mind, a budget is essential.
Don’t be afraid to reach out for help. Ask siblings or other family members to pitch in with caregiving responsibilities or to provide financial assistance. They might not realize you need help until you ask. So be specific about what sort of support you need.
If you have siblings, talk with them about the roles each of you is willing to play in your parents’ lives as they age. Agreeing on how much financial and caregiving support you can provide before there’s an emergency will make it easier to deal with a difficult situation. It also can prevent fighting down the road if expectations are established before any of you must get involved with your parents’ care.
Balance working and caregiving. Many people end up quitting their jobs to take care of their parents, but this can jeopardize your own finances and retirement. Consider hiring home-based care or finding an adult day care that suits the needs of your aging loved one so that you can keep working. You could also consider talking with your manager about working from home.
Consider consolidating households. Half of out-pocket expenses related to caregiving are housing expenses, according to AARP. You could reduce your loved ones’ housing costs by moving them in with you, or vice versa, but keep in mind that if you are using the care recipient’s funds to help consolidate households, this action could have a significant impact on Medicaid eligibility in the future, so it should not be done without a prior discussion with an experienced Elder Law attorney.
Employers can contribute by offering benefits such as flextime, paid family leave, geriatric care management services, and emergency backup care. They can also create employee networks or caregiver resource groups to facilitate knowledge sharing on achieving a better work-life balance.  
Find every single credit and deduction for your taxes. According to the IRS, a caregiver can claim a care recipient as a dependent if the caregiver provides more than half of the care recipient’s financial support, and the care recipient makes no more than $4,300 in taxable annual income. Additionally, being “dependent” doesn’t necessarily mean living under the same roof. For example, if the caregiver is paying medical bills for a dependent care recipient, the caregiver can claim a medical expense deduction. In addition to bills, caregivers can also deduct mileage for taking a loved one to doctor appointments. And if providing care necessitates some kind of change to your own property — a ramp for a wheelchair, for example, this cost can be deducted as a medical expense. There are quite a few complexities, so be sure to look for assistance with your taxes.
Take advantage of government benefits. There are a variety of government benefits and programs that might help offset some of the costs related to your loved one’s care. Use the Benefit Finder tool to see what government benefits your parents might be eligible to receive – including financial benefits, housing assistance, health care, and medical assistance.

Consider meeting with an experienced Elder Law attorney, such as myself, to see what steps your loved one can take to qualify for Medicaid long-term care or other government benefits. Work with a financial advisor who can help you create a plan to protect your finances. Besides being a Certified Elder Law attorney, I am also an experienced retirement planning advisor through my affiliation with Protection Point Advisors. Meeting with an experienced advisor will help you to better understand life expectancy/longevity and plan accordingly, including considerations such as health, family, caregiving, long-term care costs, and financial caregiving in addition to traditional retirement planning.

Are You a Family Caregiver?

If you are a caregiver for a loved one, it is wise to plan in advance for yourself and your loved one, especially with the catastrophic costs of long-term care. At the Farr Law Firm, we assist our clients with Life Care Planning and Medicaid Asset Protection, the process of protecting your assets from having to be spent downpaying privately for long-term care. We help our clients ensure that their loved ones get the best possible care and maintain the highest possible quality of life. Please call us whenever you are ready to make an appointment:

Elder Care Fairfax: 703-691-1888
Elder Care Fredericksburg: 540-479-1435
Elder Care Rockville: 301-519-8041
Elder Care DC: 202-587-2797

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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.