How to Achieve Your Wealth Goals While Being a Caregiver

How to Achieve Your Wealth Goals While Being a Caregiver

Many adults who become caregivers to their aging parents or other family members take on extra financial responsibilities. How can you provide the care you want without sacrificing your savings and retirement planning?

Published by Motley Fool Wealth Management Originally posted on Wed, Nov 30, 2022 Last updated on January 10, 2024

read time 5 min read

Book a call with one of our experienced wealth advisors

• Learn about unique investment solutions
• Increase the potential to obtain your financial goals

Do you fantasize about the day you stay indefinitely at your grown children's home, drop all of your stuff at the front door, leave cups everywhere, eat in your room, and leave dirty dishes with wet towels on the floor? (Come on, if you have children, you might think about payback every time you clean up after them!) But in all seriousness, many adults become caregivers to their aging parents or other family members who need help with daily activities. According to a recent study, there are 48 million unpaid caregivers in the U.S.1

It's a demanding endeavor but one borne out of love. In addition to emotional and physical support, caregivers often take on extra financial responsibilities. This can include everything from paying for medication and additional care to managing the person's finances. Data show that the average caregiver spends a quarter (26%) of their income on caregiving expenses.2 And for some, this financial burden can squeeze other long-term savings goals.

How long-term care can impact your financial plan

Three primary costs often accompany caring for aging parents or other loved ones. These include:

  • Increased healthcare costs. Doctor visits, prescription medications, and other medical expenses are often high for the elderly.
  • Loss of income. It can significantly impact your wealth plan if you have to quit your job or reduce your hours to care for your loved one. Not only will you lose out on potential earnings, but you may also lose employer-sponsored health insurance and other benefits.
  • Hiring outside help. It can be expensive. Sometimes, caregivers need to hire outside help from home health aides or nursing assistants. The cost ranges from $2,000 a month for adult day care, $5,000 a month for a home health aide, and close to $10,000 a month for a nursing home.3 These services are expensive but may be necessary to provide quality care for your loved one.

Long-term care options

How can you provide the care you want without sacrificing your savings and retirement planning?

Take these steps to protect yourself and your finances while you give the best possible care for your loved one:

Create a budget for your caregiving expenses

Start with an asset and income check. For example, ask yourself:

  • How much savings and investments are there?
  • What sources of income are there?
  • Are there assets that you can sell to pay for care?

Next, determine your expenses and how they may change. Include the costs of medical care and day-to-day living expenses, such as food and housing.

Budgeting will help you track your spending and ensure you don’t overextend yourself.

Explore long-term care insurance

Does long-term care insurance make sense for your situation? Traditional long-term care insurance typically helps cover the costs of in-home care, assisted living, and nursing home care. However, hybrid plans also combine long-term care coverage with life insurance or annuities. If your loved ones have a life insurance policy or annuity, confirm the availability of riders you may add or convert it to a hybrid approach.

Consider government benefits

There are several government benefits available to caregivers and those needing care. These include Medicaid, the Supplemental Security Income program, and the Veterans Affairs Aid and Attendance program. There also may be state programs depending on where you live. Government assistance could be available as well.

Of course, there are limitations and qualifications for long-term care. Do your research, so you don't leave free money on the table!

Work with a wealth manager

Talk with a financial advisor about how being a caregiver can impact your wealth plan. Your planner can help you make the necessary adjustments to ensure you're still on track to reach your financial goals, even if you have to reroute some income to pay for care.

For example, many caregivers believe they have to trade saving for retirement or their kids’ college with caring for or financially assisting parents or other loved ones. We think one should not be sacrificed for the other. Here are two things to consider:

First, look at the types of savings accounts you have. For example, traditional IRAs are for retirement income. In contrast, Roth IRAs could be used for other purposes before retirement. In addition, they both have tax advantages, although the tax treatments differ for each. So these accounts could become part of a comprehensive long-term strategy for your family.

Some families may have other accounts without tax advantages for daily living expenses, college savings, or saving for a rainy day. We recommend separating them because they each serve a different purpose.

Second, we believe it is best to use the assets of the elderly parent first. There are two reasons why:

  1. Older individuals tend to have more conservative investments. As a result, they tend to produce more taxable income.
  2. Second, the first-gen family member is likely in a lower tax bracket than the caregiver. Hence, taxes on income-generating securities—like interest and dividends—are probably lower.

In addition, there may be tax advantages. For instance, if a caregiver pays more than 50% of a parent’s support, they may be able to claim that parent as a dependent for tax purposes. Or, if the parent sells their home to pay for care, there may be a tax break depending on the circumstances. (We're not tax professionals, so always check with your tax advisor!)

Caring for a loved one, while demanding, can be rewarding too

Most of what we discussed are the challenges—especially the financial burden—of caring for loved ones. And by understanding the ways caregiving can impact your wealth plan and the options to help pay for long-term care, you can be prepared for the challenges that may come your way.

But we also want to underscore that older parents or other family members can contribute to the household too. They can help with the cooking or cleaning and provide childcare. Often skills that were important when they were younger—like sewing or repairing goods instead of replacing them—are lost with the next generations. Passing down these skills, plus all of their stories, can build bridges to the past and enrich relationships with every family member. Of course, nobody wants to feel like a burden to others, especially their kids. But, recognizing the value the elderly can provide may take the sting out of relying on their kids for financial and caregiving support.

Back to Insights home
sign up today

Like what you're reading?

Join the thousands of readers getting stories like this delivered straight to their inbox every Thursday — for free. Give it a spin, enter your email to sign up.

Footnotes, June 29, 2021, June 29, 2021

3Cost of Care Survey, accessed Oct 13, 2022

Next steps to consider

Create your Investor Profile

Create your Investor Profile

Let's see what we'd recommend for you. Create your Investor Profile online right now — for free. It's secure and only takes 10 minutes.

Create your profile
Schedule a call

Talk to a Wealth Advisor

Schedule a 30-minute call with one of our Wealth Advisors and get a financial roadmap at no cost or obligation.

Pick a time
6 Sources of Retirement Income

Download our latest special report

6 Sources of Retirement Income: Must-read tips and tricks we believe all retirees should know. Download your copy today – for free.

Get your copy