Providing care for an aging loved one or a person with disabilities is challenging but also rewarding. Caregivers have the chance to ensure their loved one’s quality of life is the best it can be by assisting with activities of daily living. Most of all, by taking on the responsibility themselves, caregivers have the benefit of knowing that their family members receive attentive, personal care delivered with love and affection.
Yet caregivers often struggle to find time to work while caring for loved ones. In many cases, caregivers drastically reduce their work hours or quit their jobs altogether to care for family members. Presently, two out of every five adults in America are family caregivers, and 60% of family caregivers are women. While many of these caregivers also work full-time or part-time jobs, studies show that caregivers increasingly are quitting their jobs to provide care.
In fact, researchers from the State University of New York at Buffalo and UCLA found that about 33% of female baby boomers currently care for an elderly parent and spend between eight and 30 hours per week providing care in addition to their time at work. Presently, the majority of caregivers are in their mid-50s, and they are finding it difficult to work until retirement age because of their caregiving duties. In fact, the researchers determined women in their early 50s and early 60s are quitting their jobs more frequently to provide care: “We see a precipitous decline in earnings with caregiving” and a “significant effect of caregiving on the probability of work.”
The result is that caregivers lose a substantial amount of income each year because they cannot continue in their full-time position, they pay for caregiving expenses out of their own pockets, or they struggle with a combination of losing employment time and paying for caregiving expenses themselves. Our ultimate guide to financial support for caregivers takes an in-depth look at home care costs, financial aid options for caregivers, and financial planning for caregivers to help those who tend to their loved ones do so without bearing as great a financial burden.
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A DEEP DIVE INTO HOME CARE COSTS
AARP found in 2013 that American family caregivers donated their time to care for their loved ones at an estimated value of $470 billion/year. That’s millions of caregivers providing billions of hours of care to loved ones. In fact, had someone been paying these unpaid family caregivers for their time, the cost would have surpassed both the $449 billion in government spending on Medicaid that year and the combined annual revenues of Apple, Hewlett-Packard, IBM, and Microsoft ($469 billion).Additionally, a 2016 AARP study estimates that family caregivers spend an average of $6,954 on out-of-pocket costs for caregiving, which equates to approximately 20% of their annual income. To cover the out-of-pocket expenses, many caregivers make sacrifices in their own lives. They often curb spending on themselves, reduce saving for retirement, cut out spending on entertainment, dining out, and vacations, and rely on their personal and retirement savings to cover costs.
Overall, study after study finds that caregiving puts a financial strain on individuals caring for an adult family member:
- On average, caregivers lose 33% of their income
- Approximately 11% of caregivers quit working to provide care for a loved one full-time
- Women who quit working to become caregivers lose approximately a total of $300,000 in wages, pensions, and Social Security benefits
- 78% of caregivers incur out-of-pocket costs due to caregiving
- 56% of employed caregivers experience at least one work-related strain, in the form of reduced hours, different work hours, or taking paid or unpaid time off
- 16% of caregivers reduce contributions to their retirement savings
- Approximately 50% of caregivers reduce leisure spending (dining out or vacations) due to caregiving expenses
The Genworth Cost of Care Survey has been helping families plan for family care costs since 2004. Their work determines care costs for both at-home and in-facility expenses. In 2016, the survey found that homemaker service costs an average $3,813 per month, while hiring a home health aide costs about $3,861 per month.
If families send a loved one to adult day care to make it possible for a caregiver to retain employment, the cost is approximately $1,473 per month. Families who opt for assisted living facilities for their loved ones can expect to pay about $3,628 per month on average. And nursing home care costs are significantly higher, with semi-private rooms costing about $6,844 per month and private rooms coming in at about $7,698 per month.
Most families aren’t prepared for these exceedingly high costs, particularly when an aging loved one requires care suddenly (which can happen following a stroke, fall, or a similarly unexpected change in health status). Many people become caregivers to aging and disabled family members because they cannot afford the high cost of assisted living, home care, or even adult day services.
FINANCIAL AID OPTIONS FOR CAREGIVERS
Thankfully, caregivers have a few options for financial aid. Family caregivers can receive some financial assistance, income, or tax breaks that can reduce the burden of the cost of caregiving. These options come from various government programs, tax incentives, and family payment options depending on their loved one’s financial situation.
- Medicaid – Aid may be available from the state for elderly loved ones who are low-income and eligible for Medicaid. In fact, 15 states offer a Cash & Counseling program that gives an allowance to care recipients that can be used to pay family caregivers. For caregivers who don’t live in one of the 15 Cash & Counseling states, other programs are available for low-income seniors who may not qualify for Medicaid. To learn about the financial aid programs available in your state, contact your local Medicaid office.
- Long-Term Care Insurance – Long-term care insurance is another financial aid option for caregivers. However, it is important to note that only a few such policies allow for family caregiver payments. Older policies tend to have such a provision, so it is more likely that older seniors who have long-term care insurance have policies that will pay family caregivers. It is a good idea to contact your loved one’s insurance company or agent who sold the policy to determine whether the plan allows for caregiver payments.
- Veteran-Directed Home and Community-Based Services Program – Veterans seeking to avoid ending up in a nursing facility should check into the veteran-directed home and community-based services program (VD-HCBS) that enables veterans to manage their care. This program provides caregiver support and authorizes a monthly flexible spending account for purchasing goods and securing services for disabled veterans to live at home. Veterans who opt for this program may hire family to act as their caregivers or to provide support to family caregivers. Currently, VD-HCBS has operations at 50 VA Medical Centers in the U.S.
- Tax Incentives – Caregivers also may find some financial assistance via tax incentives. Caregivers who are adult children younger than age 65 may deduct the costs of qualified medical expenses and mileage that are greater than 10% of their adjusted gross income if they itemize their deductions. For couples with at least one spouse 65 years of age or older, the threshold for deducting qualified medical expenses was 7.5% of your adjusted gross income through December 31, 2016, but this threshold has increased to 10% beginning on January 1, 2017. The IRS maintains a list of eligible medical expenses and exclusions (over-the-counter medications, for example, are not eligible medical expenses for this deduction). However, it is in your best interests to discuss your options with an accountant or other tax professional to determine whether taking a standard deduction makes more financial sense. There also may be other deductions caregivers can take at tax time. While tax incentives are not as immediate as financial aid, they are one way to relieve the financial burden on caregivers.
- The Family Medical Leave Act (FMLA) – Workplace benefits may be available to caregivers as a form of financial aid as well. The Family Medical Leave Act (FMLA) ensures employees working for any company with more than 50 employees and who have been employed for 12 months (working a minimum of 1,250 hours during that period) are offered 12 weeks of leave; however, the leave overwhelmingly is unpaid. Many employees were initially confused by FMLA and unsure how to determine if they qualify for leave, but a guide issued by the U.S. Department of Labor makes it clear that adult children providing care for an aging parent is a qualifying situation. However, the care recipient must have a qualifying health condition requiring care. A bill introduced in Congress in 2013, the FAMILY / Paid Family Leave Act, proposes paid leave for family caregivers, but this is not yet an option for most caregivers. That said, a few states – California, Rhode Island, and New Jersey – currently provide some variation of paid family leave to residents, and the state of New York passed a similar law on April 4, 2016, which will take effect on January 1, 2018.
- Paid Leave for Caregiving Employees – If you don’t live in one of the four states that have implemented paid family leave options, don’t get discouraged yet. Fortunately, more companies are assisting caregiving employees today with paid leave, and larger companies are most likely to offer elder care programs. For example, Deloitte allows up to 16 weeks of paid leave for caregiving employees, and Nike recently announced allowing up to 8 weeks for caregiving employees. Indeed, a recent reportfrom the Society for Human Resource Management found that 18% of companies offer a form of paid family leave, and the majority of those that offer the leave to family caregivers include a provision for caring for an elderly parent.
- Family Payments – If the care recipient is ineligible for Medicaid or another state program, and the tax breaks are not as large as you need them to be to compensate you for your caregiving time and related out-of-pocket expenses, look into whether he can afford to pay you himself or if other family members are willing to pay you for your caregiving services. After all, if you would not provide the care, and the care recipient does not qualify for a financial assistance program, your family would be paying for his care out-of-pocket anyway. However, this is a subject that should be discussed openly with all involved family members and any arrangement should be agreed upon by all parties. Should your family determine that family payments are manageable, be sure to meet with an attorney and draft a contract that outlines your work and payment schedule so everyone in the family knows the situation. The contract also may become useful later if your loved one eventually needs to apply for Medicaid or enter an assisted living facility or nursing home.
- Home and Community-Based Services Program – Care recipients who are not veterans can opt into a home and community-based services program (HCBS) if they meet the eligibility criteria (which varies by state, but is typically based on income and a qualifying medical condition, though recipients need not be age 65 or older to qualify). These programs offer guidance and financial assistance to caregivers to ensure they are able to provide the best possible care for their loved ones. They can also boost caregivers’ confidence and make it easier for them to provide a high level of care to their family member.
Overall, caregivers do face financial strain because they shoulder a large portion of the cost of caregiving in addition to their lost wages. The best way to receive financial aid is to look into the programs that are available in your area and determine your loved one’s eligibility to develop a caregiving plan that works for your loved one and your family.
FINANCIAL PLANNING FOR CAREGIVERS
In most cases, caregivers take on their role of caring for a family member when they are nearing retirement age. Hopefully, you have not waited until you nearly reach retirement to begin actively participating in planning for your retirement; but, if you have, it is better to start at some point than to fail to plan entirely. And even those caregivers who have been contributing to a retirement savings account may find themselves dipping into it and putting their retirement in jeopardy when they start caring for a loved one. Either way, financial planning for caregivers is essential.
The financial planning you need to do for yourself as a caregiver often depends on whether you are being compensated for the time you provide care to your loved one. If you have quit your job to be a full-time caregiver, you should discuss your costs with your family and work out a plan for them to pay you as an independent contractor if the care recipient does not qualify for financial aid of some sort to compensate you. Once you are being paid for caregiving, you can set up a retirement plan such as a small-employer pension plan or an individual retirement account (IRA).
If you are deciding whether to quit your job to provide care full-time, there are a few things you can do before you quit to help ease the financial burden caregiving likely will place on you. For example, you should pay off credit card debt and any other debts that you can before you quit. You also need to consider the cost of health and life insurance if you will have to purchase coverage after leaving your place of employment. You should reevaluate your budget and figure in caregiving costs to ensure you will be able to continue to save for retirement. You also may consider asking family members to contribute to a retirement plan for you since you will serve as the primary caregiver for your loved one.
Of course, the option exists for you to work with a financial planner as well. These professionals will guide you to the best retirement plan for your situation. In some cases, that plan may be a traditional or Roth IRA. In other cases, it may be a Simplified Employee Pension (SEP). If you have a 401(k) or another retirement plan from your place of employment, do everything you can to avoid cashing it out while you are serving as a caregiver. Chances are, you will have to pay a penalty if you withdraw money from your retirement account early, and you will damage your future investment growth and compound interest. Unexpected tax bills can add unnecessary stress to caregivers who are already experiencing stress from the day-to-day tasks of caregiving coupled with major life changes for those who recently took on the role of family caregiver.
The benefits of being a caregiver are immeasurable for you and your loved one. However, the financial strain is a very real challenge for many caregivers. Being aware of the costs of caregiving and options for financial aid up-front will help you make decisions moving forward, and you should consider all of those costs and options when conducting financial planning to ensure you do not lose your retirement or savings while caring for your loved one.