Yahoo Finance 4 Ways to Protect Your Retirement While Being a Caregiver
As baby boomers grow older, their adult children are increasingly being tapped to offer help with tending to their day-to-day needs. According to the Bureau of Labor Statistics, 40.4 million Americans act as caregivers for someone else and the majority of those aged 35 to 64 are doing so for a parent.
A lot of attention is paid to how emotionally draining caregiving can be but the financial implications can't be overlooked. When planning for retirement takes a backseat to caring for an aging parent, you could end up paying the price in your later years.
If you're anticipating becoming a caregiver to one or both of your parents at some point, you'll need a good defensive plan for safeguarding your retirement. Here are some of the most important things to keep in mind.
[See: 7 Stocks to Buy for the Baby Boomer Retirement Wave.]
Ask the right questions. There are a whole host of issues that need to be explored prior to taking on a caregiving role. First, you need to be asking what kind of care you're expected to give, says Robert A. Westley, an associate wealth advisor at New York-based Northern Trust.
"People should consider the specifics," Westley says. "Namely, will it be primarily financial assistance, physical assistance or a combination of the two? If it's financial, is there room in your budget for these additional expenses?"
If the answer is no, then the next question you have to ask is how you're going to cover the gap. Will it mean a significant lifestyle change or are you comfortable with re-prioritizing your other financial goals? These are things that bear thinking about beforehand, Westley says.
Adult children also need to take the wishes of their parents into account, advises Brian Pearson, president and CEO of American Benefits Exchange in Austin, Texas.
"Families need to have a discussion to find out what the elderly parents' preferences are," Pearson says. "Do they want to stay in their own home or are they open to moving in an assisted living facility? If they had to go into some type of nursing care facility, is that an option?"
From there, Pearson suggests looking at how those choices compare in terms of cost. The expense spectrum is very broad and the cost is going to be different depending on which option is deemed best. That in turn is going to have an effect on how well you're able to keep pace with your retirement savings goals.
Plan ahead for employment changes. Six in 10 caregivers say they've had to cut back hours or take a temporary leave of absence from their jobs at some point, according to AARP's 2015 "Caregiving in the U.S." report. If you're concerned about having to take a break from work to care for a parent, that's something you need to plan for sooner rather than later.
Lisa Hutter, senior director of wealth planning for Wells Fargo Private Bank, counsels that caregivers need to be prepared for the long-term impact of leaving their jobs behind, even they're only doing so temporarily.
"Reduced pay affects your retirement savings rate, which can influence the age at which you're able to retire," Hutter says. "Trying to maintain the same retirement age could mean having to cut expenses or take a different approach to investing. In the end, it may not even be possible. Becoming a caregiver can mean delaying retirement or ending up with less disposable income in your later years."
Meeting with a financial planner is also recommended when caregiving triggers financial concerns, according to David Peterson, a managing director with Denver-based United Capital Financial Advisers.
"The advisor should run a financial plan that addresses several "what ifs" while also looking at the worst-case scenario," Peterson says. What may begin as a two- or three-month undertaking could turn into a two- or three-year obligation, he cautions. Like Hutter, he agrees that people need to carefully consider the possibility of having to work longer or live on less in retirement when caregiving is on the table.
[Read: 15 Retirement Investing Mistakes to Avoid.]
Focus on your employer's retirement plan if you're returning to the workforce. If you're going back to work after spending time as a caregiver, ramping up your 401(k) can help you get back on track.
At the very least, you should be contributing enough to get the employer matching contribution once you're working again. The more you can accelerate your savings rate, the better, particularly if you're looking at a shorter horizon to retire. If you're 50 or older, you should be taking full advantage of catch-up contributions.
If your employer doesn't offer a 401(k) or a similar plan, look at what options you do have. Max out an IRA or funnel money into a health savings account if you have a high-deductible insurance plan. The contribution limits to both aren't as high as a 401(k) but they still offer tax-advantaged avenues to beef up your nest egg.
Beyond saving, it's also important to re-evaluate your spending. If you reduced your lifestyle while you were out of the workforce, says Peterson, don't rush to resume your old spending habits. Instead, focus on adding to your retirement accounts and paying down any debt you may have accumulated while you were out of work.
Leave emotions out of your decision-making. When you're dealing with family matters, it's easy to let emotions direct your choices but that's not something you can afford to do when your retirement is at stake.
Beth Blecker, a registered financial consultant and founder of Eastern Planning in Pearl River, New York, stresses the importance of leaving emotions out of the equation, especially for women who become caregivers.
"The biggest mistake associated with caregiving is making emotionally-based decisions," Blecker says. "This hits women particularly hard. Women are often expected to be the ones providing care but if a woman has to leave her job, she's dealing with the loss of salary, benefits and the ability to plan for her own retirement. Family members need to communicate and make a rational decision that takes financial matters into consideration."
Pearson says that emotions can lead to snap decisions that don't take the bigger financial picture into account. If you're leaving a job, for example, you're not just forgoing a paycheck. You're also losing out on the potential for promotions, bonuses, insurance, vacation pay and matching contributions to a retirement plan, all of which have a high value. The loss of those benefits can threaten your retirement security down the road so it pays to be level-headed.
[See: 10 Questions to Ask Before You Hire a Financial Advisor.]
"Bottom line," Pearson says, "don't let emotions overrule common sense."
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