At the start of the 20th century, the total population of Americans age 75 or older was less than one million. Today that population has soared to more than 20 million1; representing a massive shift in our nation’s demographics. With this increasing longevity, however, also come significantly higher healthcare costs in retirement— – costs that more and more often are falling onto the shoulders of adult working children.
According to a recent study, a relatively healthy couple entering retirement (both age 65) are going to need on average $273,000 in savings to give themselves a 90% percent probability of having enough to cover out-of-pocket medical expenses throughout their retirement.2 And that amount doesn’t even include the astronomical costs associated with long-term care should it be needed.
Unfortunately, both the emotional and financial strain of caregiving often falls on one or more adult children (in particular, daughters). In fact, approximately 25% percent of baby boomers are currently caring for an aging parent. And two-thirds of those caregivers are women, who spend an average of 12 years out of the workforce between childcare and eldercare.3 Not only do these “lost years” have a direct financial consequence in the way of reduced income (an average of $324,000 according to the National Alliance of Caregiving) but they generate a far-reaching financial ripple effect.
First and foremost, caregivers who take time away from work have less opportunity to contribute to their employer-sponsored retirement plan, and in turn, miss out on potential matching employer contributions. That means they also typically experience reduced pension benefits and lower Social Security benefits. Keep in mind that Social Security benefits are calculated based on your 35 highest years of highest earnings, and eldercare responsibilities often occur during peak earnings years (late 40s to mid-50s).
Even if you don’t leave the workforce, there are other less obvious financial costs associated with caring for an elderly family member. Many individuals who find themselves in a caregiver role seek out other work accommodations (e.g., flex schedules and/or reduced hours), which can translate into reduced income, being passed over for promotions and reduced benefits.
Positive steps you can take
Although the Census Bureau estimates that there are more than 44 million unpaid healthcare providers across the U.S., little exists in the way of government support programs. As a result, adult children should make every effort to seek out accommodations that will have the least impact on important benefits such as healthcare coverage or employer-sponsored retirement plan participation. In most cases, it will likely be far more financially advantageous to pay for a professional home health care provider rather than significantly scale back your hours in an attempt to juggle both work and caregiving responsibilities yourself.
In addition, don’t make the all- too -common mistake of commingling your assets with those of your aging parent in order to simplify things like bill paying. By combining assets, you could inadvertently render your loved one ineligible for Medicaid or other forms of public assistance since your assets could technically be considered a gift to them.
Lastly, if you are currently or expect at some point to be helping a parent out financially, talk to your SunTrust advisor. Your advisor can conduct a comprehensive analysis to understand your expectations, concerns and your financial situation, as well as your family member’s situation, to recommend a risk management strategy. This strategy may include insurance solutions4 such as long- term care or life, or alternative strategies focused on gifting or savings.
For many of us, the financial obligations associated with taking care of an aging parent come at the worst possible time— – just at an age where college tuition commitments are winding down and we look to start taking advantage of catch-up contribution provisions to augment our retirement savings. Of course you want to help out as much as possible. Just don’t jeopardize your own future to do so, or you’ll simply be perpetuating the cycle and leaving your own children to shoulder the burden for your care years down the road. A little planning and preparation can make a world of difference in easing a difficult and emotional time.