4 Retirement Savings Strategies for Family Caregivers

Providing care for a family member can put a dent in retirement savings, but there are ways to get your finances on track.
Apr 8, 2022

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Taking care of an older parent, a child with disabilities or a loved one with a chronic disease can affect your emotional, mental and financial health. However, being a family caregiver is a daily reality for about 48 million people in the U.S., according to AARP.

Many caregivers say they’ve had to make sacrifices, including having to reduce their retirement contributions.

To keep your retirement savings on track while also caring for a loved one, financial professionals suggest some strategies.

Recognize the financial weight of family caregivers

According to the Centers For Disease Control and Prevention

, family caregivers are family members or friends who help a loved one with care on a regular basis.  They could take on tasks ranging from grocery shopping to transporting them to appointments.

About half of those surveyed about caregiving in the U.S. said they have had financial setbacks, including cutting back on their retirement, according to a 2020 study by the National Alliance for Caregiving and AARP.

Cynthia Haddad, a certified financial planner at Special Needs Financial Planning, based in Burlington, Massachusetts, can relate to feeling behind on retirement savings. Haddad is part of the sandwich generation — adults who care for their aging parents and children at the same time. She cares for her father, a brother with developmental disabilities and teenage children.

“I've been fortunate enough to be in the financial planning field, which is where we're self-employed. I'm trying to save for retirement [but] I didn't have anybody contributing to my retirement account other than myself and my husband, so that's always been a struggle,” she says.

Caregiving affects Americans from all walks of life, but people of color especially feel the brunt. Latino and African American adults spend more of their income than white adults on caregiving, the study found.

Latino Americans reported spending an average of $7,167 annually, and African Americans spent an average of $6,746. Women also feel the financial pinch because they can spend more of their time caregiving and traditionally earn less than men.

If you are feeling like you’re behind on retirement savings, how do you move forward?

To start, it’s important to get clear about where you are with your retirement savings so you have objective data to work with, versus just feeling like you’re behind, says Ed Coambs, a CFP and board member of the Financial Therapy Association based in Charlotte, North Carolina.

Do your own financial analysis, he says, or consider working with a financial advisor.

Lighten the load with professional help

If you want a little extra help, you can use a financial institution to assess your finances, says Laurore Jean-Pierre, an attorney, financial advisor and founder of JP Law and Wealth Advisors based in Orlando, Florida.

“Many banks, for example, Chase and Charles Schwab, offer a financial review free of charge for clients,” Jean-Pierre says. The advisors on staff can help you assess your financial situation and retirement goals.

Haddad said she uses a certified financial planner and thinks every caregiver should have one.

“A caregiver can't really pay attention to their own financial needs, as well as take care of all of the financial needs of the person that they're caring for,” she says.

A financial advisor can also help caregivers consolidate their finances, Haddad says. For instance, if a caregiver has IRAs and 401(k)s in different places, they may want to combine them.

She also recommends working with a planner who has experience working with caregivers. To find a CFP with that background, ask for referrals or learn more about their experience during a consultation.

Reduce out-of-pocket care expenses

Experts recommend saving 10% to 15% of your pretax income annually for retirement. If you're struggling to meet that goal because of how much you're spending on caregiving, consider seeking government assistance.

Government assistance for family caregivers

“Make sure the person you're caring for will have sufficient financial resources, be it public benefits or their own private resources to pay for the cost of their care,” Haddad says. Think tax deductions, Medicaid/Medicare and Supplemental Security Income, or SSI, she says. Find out what assistance your loved one might qualify for, and consider applying.

There’s assistance available for you, too. There are tax breaks for parents of children with functional needs, including the medical expense deduction and the child and dependent care credit. And in 2021, the Credit for Caring Act made it possible for caregivers to get a tax credit of up to $5,000 to cover the costs of long-term care over $2,000 for that year.

Health Savings Accounts

Haddad also recommends using a health savings account to pay for care tax-free and investing any money you have left over. Some HSAs can be used as an investment vehicle, depending on the provider. This means you can use your leftover balance to invest in mutual funds or exchange-traded funds and enjoy tax-deferred growth.

Bulk up retirement accounts

Haddad says for some couples who have children with disabilities, families may have to sacrifice other work opportunities and get by on one income. As a result, there's only one person contributing to a retirement plan as opposed to two.

If you have at least one workplace retirement plan, such as a 401(k), Haddad recommends contributing enough to get at least the minimum employer match. If you’re self-employed, she says, consider a simplified employee pension, or SEP, IRA because it’s tax-efficient — retirement contributions you make for yourself and your employees are deductible within limits.

Funding a Roth IRA is also an option. You get tax-free withdrawals in retirement, there’s no required minimum distribution at 72, and your heirs could enjoy a tax-free inheritance. Since you’ve already paid taxes on the money used to fund the Roth, in most cases, your heirs can take tax-free distributions as long as they’re designated beneficiaries.

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