Advisors would be wise to factor in potential long-term caregiving responsibilities when crafting retirement plans for clients.
Financial bumps can arise if clients who are caregivers start plucking money out of savings and retirement accounts in order to help pay expenses of a loved one who is receiving care. Likewise, if caregivers cut back on work hours or quit work altogether to make more time available for care.
Advisors of those clients are going to see funds in the affected savings and retirement accounts decrease, and that can derail previously established retirement plans.
According to a new study, those financial repercussions of caregiving can and do happen.
Caregivers who help provide financial assistance for the care of loved ones estimate that they pay, on average, about $10,000 a year out of their own pockets to help support the care recipient, according to “Beyond Dollars,” a study from Genworth, based in Richmond, Va. That’s up from an average of $7,285 in 2010.
They are shelling out money for everything from household expenses, personal items and transportation services, to payment for informal caregivers and care facilities.
Hits to the retirement account
Where do these caregiving souls find the money? A lot of the time, they tap their retirement accounts, according to the study.
For example, more than half—62 percent—said they paid for care with their savings and retirement funds. In addition, 38 percent reported that they reduced their contributions to their savings and retirement programs.
So, they are spending from their nest eggs as well as not adding to their accounts. This likely was not in the retirement plan they set up with their advisor.
Some said they cut back on personal spending, too, with 45 percent saying they’ve reduced their base quality of living.
Some cut back on hours of employment as well. Three-fourths (77 percent) said they had missed work in order to provide care. Approximately one-third said they provide 30 or more hours of care per week, and half of those individuals estimated that they lost “around one-third of their income.” Over a period of three years—which is widely considered the caregiving period—“that’s potentially a full year’s worth of income lost in the course of a single long-term care event,” the researchers said.
Then there’s the personal toll. For instance, some caregivers report having experienced problems with personal health and well-being (44 percent); negative feelings like depression (43 percent); family issues (35 percent); and “extremely high” stress levels (33 percent).
What the study did not say, but is implicit, is that those personal developments have a financial cost too, assuming the caregiver makes the time to obtain professional care.
Shivers down the spine
These numbers are significant enough to send shivers down the spine of many an advisor, both retail and institutional.
The reason is self-evident: If caregivers draw from their own resources, including financial and personal, to meet the caregiving need, they may be “jeopardizing their own financial futures,” the study said.
It’s not just the future that’s at risk. It’s the here and now. The study quotes a woman, a daughter of a care recipient, who said she had to change jobs to accommodate the caregiving and wound up making less money than before.
The woman also said she spent less time with her family and “we had less money to do activities.”
Some advisors have become accustomed to hearing stories like that from women who become caregivers. No wonder. A June 2015 study by the AARP Public Policy Institute found that 60 percent of caregivers are female and 40 percent male.
But advisors will be interested to learn of a Genworth finding, that today’s caregivers are evenly split 50/50 between men and women.
Another demographic trend, that may parallel the gender equalization, is that caregivers are “skewing” younger. Three-fifths (62 percent) of those surveyed are between ages 25 and 54, “younger compared to 2010,” the report said. Furthermore, “more family members, and younger family members, are often getting involved,” including millennials.
Those trends suggest that advisors may want to include both genders in discussions they bring up about the caregiving part of financial life. They may also want to include younger clients who may be just starting their retirement savings programs but who may also be taking on caregiving responsibilities.
Some advisors may expect clients to feel uncomfortable about discussing the many costs of caregiving, especially when a loved one is greatly in need. However, the Genworth study found that caregivers have positive feelings too, despite the challenges. For instance, they said they “appreciated the opportunity to provide care” and felt “proud to be able to do so.”
The answer is to plan, and to plan early, according to Genworth, which added that doing so brings benefits later for both caregivers and care recipients.
In short, people need to plan for their own financial security in light of possible caregiving responsibilities and expenses. That would likely be in addition to planning for their personal long-term care.
“The majority of those who had prepared for a long-term care need said they wished that they had taken steps sooner,” the Genworth report said.
Given the substantial retirement risks that some caregivers are assuming, this seems to be is a matter for retirement planning as well as long term care planning. As such, the two disciplines are interwoven. Bottom line: Advisors who prefer to focus on one or the other discipline will still be in a position to help clients deal with the what-ifs of caregiving.
“Avoiding the subject won’t make it go away,” the study said. “According to the Centers for Medicare and Medicaid Services, at least 70 percent of people over 65 will need long-term care services and support at some point.”