Saving for retirement is hard when everything is going right. It feels impossible when life throws you a curveball and you’re thrust into the role of family caregiving.
It’s a topic under debate on Capitol Hill. In June 2019, Representatives Jackie Walorski and Harley Rouda introduced legislation that would let family caregivers who take time away from the workforce make catch-up contributions to their IRA before age 50. It’s a small but encouraging step for families worried about retirement planning while caring for a loved one.
Retirement Challenges Caregivers Face
Caring for a loved one is a major commitment, both in time and money. PNC Financial Services Group recently surveyed individuals in a family caregiving role about their retirement planning. The results were surprising to everyone except caregivers themselves.
- Putting personal time and needs last. Nearly one in four caregivers spend more than half their time tending to a loved one’s needs. Nearly one in three are already working longer—or plan to work longer—so they can continue to give care to a loved one.
- Sacrificing retirement. One-third of all caregivers have raided their retirement accounts to either help pay for care or cover living expenses while they care for a loved one.
- Forgoing big purchases. A significant number of caregivers are delaying non-essential purchases and cutting back on their own retirement savings.
- Being in the “sandwich” generation. The difficulties are even worse for caregivers in the “sandwich” generation. These adults are not only providing care for aging parents, but they’re also raising children of their own and facing a college bill in the near future. It’s a financial tangle causing endless stress.
The sacrifices are worth it for many, however. Nearly half say caregiving has given them a sense of purpose and fulfillment.
Your 4-Point Plan for Saving for Retirement
Every caregiver’s situation is different, but everyone can benefit from the following tips to help you build your retirement fund.
1. Create a budget for you and your loved one.
It’s far too easy to overspend and cheat your savings when you don’t have a workable budget. Look for ways to economize across the board and commit to a monthly savings goal. Even if it’s just a little now, creating thrifty habits will help you set aside more later.
2. Weigh the pros and cons before leaving a job or cutting back your hours.
The decisions you make today have a huge impact on your financial future. If you walk away from a job with an employer-match 401(k), you could forfeit hundreds of thousands of dollars in retirement.
Research all your options for support so you can balance work and caregiving. The Federal Administration on Aging offers an Eldercare locator to connect you with experts in your area. You may do better financially keeping your job and paying for caregiver services while you’re at work. Make sure to talk to your supervisor as well so your employer can support your needs and create ways to work around your obligations as a caregiver.
3. Maximize your loved one’s resources.
In 2018, Medicare loosened the rules for home health benefits in Medicare Advantage plans. Many plans now cover meal delivery, transportation to and from health care visits, adult daycare, and even a home aid that can lower your care costs and free up time for you to work or tend to other activities. Find out if your loved one qualifies for the Medicare Savings Program to cover Part B premiums, or Extra Help to lower the cost of prescription drugs.
If your loved one owns a home, a reverse mortgage may be an option to generate income and lower the costs of care so you can save more for retirement. Reverse mortgages aren’t the right solution for everyone, however. Visit homeequityadvisor.org, part of the National Council on Aging, to find out if they might work for you.
4. Take advantage of pre-tax savings.
Whether you’re working or not, you may be able to open a health savings account. These accounts let you save $3,500 a year pre-tax in an investment account. If you are 55 or over, you can save an additional $1,000 a year. You can use the money in your HSA for medical expenses, and if you don’t use it all, you can roll the balance over year after year. The money in the account grows tax-free, and you have multiple investment options.
HSAs may be even more advantageous than IRAs or a 401(k) without matching because contributions aren’t subject to FICA withholding. The money you put in your 401(k) or IRA bypasses state and federal income tax, but FICA is withheld, so you come out ahead putting the max in your HSA.
Caregiving can be financially challenging, but there are ways to plan for your retirement while giving your time to your loved one.