How women can prepare financially for caregiving

Women often take on the caregiving role for children, or aging parents and spouses. 16.8% of the U.S. adult population provides unpaid care to an adult over the age of 50, according to a recent survey—61% of those caregivers are women, and many were unprepared for all that role entails, experts said.

Caregiving may be seen as a family obligation, but the financial hardship is often a surprise. "Most of us are aware of this possible role, but rarely do we prepare for it financially, " said Chrisanna Elser, financial planning quality assurance specialist at BOK Financial^®.

Elser offers tips on what to consider if you are anticipating a caregiving role now or in the future.

1. Prepare yourself early in life for a future caregiving role

“We advise our clients to be prepared for unexpected events in life,” said Elser. “Building up your earnings and savings during your early career is crucial for creating a financial cushion, especially if you plan or need to take time off from work.” Compound earnings will continue to work for you even while you step away from your career and are not actively contributing to your savings and investments.

"We have this conversation with clients—especially women since they tend to take on the caregiving roles more frequently," Elser added. "The discussion revolves around the potential of them having to stop working early or potentially take a lower paying job while doing part-time hours as the caregiver for a friend or family member."

2. Involve parents, siblings and spouses in your plan

Work with family members and create a care plan. If you're going to be the one to provide care for an aging parent either because you're willing to take on that role or live the closest to them, there needs to be a plan to compensate for your time, Elser said.

"More often than not, the daughters take on that role. Then they deal with the fallout of lost earnings and savings later, " said Elser. "But we need to start having these conversations. The caregiver may be willing to take on the responsibility, but they need reimbursement because they're hindering their own earning potential—and possibly sacrificing their future financial security—to provide that care. "

One client Elser worked with created a caregiving arrangement with her two sisters. The sister providing care for their mother was paid a reasonable market rate for her services from their mother's assets. The sisters accepted that their potential inheritances would be reduced, but this was the equitable way to handle the arrangement and compensate the caregiving sister for her time and lost earnings. It also removed some of the guilt the other two sisters (who lived in different states) felt for not being there to share in the caregiving duties.

"It's important for parents to realize that if they're not paying a family member, they will likely have to pay for outside caregiving help," Elser added.

Some caregivers worry about spending all of the parents’ assets on their long-term care and think they are helping by not asking for compensation, Elser said. If there is a likelihood that the parents will end up on Medicaid, it may be better to compensate family members first, rather than have remaining assets go toward medical and caregiving bills that would otherwise have been paid by Medicaid.

3. Don't pull from your own money to cover caregiving expenses

“One major mistake children make is using their own funds for their parents' care once their parents' money is depleted,” Elser warned.

However, Elser urges people to learn whether your state has filial responsibility laws first.

“Fortunately, some care expenses, including payments to caregivers, can be covered by insurance if the person needing care has planned ahead,” she said. You may be able to work with your parents to put proper long-term care insurance coverage in place.

4. Spousal planning for raising families

While the cost of daycare feels pretty steep when children are young, there are more factors to consider when thinking about taking time away from the workforce than simply comparing those costs to the parents' income, said Elser.

“If you’re likely to become a caregiver in your family, it's essential to discuss this with your financial advisor before it's too late to consider the full impact of their decision, which includes reduced lifetime earnings, lower retirement savings and diminished Social Security benefits,” she said.

And if the decision is made to have one spouse step away from the workforce, the working spouse should fund a spousal IRA on their behalf. Work with your financial advisor on how to set this up and be aware of IRS contribution limits for retirement accounts.

Caregiving for a loved one can be an emotionally-charged role, but it doesn't have to be a financial hardship. Put a financial plan in place early, before the caregiver has to take on the role. Talk to a financial advisor about what kind of contingency planning makes sense for you and your family.