How Family Caregivers Can Protect Their Own Finances

Family caregivers sacrifice a lot to provide support for aging loved ones—including their own financial well-being. According to a study by AARP, 78% of caregivers have out-of-pocket expenses related to caregiving and spend, on average, a quarter of their income on caregiving activities. On top of that, caregivers often dip into their savings, take on debt and have to work fewer hours at their paying jobs. 

As more and more people find themselves in the role of unpaid family caregiver, the problem will only get worse. However, there are several things people can do to prepare financially for the possibility of becoming a caregiver and to soften the financial blow if they’re already in a caregiving role.

How to prepare financially to be a caregiver

Being able to soften the financial blow of being a caregiver begins with planning for the possibility that you will have to care for an aging loved one at some point. By taking these steps, you can increase the chances that you will be prepared financially.

Talk to your parents about their care plans

The first step to take is talking to your parents about long-term care. “A lot of people don't want to have tough conversations,” said Courtney Heiden, founder of Financially Bright Strategies and a caregiver for her father, who has Alzheimer’s disease. “But, the thing is, the more we plan ahead for our future and the more we approach those difficult conversations and actually get answers to them, the easier things are going to be if a crisis happens or if our loved one is diagnosed unexpectedly with a chronic illness, whether it be dementia or something else.” 

Heiden said that you should ask your parents where they would like to receive care if they’re diagnosed with a chronic condition and need long-term care. Then discuss how they plan on paying for that care. “The good news is when you do plan ahead, there are a ton of options available to create tax-incentivized, cost-effective ways to pay for care the way that you want to receive it,” she said. “So starting that conversation is the key.”

[ Watch: Our Interview With Courtney Heiden ]

Talk to your siblings

If you have siblings, talk with them about the roles each of you is willing to play in your parents’ lives as they age. Agreeing on how much financial and caregiving support you can provide before there’s an emergency will make it easier to deal with a difficult situation. It also can prevent fighting down the road if expectations are established before any of you has to get involved with your parents’ care. 

[ Read: How to Stop Arguing With Your Siblings About Your Parents’ Care ] 

Secure your finances

Considering that some caregivers can be forced to take on debt, pay off any debt you already have as soon as possible. You’ll be in a better position financially if you step into a caregiving role debt-free. 

Set aside money in a savings account each month to build an emergency fund. Typically, financial advisors recommend having enough to cover at least three to six months of expenses. However, Heiden suggests building an even bigger emergency fund if you expect to become a caregiver. “I would encourage people to think, ‘What might it look like if I'm not able to work for five years to provide care for a loved one?’” she said.

Also, make sure you are contributing to a retirement savings account, especially if your employer matches your contributions, Heiden said. Getting a jump-start on your retirement savings will pay off if you have to stop working and paused retirement account contributions for a while to care for a parent or loved one.

Soften the financial blow of caregiving

There are some things you may be able to do that will help reduce the financial strain of caregiving. Of course, the steps you can take will depend on your situation.

Ask friends and family to chip in

Don’t be afraid to reach out for help. Ask siblings or other family members to pitch in with caregiving responsibilities or to provide financial assistance. They might not realize you need help until you ask. So be specific about what sort of support you need. 

Reduce housing costs

Half of out-pocket expenses related to caregiving are housing expenses, according to AARP. You could reduce your loved ones’ housing costs by moving them in with you. “Even if their mortgage is paid off, there are certain day-to-day expenses like utilities or groceries, and maybe some of that could be consolidated if everyone's under one roof,” Heiden said. That could give them more money to cover costs you might be paying for or to pay for professional caregivers so you don’t have to quit a paying job. 

Take advantage of government benefits

There are a variety of government benefits and programs that might help offset some of the costs related to your loved one’s care. Use the Benefits.gov Benefit Finder tool to see what government benefits your parents might be eligible to receive – including financial benefits, housing assistance, health care and medical assistance.  You also can use the U.S. Administration on Aging’s Eldercare Locator to connect with support services for older adults and their caregivers. 

Look into Medicaid long-term care

Medicare does not cover the cost of long-term care, but Medicaid does for those who meet financial and functional requirements. If your loved one needs assistance with activities of daily living such as bathing, eating and dressing and has very limited income and assets, Medicaid might cover the cost of care in a nursing home. Depending on the state, your loved one might be able to receive Medicaid-funded care at home. You might even qualify to be paid by Medicaid as a family caregiver.

‍[ Find Out: How Medicaid Can Pay for Long-Term Care ]

‍Tap your loved one’s life insurance

If your loved one has a long-term care insurance policy, you certainly should use the policy to help pay for a home health aide, assisted living or nursing home care. However, most adults don’t have long-term care insurance. 

There’s a better chance that your loved one has a life insurance policy that you might be able to tap to cover the cost of care. If it’s a permanent life insurance policy, such as whole life or universal life, the policy likely has accrued cash value that you could access. Or, if your loved one is 65 or older, you might be able to sell the policy for more than the cash value through what is called a life settlement. 

[ Read: How to Pay for Long-Term Care ]

Get legal and financial assistance 

Consider meeting with an elder law attorney to see what steps your loved one can take to qualify for Medicaid long-term care or other government benefits. There are ways to spend down income and transfer assets to become eligible, but it’s best to work with an attorney to do this correctly. An elder law attorney also can help with the Medicaid application process, which can be incredibly complex.You can find a Certified Elder Law Attorney through the National Elder Law Foundation.

Also, consider working with a financial advisor, who can help you create a plan to protect your finances and can help your loved one effectively stretch what resources she has so she might not have to rely entirely on you for support. You can find financial planners who charge by the hour through the Garrett Planning Network. If you or your parent can’t afford to hire an advisor, you might be able to find one who will do pro bono work through your state chapter of the Financial Planning Association.  Heiden said that she provides free consultations to find out what clients' goals are and to develop a financial strategy for them.

Hear Heiden’s story about how her father’s financial mistakes led to a diagnosis of Alzheimer’s disease and get all of her tips for caregivers by visiting the Carefull Community. 

‍[ Keep Reading: What You Need to Know About Being a Financial Caregiver ]

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