Caregivers should not neglect their own finances
Eileen St. Pierre, The Everyday Financial Planner
The recent death of former first lady Nancy Reagan reminded us of the tremendous sacrifices caregivers make and how much our society depends upon them. According to the MetLife Mature Market Institute, caregivers pay an estimate of $5,531 annually in out-of-pocket costs for caregiving and 70% of caregivers report making adjustments to work schedules to accommodate caregiving responsibilities. Caregivers may reduce their hours at work or forfeit promotions and benefits.
Caregivers need to pay attention to their own finances to make sure they do not jeopardize their retirements. Here are some tips:
Create a household budget.
This is especially important if you are going to leave your job or have reduced hours. You need to understand all your sources of revenue. When listing your expenses, realistically estimate your caregiving costs. This may be hard to do at first, so track your expenses over several months to get a clear picture of your out-of-pocket expenses.
Pay off all your credit cards and other debts before you leave your job.
Why add the stress of paying off your debts to the stress of being a caregiver? Being debt-free gives you a lot more flexibility. Use the money you would have paid in interest towards your retirement.
Make sure you have enough insurance coverage.
Research your health insurance options if you are going to lose your employer-provided coverage. Compare the cost of COBRA coverage with what you may be eligible for through the Health Insurance Marketplace (healthcare.gov). Don’t forget about life and long-term disability insurance.
Set yourself up as a business and continue to save for retirement.
Resist the urge to cash out your 401(k) or other workplace retirement plans – if you are under age 59 ½, you will have to pay a 10% penalty along with applicable income taxes. If your family members are contributing towards your caregiving expenses, ask them to pay you as an independent contractor.
- This way you can set up your own business and deduct your caregiving expenses.
- You can also set up a SEP plan, which allows you to contribute up to 25% of your income.
- Alternatively, you can contribute $5,500 ($6,500 if age 50 and older) into an IRA.
In order to keep your career options open, don’t lose touch with your network. Find ways to keep your skills up-to-date. A business lunch or a professional development workshop can also give you a much needed break. Being a caregiver may also reveal strengths and skills you never realized you had!
Visit my Financial Planning for Later in Life page for more information.