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For the great majority of Baby Boomers, financial planning for retirement is a minefield of unknowns. Even the best efforts to predict basic living expenses, healthcare expenses and retirement leisure activity costs accurately are difficult. The answers are often, “It depends.” It depends on the stock market, it depends on interest rates, it depends on changes in government policy, it depends on one’s health; it depends on anything that puts money in or takes it out of the calculations.
Too often, however, one expense that doesn’t get adequate consideration is the cost of caring for a dependent relative over the age of 50; someone who needs help with some or all of the crucial activities of daily living (ADL): dressing, eating, walking, toileting and hygiene. Folks like these need a care giver.
Currently in the U.S. there are an estimated 46,500,000 family care givers for those who are dependent and over 50. This number will rise dramatically as the Baby Boom ages. Today, it is Boomer women who account for the great bulk of this hidden workforce. As time ticks by, these same women and/or their significant others will become the care receivers as they age and their daughters or nieces and (less often) sons and nephews, have to take up the care giving role.
According to an updated AARP study, 65% of family care givers are women. The typical care giver is 49 years old and works outside the home; she spends 20 hours a week providing unpaid care to her mother and this care period lasts 5 years. Data analysis suggests that if this amount of care, provided by all similar unpaid care givers, were bought on the open market, the annual value would be $540 billion, nearly as large as Medicare’s entire $588 billion budget for 2013.
Eye-popping as these estimates are, they don’t address the out-of-pocket costs that care givers face when taking on the responsibility of giving care. In addition, these estimates do not include the “opportunity costs” incurred when a care giver retires early, quits a job or works fewer hours because of care giving responsibilities. Neither the out-of-pocket expenses nor the opportunity costs can be ignored when one is planning for retirement.
Much of what needs to be done for Mom or Dad or Uncle Dave or Grannie isn’t in the elder’s budget. Neither is there much government money for the everyday services that these family members require: companionship, meal preparation, bill paying, personal care, grooming, medication management, transportation, household maintenance or health care advocacy.
Although the focus of this article is on the financial costs experienced by care givers, the non-financial toll can also be substantial: fatigue, mental and physical health problems, family dysfunction and work stress. But these are subjects for another day.
According to a National Alliance for Caregiving study published in 2007, the average care giving household spends $5,531 of its own money every year providing care. That expense swells to $8,728 if the care is long distance, requiring travel of more than 50 miles. These cost estimates have not been updated since 2007 though so we can safely assume that even with modest inflation these figures are higher in 2013, likely approaching $6,300 and $9,800 respectively.
For those who must cut back on work hours, quit working altogether or retire early in order to meet their care giving duties, the opportunity costs are high. There is loss of income, reduced Social Security benefits, possibly the loss of paid health insurance and reduction of pension or retirement program benefits. A recent analysis of MetLife Mature Market Study data, which was updated in 2011, estimates that the average lifetime opportunity costs for those who cut back, quit work or retire early to take on care giving responsibilities is $303,880. This figure is higher for women, $324,044, than for men, $283,716.
Retirement planning cannot ignore these kinds of numbers if care giving is likely a part of one’s future.
As a society, we recognize the expense of raising children and make allowances for that in our complex tax code. However, unless a dependent elder is living in the care giver’s home, there are no tax credits or deductions available. Unpaid family care givers relieve tax payers of significant Medicaid expense for nursing home care that might otherwise be used. This, plus the out-of-pocket and opportunity cost burden for these families should obviate the need for legislative action to modify the tax code and create programs to moderate the burden. Obvious though it may be, the current political winds around this issue are head winds.
A 2011 AARP document lists 13 suggested policy initiatives to address the burdens placed on family care givers, eight of which require additional tax payer spending. In the current political environment, additional spending for social programs seems unlikely.
As an example, one potentially helpful program, already approved and signed into law, is the Lifespan Respite Care Act of 2006. The program was originally designed to spend $289 million over the first five years. This money was to be used for state and local grants across the country to create and encourage respite care programs for over-burdened care givers. But, the program received no funding until 2009 when congress finally agreed to $2.5 million. It has been funded at this same paltry amount in subsequent years. Among care giver advocates, an expectation for more realistic funding in the future is very low. Examples like this illustrate the need to minimize one’s expectations for substantive government help, financial or otherwise, in the retirement planning process when care giving is factored in.
In summary, retirement planning must include the potential financial realities of care giving lest the burden arrive as a surprise, altering a household’s financial situation. For reasons that are obvious, retirement is not the time to financially re-engineer one’s future.