Taking care of your caregiver

For retirees, it often makes sense to consider expenses related to long-term care separately from regular healthcare costs. Long-term care costs are expenses incurred when people need help with activities of daily living, such as expenses related to in-home health aides or assisted living. About 70% of adults over age 65 today will incur long-term care costs during their lifetime, expenses that can add up if multiple years of long-term care are needed. Consider that the annual median cost for care services ranges from just over $19,000 for adult day health care at a community or assisted living facility to more than $100,000 for a private room at a nursing home.¹ 

About 77% of adults age 50 and older hope to stay in their homes as they age.² To help defray some of the costs of professional help for long-term care, many people, especially older adults who live alone, rely on family or friends to serve as caregivers, helping with tasks that can include household chores, transportation, and more. As of 2020, 16.8% of Americans, or about 41.8 million people, were providing care to someone age 50 or older. That number is up from 34.2 million people in 2015.³ 

While relying on family or friends to provide care can help lower the cost of care for those receiving it, it can have a significant financial impact on caregivers, especially if they need to take time away from work or even quit their jobs to provide care. In fact, 45% of caregivers said they felt at least one financial impact, ranging from stopping saving to borrowing money from family members. More than one-third said they felt more than one financial impact.

As a result, many care recipients may look for ways to financially support their caregiver, especially if it’s a family member. TIAA experts say one of the first things to do if you’re in this situation is to talk to your financial advisor. 

According to Shelly Eweka, CFP®, ChFC®, Financial Planning Strategy Senior Director at TIAA, your advisor can take a look at your financial plan as well as that of your caregiver and run the numbers to see what the impact of various strategies is going to be.

Making gifts to a caregiver

One of the more common strategies to financially help caregivers is to gift cash or assets to the caregiver using the gift exemption.  For example, in 2022, individuals can give up to $16,000 to someone else without triggering gift taxes or dipping into their estate tax exemption. However, according to Dan Bollini, Wealth Planning Strategies Director at TIAA, not every retiree may be able to afford to do that without depleting assets needed to cover additional retirement expenses down the road. Be sure to check with your tax advisor on how to manage your unique circumstances.

“The giant question mark is that you don’t know what the future holds,” Bollini says. “You have to try to balance what your future needs will be with what you want to do now. If you start giving this much, what does that mean for you longer term?”

Another strategy is to change your estate plan to provide more to caregivers when you die. However, that can also get complicated. If you die with less assets than planned, your caregiver may not end up being compensated for their work, and it could also create family strife if not discussed openly beforehand. Additionally, if your caregiver is struggling financially now, money in the future may not be as helpful.

Another thing to think about is that some people without enough assets to pay for their care expenses may need to rely on Medicaid to cover those costs in the future. In order to qualify, your assets or income must be below state-set limits. Bollini urges those who  are considering making gifts up to five years prior to applying for Medicaid, to talk to their financial advisor.  “The amounts of these gifts could potentially disqualify you for Medicaid, at least for a period of time,” he says.

Planning ahead

While it may seem overly formal, creating a legal employment contract between yourself and a family caregiver may help solve some of the concerns with providing them income. It means that instead of a gift, it’s an expense that would count toward depletion of assets if you needed to try to qualify for Medicaid. It can also help with family dynamics, Bollini says, because it eliminates any surprises about how much the caregiver may be receiving by putting it in writing. 

The best strategy, however, is for both potential caregivers and care recipients to try to plan ahead as far as possible. That can be hard when the future is unknown. 

“The costs can be all over the place,” says Dan Keady, CFP®, Chief Financial Planning Strategist at TIAA. “There are a substantial number of people who will spend the minimum amount on long-term care, there’s a group that will spend $200,000, and there’s a group that will spend an astronomical amount.”

Keady says that while some people plan to just work longer to help build up savings to cover long-term care, TIAA encourages clients to save early to take advantage of the power of compounding to build up money to protect themselves in retirement.

Planning early may open up a host of options to help both potential caregivers and care recipients. For those needing care, they may be able to consider long-term care insurance policies. Some of these policies have started offering compensation for family caregivers, which may appeal to those who plan on having relatives take care of them.

For potential caregivers, Eweka suggests they check with their employer. Many employers offer benefits for employees who provide care to family members, which could include paid leave.

Caregiving and long-term care can often be difficult topics for families to discuss, Eweka says. But a financial advisor can help get the conversation started by discussing what's important to you, such as whether you want to receive care in your home or in a more formal setting such as a continuing care retirement community. An advisor can also review options in detail concerning how you want a family caregiver to be treated or compensated.