The caregiver's financial guide
Five questions to help you prepare for what may be one of the most important roles of your life
Living till you're 80 or 90? A century ago, the odds were decidedly against it, but today we take living longer almost for granted. The extra years can be a wonderful gift, providing more time for us to spend with loved ones. But longevity also has added costs, among them a greater chance of needing expensive long-term care.
While all chronic illnesses involve financial and emotional costs, Alzheimer's disease can be especially challenging. Alzheimer's patients frequently end up in nursing homes, where a semiprivate room costs on average nationally $104,025 per year.Footnote 1 Whether someone in your family is suffering from Alzheimer's or another condition that limits their independence, you may be called upon to help, providing both hands-on care and financial support.
There are no simple answers to the financial and legal questions related to caregiving, but planning can help. Cynthia Hutchins, director of Financial Gerontology at Bank of America, and Lauren Galvin, national sales manager, Personal Retirement, Bank of America, suggest gathering your family and considering the answers to the following five questions.
Q: How can I prepare for the financial challenges of caregiving?
A: It's never too early to talk with family members about what-if scenarios, Galvin says. "What if your parents need to move in with you, for instance? That might require that you retrofit your home to make sure that it's safe for them. Or what if they live hundreds of miles away and you need to visit them often to make sure they are being cared for properly? You'll have to figure out how that will affect your career, what problems it might create if you have kids of your own who still need you around and whether the cost of regular travel might be a burden."
It's important to consider how future caregiving responsibilities could affect your overall financial strategy. Depending on your family history, you may want to begin saving now for potential caregiving costs. "Try to avoid finding yourself in a position where you have to quit your job or reduce your hours at work," says Hutchins. "That could leave you paying for your own health insurance, and you might lose other benefits as well, including money from your retirement plans if you haven't met vesting requirements."
People who aren't familiar with Medicare and Medicaid regulations may be surprised to discover what is and isn't covered — especially what isn't.
— Lauren Galvin,
national sales manager, Personal Retirement, Bank of America
Q: What if my parent or spouse doesn't have long-term care insurance?
A: "Taking an inventory of your loved one's assets may help you find sources of money to help cover caregiving costs," suggests Galvin. Could they afford to move into an assisted living facility? What other assets or resources might they be able to draw upon to cover such ongoing expenses as a home health aide or a large one-time expense like a stair lift? Try to avoid tapping your own retirement funds. "If you shortchange your financial future, you could inadvertently become a financial burden to your own family," adds Galvin.
Q: Is Medicaid an answer?
A: Eligibility for coverage under Medicaid, the largest public payer of long-term care in the U.S., is determined by a combination of state and federal rules. In general, assets must be below a set limit to qualify, with federal "spousal impoverishment" rules protecting the healthier spouse from having to spend down all the couple's assets to pay for nursing home care. "An elder law attorney could help you and your spouse or parents navigate these extremely complicated rules," says Hutchins.
"People who aren't familiar with Medicare and Medicaid regulations may be surprised to discover what is and isn't covered — especially what isn't. So it's worth spending some time researching what these programs actually pay for," adds Galvin.
Q: What if my parents live far away?
Q: What if I need to transfer management of a relative's finances to myself or a trustee?
A: Taking responsibility for a parent's or spouse's legal, medical and financial affairs will be easier if you're able to have this conversation while your loved one still has the cognitive ability to understand the situation. Make sure to review and update relevant legal documents, Hutchins advises, including a will, an advance medical directive (describing end-of-life treatment preferences), a durable power of attorney (which designates someone to make legal and financial decisions) and a healthcare proxy (transferring legal authority for medical decisions).
You might also consider whether a trusteed individual retirement account (IRA) makes sense in your situation. With it, the financial institution you name as trustee can continue to provide professional investment management services, which include investing IRA assets, ensuring that required minimum distributions are made and paying bills, among other services. "It's a valuable tool that can provide security in the event of incapacity," says Galvin.
Another important part of becoming a caregiver is making sure you take care of yourself. "Understand that you cannot bring your best self to your caregiving journey unless you are maintaining yourself," Hutchins says. One last tip, she adds: Don't be afraid to ask for help. "Caregivers go through a lot of stress. Taking advantage of community services such as adult day care or respite care can make a huge difference."
Next steps
- This checklist can help you navigate the complex choices surrounding caring for a sick or elderly loved one
Footnote 1 Genworth, "Cost of Care Survey," 2023.
Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
This material should be regarded as educational information on healthcare considerations and is not intended to provide specific healthcare advice. If you have questions regarding your particular situation, you should contact your legal and/or tax advisor.
Long-term care insurance coverage contains benefits, exclusions, limitations, eligibility requirements, and specific terms and conditions under which the insurance coverage may be continued in force or discontinued. Not all insurance policies and types of coverage may be available in your state.
Bank of America is a marketing name for the Retirement Services business of Bank of America Corporation ("BofA Corp."). Banking activities may be performed by wholly owned banking affiliates of BofA Corp., including Bank of America, N.A., Member FDIC. Brokerage and investment advisory services are provided by wholly owned non-bank affiliates of BofA Corp., including Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as "MLPF&S" or "Merrill"), a dually registered broker-dealer and investment adviser and Member SIPC.
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