Caring for an aging parent or friend can be expensive. But when you know that someone needs assistance, it's hard to avoid offering to help. While there's nothing wrong with providing a relative or confidant with financial support, you don't want to lose sight of your own financial goals. Here are five strategies that you can implement to keep senior care costs low.
As an extension of health, disability and life insurance, long-term care insurance provides coverage for nursing home care, home health care and other services that meet the daily needs of elderly individuals. While long-term care insurance isn't cheap, purchasing it may be worth it if your older family member or friend can't qualify for Medicare and doesn't have enough savings.
It's best (and more affordable) to sign up for long-term care insurance before chronic or debilitating conditions surface. Just be sure to read the fine print and compare benefit options before picking a policy for you or your loved one.
2. Make Your House Home-Care Ready
Installing a walk-in shower or stair lift when you're healthy may seem crazy. But making your home more accessible may pay off, especially if it eliminates the need for you to move to a special facility when you grow older.
Some states and nonprofits offer loans and grants to help low-income elderly individuals make modifications to their homes. So that's something to consider if you need help covering the cost of your renovations.
Paralysis is understandable: We’re living longer and being forced to assume more of the savings and investment burden — with little or no education or support. “Nearly three-quarters (75 percent) of pre-retirees agree that they should be doing more to prepare for retirement, but 4 in 10 (40 percent) say they simply don’t know what to do,” says Prudential Investments’ 2016 Retirement Preparedness Study.
Take this to heart: You don’t need to know what you are doing to get started. Start saving, keep saving and learn as you go.
That means, if your household earns $56,516 — the median household income in 2015 according to the latest Census numbers — make your goal six to nine times that amount: $339,000 to $508,500. Yes, it seems vast. You may not quite get there, but you’ll be better prepared for retirement than now.
Look at it another way: How much will you need saved to live in retirement on 70 percent of your current monthly income? Voya’s (formerly ING) simple retirement calculator shows that if you earn $56,516 yearly and retire at 65:
A nest egg of $339,000 lets you withdraw about $1,835 a month ($22,020/year) if your savings grow at 5 percent a year.
A nest egg of $508,500 would let you withdraw about $2,753 a month ($33,036/year) if your savings grow at 5 percent a year.
Take note: Don’t treat retirement calculators as the gospel truth. As Money Talks News founder Stacy Johnson points out, many are “click bait,” meant to entice you into making a purchase. At best, they’ll give varying answers, depending on their assumptions and the questions they ask you. There’s a danger you’ll get a false sense of security from the numbers. That’s why it makes sense to use several calculators, stay skeptical about their results, and update your savings goal as you learn more.
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3. Learn your Social Security payout
As you probably noticed, a nest egg of six to nine times your current income will not replace your preretirement income. Social Security, a system designed to collect taxes from the paychecks of working Americans and distribute benefits to retirees, can help close that gap.
Many believe Social Security’s financial resources will disappear, noting that the ratio of American workers to retirees keeps falling, but they could be mistaken. Even if Congress lets the fund become “depleted,” as Social Security planners say will happen in 2034 without action, you’ll still get to receive 79 percent of your benefits, says The Atlantic.
“If you’ve been earning about $60,000 a year and want to retire at your full retirement age of 66, your current Social Security benefit would be about $1,500 a month, or $18,000 a year,” writes CBS columnist Charlie Farrell, in “How to Retire on $60,000 a Year.”
But if you can manage to keep your hands off the money for longer you’ll get an even bigger payout. Delaying benefits after a full retirement age of 66 (for retirees born between 1943 and 1954) grows your benefits by 8 percent annually until age 70. That means you’d increase a $1,500-a-month benefit (by 132 percent) to $1,980 a month.
Sit down with grown children and tell them what you are facing. It’s a tough conversation. But laying your financial cards on the table gives them information they may need to plan their lives. It also may let you get a sense of whether living with them or expecting any support from them in your old age is (or is not) a possibility.
Also, if your retirement is in peril and you are helping your kids financially, you’ll have to stop. There are other good reasons for withdrawing your support besides your money woes: Supporting adult kids can undermine their self-sufficiency.
This is the home of the free and the land where 37 percent of people in their 50s have been divorced at least once. Of course you should not stay in a marriage defined by violence or deep, longstanding incompatibility. But if you’re on the fence, understand that divorce deeply wounds couples’ finances.
This is especially true for women (because they earn less and often drop in and out of the work force for family reasons, contributing less to Social Security and retirement funds). But divorce affects men’s finances, too. Divorcing at an older age can make it especially hard to recover. Think realistically about the financial implications for yourself, your children and your retirement.
Foot-dragging is a great tactic for extending the life of your retirement savings. Hold off quitting work as long as you can. Wait to claim Social Security retirement benefits. Waiting helps delay the moment when you’ll need to crack open your nest egg, giving investments longer to grow and you more chance to contribute to them.
If you will have a financially tight retirement, leave savings untouched as long as possible. Stay on the job — whatever job you can get. A low-paid job, or a part-time job is better than no job since every dollar earned is one you’ve left in savings for later.
Here’s the evidence for delaying. Using numbers from the example above (in item No 2: “Pick a number”), here’s how much bigger your monthly retirement fund withdrawals could become by delaying them until age 70:
$2,064 (instead of $1,835 a month at 65) if your nest egg is $339,000
$3,097 (instead of $2,753 a month at 65) if your nest egg is $508,500
All debt, and high-interest credit-card debt, in particular, forces you to spend money on interest that you need for investing in retirement accounts or living in retirement. Set a goal to pay off debts, even your mortgage if possible, before retiring.
You’ll have to cut back on spending when you retire, anyway. If you start now, you can use the savings to fund your retirement.
A drastic cut in spending requires big decisions and determination. How would life change if you decided to spend no more than 30 percent of your income on housing? You may decide to move to a cheaper part of the country, or to leave the United States and move abroad. Spending less than you earn is the magic sauce that enables people to save, live debt-free and rescue shaky retirements.
If you own a home, the equity may well be your biggest source of wealth. The two most common ways to tap it are taking a reverse mortgage or selling the home and downsizing, investing the profit in a retirement account.
Maybe you don’t want to sell or take on debt. There are other ways to use your home as a retirement asset. For example, you could rent a room to a boarder or get a housemate — or occasionally rent part of the home to vacation travelers or rent it out while you travel — or live in a cheaper location.
Jobs with old-fashioned defined-benefit pensions — the type that pay retirees a set amount each month — are scarce, but they have not entirely disappeared. You could make it your mission to find one. Such benefits are increasingly attractive to job-seekers, finds a survey by global advisory company Willis Towers Watson.
The federal government offers some programs that make senior expenses less expensive. For example, your loved ones can apply for traditional Medicare. If they need help covering additional costs, they can consider enrolling in a Medicare Advantage or Medigap plan.
Depending on your loved one's situation, they may be eligible for Medicaid. They'll have to meet certain financial qualifications. But if they qualify, Medicaid coverage can lower the cost of their healthcare.
4. Compare Care Options
If you need a professional to help care for your elderly relative, you may need to look beyond nursing homes and assisted living facilities. It's a good idea to take the time to visit different adult care facilities and meet with independent caregivers, home care agencies and home health aides. That way, you can compare a range of costs and services.
Even if you have elderly family members who can live alone, they may need companionship. If you have a busy schedule, you may be able to find a virtual caregiver online who can support your older loved one.
If you choose to take care of an aging parent or relative on your own, you'll need to make sure you're financially prepared to assume that responsibility. Fortunately, there are tax breaks for individuals who serve as caregivers. For example, you may qualify for the Child and Dependent Care Credit.
Caring for an older family member can place a big strain on your budget. That's why it's important to make the most of any resources and programs that can lower the cost of senior care.
If you're concerned about your ability to cover your own healthcare costs in the future, you'll need to make saving for retirement a priority. And it doesn't hurt to make an effort to stay healthy to reduce your chances of contracting a serious illness or disease.