How Caregivers Can Plan for Retirement

caregiver planning for retirement

When my elderly mother moved into our home early last year, there were so many things to think about: installing handrails in the bathroom, ensuring pathways could accommodate her walker, securing transportation to and from her cancer treatments and finding quality, in-home care assistance. Like most people in our situation, we were focused on making her remaining days safe and comfortable, and not thinking too much about what the added expenses would do to our ability to save for our own retirement.

If your situation is similar, you know that worrying about money can make your already stressful day-to-day seem overwhelming. But just as you need to give yourself some “me” moments — whether it's a yoga session, a good book or a private cry — you need to take some time for your financial well-being as well.

If your personal finances, and especially your retirement savings, are taking a back seat to covering medical and other costs for your aging loved one, it’s a good idea to sit down with a financial adviser or accountant to review how to make your finances work. You can start by reviewing your budget to see where you can make changes.

There are lots of little ways you can save money without making huge sacrifices, even while caring for your loved one. Once you’ve managed that, you can consider some of these ways to optimize your retirement savings.

Make the Most of Your 401K

If you’ve left your job to care for your aging loved one, you can no longer contribute to your employer-sponsored retirement plan. That means that your spouse should max out their contributions. Not doing so will significantly impact your combined retirement savings, especially if your spouse’s employer matches a percentage of contributions.

It may feel like the money isn’t available, but chances are, you can tweak a few parts of your monthly budget. Your future self will thank you. Maximize contributions to the best of your ability (you can put $18,000 each year into a 401K), and if your spouse or partner is over 50, add catch-up contributions as well.

Open an IRA

Even if you’re putting money into a 401K, you can still take advantage of an Individual Retirement Account, or IRA. There are three kinds of IRAs: traditional, Roth and Simplified Employee Pension.

  1. A traditional IRA is funded with pre-tax dollars and there’s an annual contribution cap of $5,500 ($6,500 if you’re 50 or older).
  2. A Roth IRA is funded with after-tax dollars, essentially saving your tax break for later and meaning you don’t pay income tax on your original contribution or the money you earn over the years. While there’s no required minimum distributions with a Roth account, there is an income cap.
  3. The lesser-known IRA option is the Simplified Employee Pension, or SEP-IRA. This account offers tax advantages for sole proprietors, business owners, the self-employed or for those with a side business. While there are required minimum distributions and contribution rules, contributions are tax-deductible as business expenses and your business pays no taxes on the investments’ earnings.

Consider a Taxable Investment Account

A brokerage account is another great retirement savings tool. Your earnings can be subject to capital gains taxes, but those can be outweighed by other advantages. For example, there are no annual contribution limits or required minimum distributions. Be sure to review any fees and expenses associated with these accounts. You’ll want them to be low for your retirement savings.

Open a Health Savings Account

Enrolling in a high-deductible insurance plan has many advantages, including the ability to start an HSA to help you save for future medical care. This also can be a good source of income in retirement. Your contributions are tax-deductible, plus any distributions used for qualified health care expenses can be tax-free. There’s an added bonus if your employer offers matching funds.

Invest in a Deferred Variable Annuity

These accounts are a bit like mutual funds, but they’re provided by insurance companies, and they offer a guaranteed stream of income in your retirement. There are a number of different types of annuities available on the market, so it’s a good idea to talk to a financial planner or other money expert about your options.

As difficult as it may seem right now, caring for yourself — and your future self — is as important as caring for your loved one, so now is the time to do everything you can to ensure sure your tomorrow will be less financially stressful than today.