Prepare Your Finances to Care for an Elderly Family Member

Prepare Your Finances to Care for an Elderly Family Member article image.

As family members age, many families take on the task of caring for them. It's something that must be done, but it's often a costly endeavor that can catch you off guard if you neglect to prepare your finances ahead of time. If you expect to be taking care of a family member in the near future, here are some things to consider as the time approaches.

Start the Conversation

Aging is a natural process of life, but there are a lot of things to think about when it comes to caring for older family members. While it may be tempting to plan everything yourself, it's helpful to open up a discussion with the family member whose care you're considering. You might be surprised by what you find. For example, you might assume they want to live with you in their older years, but you discover that they'd in fact prefer to live independently or in another setting where they can receive care from someone else.

Consider asking questions that show you care about their hopes for their future. What standard of living do they envision for themselves? What do they imagine they'll be doing in their later years? Do they plan on retiring or continuing to work? If they're no longer able to take care of themselves or their home, have they thought about where they'd prefer living? Let them know you're asking in order to ensure they get the care they need to thrive.

One of the biggest considerations around eldercare is money—specifically, who will care for your loved one and how much it will cost. Talking about money can be hard, but it's a critical part of the discussion.

Collect More Information

Before you jump into action planning for an older family member's care, you'll need to gather more information.

  • Get the full financial picture. It might be a tough conversation, but you'll want to figure out how much money your parent (or other family member) has from all sources, including retirement, Social Security, any real estate they own (like their home), savings or other types of accounts. Depending on your loved one's personal or cultural customs, you might have to determine how much cash they have and where they physically store it for safekeeping.
  • Get organized. It's helpful to have documents with all your loved one's financial information in one safe place: It could mean the difference between speedy help or denial of benefits. For example, if your older loved one needs to apply for financial assistance (like Medicaid) later, they'll need to prove how much they make and why they need financial help—and that often comes with lots of paperwork. Some types of financial documents they might need to have include:
    • A list of all bank accounts and access to statements
    • A list of loans and debts, including all credit accounts
    • Retirement-related paperwork like pension or 401(k) information
    • Tax returns
    • Any investment records like bonds and stock certificates
    • Deeds to any properties they own
  • Ask specific questions. Does your loved one have a will, living will or living trust? Do they have physical copies of vehicle titles or documents related to a business they own? Where can you find these documents if and when you need them? The sooner you have these conversations, the more likely you'll be prepared when the time comes to care for aging loved ones.
  • Get educated. Take the time to do some research on the options available to you for eldercare support, such as Medicare and Medicaid. Getting a grasp on the differences and nuances can ensure the best outcomes. It's important to note, for example, that Medicare doesn't have income limits, while Medicaid does. Additionally, Medicaid covers many nursing home residents, but not a lot of seniors in residential care or home care have Medicaid due to long waiting lists and other challenges. Prepare for your transition into being an adult caregiver by reading books and blogs, attending workshops and connecting with others who are in similar situations.

Don't Forget About You

As you consider what the future could look like for your loved one, don't forget that you're a critical part of it too. This means you'll need to take a close look at your own financial situation as well.

Will you need to be completely financially responsible for their care? If so, you'll need to factor that into your budget and long-term financial goals. For example, you might need to focus on paying down debt first or adjusting your budget to include a monthly allowance for caregiving costs. You might also need to start or boost your emergency fund in the event you need to take time off work or pay extra expenses. Researchers estimate that out-of-pocket costs to care for an aging parent can be upwards of $100,000, so it's never too early to start saving.

This could also be a good time to start researching ways you can get financial support for your loved one if needed. For example, try to get familiar with benefits they might qualify for, like Medicare or Medicaid. Research caregiver tax breaks you might be able to take advantage of too. If times really get tough, you may need to explore financial assistance options for yourself or for your loved one.

Make a Plan

After you talk to your loved one, gather important paperwork and other information, and take a look at your personal finances, it's time to make a plan. At a minimum, you'll need to figure out what you can afford to do for your family member, how much it will cost, and any cultural or religious considerations that might impact your decisions.

When it comes to cost, the biggest factor is where your loved one will live:

  • By far the most expensive care option is living in a nursing home facility, which can run upwards of $90,000 per year. Nursing homes provide round-the-clock care and licensed medical supervision to residents.
  • Next up in terms of expense is in-home care services provided by a home health aide, which can cost around $55,000.
  • An assisted living facility can provide social activities and personal care (but not to the same extent as nursing homes). The annual median cost for this option is around $52,000.
  • Adult day health care is another option. These centers provide light supervision and social activities to help give caregivers a break. The annual costs for this hover around $20,000.
  • The cheapest option is likely you acting as the caregiver. There are significantly fewer additional costs associated with providing care for your own parent or other loved one at home. However, costs can add up when you factor in transportation, medical devices, food, medical bills and lost hours from work due to increasing eldercare responsibilities.

So what can you do to ensure you cover all your bases? First, consider seeking outside help or resources. Talk to a financial advisor or lawyer about ways you can both support your loved one and protect yourself financially from unexpected expenses related to caring for them. Get information about wills and trusts, advanced directives and access to accounts, and help your loved one establish power of attorney for finances, health care decisions and property management. Additionally, make sure to talk to your loved one and decide who will manage their money. This is also a good time to consider purchasing long-term care insurance, which might help cover some of the costs of caring for them.

While it may be tempting to put off making a plan, the data is clear: The number of adults aged 85 and older—the group that most often needs help with basic personal care—is predicted to more than double by 2040. Tackling some of these issues now could save you a lot of stress in the future.

The Bottom Line

When it comes to taking care of an older family member, the financial responsibilities can seem overwhelming. If you find yourself in that position, having a solid plan and knowing what resources are available can give you peace of mind and keep your financial future healthy.

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