Want to forecast the future? Look for the demographics. They are huge indicators of long-term trends, and once in place, they tend to change very slowly. In developed countries, a pre-dominant demographic trend is the combination of falling birthrates and aging populations. These two trends are already in place, and the impact of these factors is inexorably working to change social and financial paradigms.
One of these areas of predictable change is the increasing number of children caring for elderly parents. As the combination of longer life expectancies and declining populations puts a greater strain on government-sponsored social safety-net programs, the default response will be placing a greater burden on children to care for their parents.
This change is not only foreseeable, but already gaining momentum. Data complied by the National Alliance for Caregiving from the U.S. Health and Retirement Study is telling. Look at the differences between 1994 and 2008:
Percentage of men and women providing care for an aging parent:
Men 3% 17%
Women 9% 28%
When almost 3 in 10 women are caring for an aging parent, it is a significant statistical trend. And the statistics also show clear correlations to changing social and financial dynamics.
Citing the same report, a June 14, 2011, Wall Street Journal article by Kelly Greene (“Toll of Caring for Elderly Increases”) notes that “the steep rise in people caring for elderly parents is taking a toll on the health and finances of many baby boomers.”
Among the workers over age 50, those who work and provide care for a parent at the same time are more likely to experience poor health, stress, depression and chronic disease. The report indicates these health problems are principally “a result of their focus on caring for others.”
One of the prominent sources of stress is financial cost to children when they become caregivers. A June, 2011 report, Study of Caregiving Costs to Working Caregivers, by MetLife’s Mature Market Institute, put this cost at over $300,000 per person over age 50 if they are taking care of elder family members. This number reflects lost wages, pensions, and Social Security benefits over their lifetime, due primarily to a reduction in working hours, or leaving the work force entirely early to care for a parent.
As the numbers above indicate, there is a disparity between men and women as to who is most likely to be a caregiver. The Metlife study found that daughters were more likely to provide basic care while sons were more likely to give financial assistance.
Since they are often the ones providing day-to-day hands-on assistance, women are also the ones who are more likely to leave the workforce, and experience the greatest financial loss. The study broke down the financial losses as follows:
$142,693 in lost wages
$131,351 lost in Social Security
$50,000 lost in pension benefits or matching contributions to defined-benefit plans.
It’s important to note that these numbers are simple aggregates. They don’t factor the accompanying lost opportunity cost (LOC) that results. For example, what would the $50,000 lost in pension benefits or matching contributions be worth after being invested for 15 or 20 years? The number and time period used to calculate the LOC is arbitrary, but even a conservative factor could easily forecast a financial loss approaching $1 million.
The math of taking caring of an aging parent looks ugly. But when it comes to family, financial sacrifice isn’t going to keep most children from doing the responsible and loving thing by caring for their parents. And the social value of maintaining these family ties far outweighs most financial considerations; placing the full responsibility for eldercare on strangers isn’t usually the best for children or parents. But that doesn’t mean parents or their children should ignore the financial consequences. Good financial decisions can improve many caregiving situations.
For parents who recognize either the likelihood or desirability of having their children be caregivers, any preparation will be helpful. This often starts with simply organizing your financial affairs, then educating your children about your wishes and available assets. For some, this preparation might include rethinking Long-Term Care insurance, or redirecting current savings allocations.
We live in a mobile society, but proximity is a critical issue in caregiving. It’s hard to be a personal caregiver for Dad when he lives in Florida and you live in Illinois. One of the greatest financial upheavals in caring for an elderly parent can be determining where it will take place. Will her daughter leave her job to come live with Mom? Or will Mom move and live with her daughter (and family)? Selling a house, leaving a job, putting an addition on an existing home – these are big financial decisions. If such a move is on your horizon, it might affect your saving priorities and accumulation strategies.
The rising trend of adult children caring for aging parents almost requires a multi-generational approach to financial decision-making – for parents and their children. In many ways, the necessity to integrate the financial objectives of several families that share common bonds can result in greater benefits for all, as the whole performs better than the sum of the parts. Although there are certainly costs associated with the decision to care for aging parents, there may also be significant opportunities.
• AS A PARENT OR A CHILD, IS CAREGIVING IN YOUR FUTURE?
• WOULDN’T NOW BE A GREAT TIME TO SEE HOW INTER-GENERATIONAL STRATEGIES COULD HELP?