One in five U.S. adults provide unpaid caregiving to a loved one. As a result, research shows that in the future, these individuals will likely face a series of financial and professional challenges.
A new report by the TIAA Institute and the University of Pennsylvania School of Nursing finds that caregivers have lower numbers of financial assets and higher levels of debt, with one in four having less than $1,000 in savings and investments.
On the other hand, one in seven of those not caring for loved ones reported having less than $1,000 in additional savings or investments.
On average, caregivers uncompensated expenses, including housing, healthcare, and transportation, could amount to over $7,000 a year. As a result, these individuals are forced to withdraw from their savings accounts or retirement plans, rack up debt, and even reduce their retirement contributions.
“Although the emotional and physical toll on family caregivers is well recognized, the financial impact of these roles has received less attention,” said Surya Kolluri, head of the TIAA Institute, in a statement. “The impact on lifetime earnings, savings, Social Security benefits and retirement readiness can be severe. Especially today, as people are living longer, caregivers should plan for these costs at various life stages.”
Younger workers fall into caregiving
Black, Hispanic, and Latino caregivers, along with younger individuals, were likelier to report higher financial strains—with a higher number having less time to work and build resources. According to the research, Millennials (those in their twenties and thirties) made up 25% of all caregivers.
This is likely due to the fact that people are living longer—the report notes that life expectancy has increased by 17 years since 1935.
“As younger generations increasingly take on caregiving roles, they face different financial pressures and trade-offs,” finds the research. “The financial choices made at younger ages have ripples for years to come, as families weigh the relative importance of present spending, saving for large expenses, and saving for retirement.”
How advisors can help
Rather than giving advice on how to build a nest egg for retirement, retirement plan advisors need to take a holistic approach in helping clients build savings. This means veering away from traditional retirement planning and instead, preparing clients for a longer life span.
Other examples, as reported by the research, includes:
“The financial choices made at younger ages have ripples for years to come, as families weigh the relative importance of present spending, saving for large expenses, and saving for retirement.”
TIAA Institute and the University of Pennsylvania School of Nursing
- Using a family-centered approach to establish and sustain trusting, longitudinal relationships that include both clients and their loved ones.
- Assessing both financial and longevity literacy and providing client education to improve decisions about short- and long-term trade-offs.
- Educating clients about the need to plan for caregiving and the supports available to ease its physical, emotional, and financial burden. This role necessarily entails forming relationships with other professionals such as social workers and human resource managers so that the financial advisor can make appropriate referrals as needed.
- Continuing education and training for financial advisors to meet the new challenges that demographic and lifestyle changes will bring to their clientele. For example, AgeLab at MIT has created a “Preparing for Longevity Advisory Network” of financial advisors and other retirement planners to develop new ideas and ways of thinking about longevity planning, including caregiving, aging in place, work, and technology.
“Health and wealth are increasingly two sides of the same coin,” Kolluri added. “The traditional role of a financial advisor needs to shift from retirement planning to a more holistic model that includes considerations such as longevity, health, family, finances, caregiving and, indeed, financial caregiving.”
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