Caring for an aging parent is a compassionate—but often stressful—undertaking. It can take a huge emotional toll on everyone in a family, but for women the financial impact can hit especially hard. “Women who become caregivers for an elderly parent or friend are more than twice as likely to end up living in poverty than if they aren’t caregivers,” says Cindy Hounsell, president of the U.S. organization, the Women’s Institute for a Secure Retirement (WISER). If they take time off work, not only do they lose pay, but those lost wages can affect their retirement savings (CPP – Canada Pension Plan, pension payouts, etc.) and other savings—threatening their future finances.
Nearly half of caregivers report high emotional stress1. So what can women do to take care of themselves while they care for others? While helping an aging loved one can easily become all-consuming, there are steps you can take to protect your finances and your retirement. And because women tend to live longer, every penny counts.
Understand the long-term impact
“For many women, fewer contributions to pensions and other retirement savings vehicles are the result of reduced hours on the job or fewer years in the workforce,” explains Suzanne Schmitt, vice president of family engagement at Fidelity. “Women caregivers are likely to spend an average of 12 years out of the workforce raising children and caring for an older relative or friend.”
Women enter and exit the workforce more often than men, usually to care for their children or their parents. Others make some sort of workplace accommodation, such as going in late or leaving early, shedding job responsibilities, dropping back to part-time status, or opting for reduced hours, when possible. This can mean lower wages, lost income, and missing out on potential promotions, which can add up. Consider this example from the U.S.: Laura, age 56, left a $70,000-a year job to care for her mother for three years. The cost to her: $287,000 in lost salary and $63,000 in lost U.S. Social Security benefits, for a total of $350,000.2
In Canada, the situation is very similar. Women are often taking time out of the workforce, and like their U.S. counterparts, the long-term price can be high. You lose the opportunity to contribute to an employer workplace retirement saving plan, as well as contributions from your employer. These periodic absences can also significantly slice into your CPP benefits.
If you are caring for an aging parent, what can you do to soften the effect of these financial changes?
Explore all your options to keep working
U.S. research shows that:
Because leaving a job means losing not only your paycheck but also your benefits, try to continue working at least until you’re vested in your company’s pension or profit-sharing plan. You may be able to scale back your hours, but put in enough time to continue to get benefits and retirement plan contributions. Also, check with your employer’s human resources manager to see whether the company offers services to employees who are also caregivers.
You may also look into local services in your community that might help you find a way to balance your job with your caregiving responsibilities.
If you are still able to work for a while longer, then be sure to participate fully in your employer’s workplace retirement savings plan and any matching contributions if offered.
If you must give up your current job in order to become a full-time caregiver, and are married and have the support of your spouse/common-law spouse, take advantage of a spousal /common-law partner RRSP to help keep your retirement savings growing. And, fund these accounts to the limit, if you can.
Additionally, if you are caring for an elderly dependent, you may be entitled to claim various federal and/or provincial caregiver tax credits. Consult your tax advisor, as he or she will factor in all of your circumstances, including your goals and your tax situation.
Beware of taking on too much on your own
While sons and daughters care more or less equally for their parents, a MetLife study3 in the U.S. found that daughters tend to take care of physical caregiving, while sons tend to help financially. Despite this, the disparity comes with long-term financial consequences for daughters.
For example, if you’re a woman providing more hands-on assistance, you’re likely to be the first to notice that the supply of nutritional supplement is running low or that it’s time for your father to begin using a walker. And, if you’re providing more hands-on assistance, it’s natural to reach for your own wallet to cover the costs. Yet, such miscellaneous expenses can cost an average of $12,000 a year, according to the MetLife research, and can seriously eat into the money available to set aside for your retirement.
“Do not be a martyr,” warns WISER’s Hounsell. “Ask for financial help from brothers and sisters.” Work with a financial advisor to create a budget that encompasses both present and future care needs, as well as a system to record all costs to prevent family disputes.
Find time for yourself
Research from the U.S. organization, the National Alliance for Caregiving shows that, on average, adult caregivers spend nearly 19 hours a week in their helping role—or nearly three hours a day4.
Given this, it’s important to remember to protect your own health. That’s especially important for women, who are more likely than men to feel the emotional stress of giving care, says the National Alliance for Caregiving study. Stress can affect your mental and physical health, as well as your ability to work productively—with unpleasant repercussions for your financial health too.
While it’s natural for women to want to do all they can for their aging loved ones, the most important lesson to take to heart is this: Taking care of yourself first will enable you to do a better job of taking care of others.
Tip: Know when to get involved. “On average, children step in when parents are 75 years old—often after a loved one has made a direct request for financial assistance, when the parents’ health becomes a significant factor, or when you notice a change in your parents’ ability to handle daily living tasks,” explains Schmitt.
Article courtesy of Fidelity Investments Canada, August 2017.
Losing a spouse through death or divorce can be an emotionally devastating experience. And yet it’s typically a time when many financial matters require your immediate attention. To help avoid making emotionally driven – and potentially harmful – financial decisions, it’s important to be prepared should you find yourself suddenly single. Here are five important action steps that can help protect your personal finances.
- Update your financial accounts.
When you lose a spouse, whether, through death or divorce, you’ll likely need to change the registrations on any financial accounts that are owned jointly. Such ownership changes typically require certain documentation. It’s best to initiate this process early on, as registration changes can take weeks to implement. A word of caution: Pay attention to the conditions under which you divide assets and/or shift ownership. You could face significant tax burdens when splitting up highly appreciated assets, or risk losses by selling in volatile markets. You should consult your tax advisor.
- Divide or roll over retirement assets. Pension and retirement account assets have their own set of rules when it comes to shifting ownership from one spouse to the other, or splitting the assets. Generally, upon the death of the account owner, retirement account assets pass directly to the beneficiary (often the spouse, for those who were married) designated on the account, while in cases of divorce, retirement assets are often split up as part of the divorce settlement.
- Adjust your income and budget.
In many cases, being suddenly single could mean reduced household income. You may need to adjust your budget accordingly. Start by listing your essential expenses (housing, food, insurance, transportation, etc.) and your discretionary expenses (dinners out, vacations, clothing, etc.). Try to match reliable sources of income (salary, support payments, pension, etc.) to your essential expenses, and see where you might trim your discretionary spending. Speak with your financial advisor to help you set up a budget that works for you.
- Evaluate your insurance needs. What you’ll have and what you’ll need for insurance can change dramatically when you lose a spouse through death or divorce. It’s important to take a careful look at all the different types of insurance that are available, to see where you may need to adjust your coverage. Be sure to review the following:
LIFE INSURANCE – If you are the surviving spouse and the beneficiary on your deceased spouse’s life insurance policy, you will typically receive the proceeds, tax-free. But if you are still caring for children, you may want to either purchase or increase your own life insurance coverage to make sure they will be protected in the event of your death. If you divorce, you have to consider (1) changing the beneficiary on your life insurance, if it is currently your ex-spouse, and (2) purchasing or modifying your coverage to adequately protect your children if either you or your ex-spouse dies.
HEALTH INSURANCE – Even if your spouse carried your family’s health insurance coverage, you should be able to continue it for a period of time, whether you are divorced or become widowed. Talk to an insurance expert to ensure you have adequate coverage to meet your unique needs.
DISABILITY INSURANCE – What if you were injured or sick and couldn’t go to work? Disability insurance is designed to protect you and your loved ones against loss of income.
LONG-TERM CARE INSURANCE –If you’re in your 50s or older, you may want to consider buying long-term care insurance to help keep potential costs of nursing home stays and home health care from depleting your income resources if you become seriously ill or injured.
- When you’re suddenly single, your credit can be among your most valuable assets, so protect it wisely. After a divorce or the death of a spouse, you may want to request a copy of your credit report to take inventory of all the accounts that are open in your name and/or jointly with your former spouse.
If you’re divorced, you’ll want to close joint credit accounts and shift to single accounts, so that an ex-spouse’s credit score won’t affect your credit rating. If you’re widowed, contact both Canadian credit bureaus (Equifax Canada and TransUnion Canada) to let them know that your spouse has passed away, in order to keep others from falsely establishing credit in his or her name.
Article courtesy of Fidelity Investments Canada. https://www.fidelity.ca/fidca/en/valueofadvice/gvga/divorcedwidowed
A friend in the funeral industry shared some interesting information with me recently – the difference in costs between a funeral for a child in 1920 versus 2014. While there is no exact comparison of all services and items, I have illustrated the similar items today.
|Burial Case or Vault
|Grave Plot *
|Opening and Closing of Grave
|Funeral Home Attendants & Professional Services
* If available – costs vary widely!
Using the Bank of Canada’s Inflation Calculator, $33.50 in 1920 should cost $357.43 today – here is a screen clip – a 996.95% increase with an average annual inflation rate over 94 years of 2.55%! However, funeral costs have risen at a much greater rate. I will leave you to figure out the rate at which those costs have increased over 94 years.
Have you considered your wishes for the future – and do you have resources (read cash) set aside to handle your passing? And don’t forget to add something for catering, flowers and the no-host bar along with meeting your cultural, faith, community and family expectations. It is not unusual today to see funerals and memorials cost more than $100,000!
Is it time to review your plans?
I know this sounds a bit irreverent or flippant however it is meant to stimulate some hard thinking about the real costs of dying. Sure, there are lots of lists around, but I haven’t found one yet that covers everything I have seen in years in this industry. Is this list perfect? Absolutely not, but it will get you thinking about your own and your family’s situation. Remember, not all of these will apply to you – but some will – and the costs range widely.
||Copying and certifying fees
|Paid searches for titles, etc.
||Legal notification to potential heirs
||Legal notification to creditors
|Asset Transfer fees
||Estate Accounting fees
||Terminal Tax Return fees
|Estate Tax Return fees
||Rights & Things Tax Return fees
||Ongoing tax Return fees if estate not settled within 12 months
|Testamentary Trust Tax Return fees
||Preparing and filing tax election fees (estate and personal)
||Executor and Trustee fees (annually until Estate and all Trusts closed)
|Executor and Trustee disbursements – Required Bonding costs, copying, telephone, faxing, certifications, mileage, parking, travel expenses
||Valuation fees – real estate, listed personal property, personal property, real estate and other capital and/or depreciable property
||Transfer costs for title transfer to Executor and/or Trustee and eventually to residual beneficiaries.
|Commissions paid for asset sales: real estate, estate sale, sale of listed personal assets as necessary
||Commissions paid to investment advisors for selling stocks and bonds not held in managed-money accounts
||Income taxes payable – terminal tax return, estate tax return(s), Rights and Things tax return, Trust tax return(s)
|Tax due on transfers of pensions and registered assets to other than spouse
||Shrinkage of realisable asset value due to urgency of sale – tax paid on FMV not $ received – must replace lost $
||Account closing fees on nominee and self-directed investment accounts
|Court Fees for Probate
||Court costs if you die intestate
||Property Transfer Taxes
|Rental fees – safety deposit box or other secure location and Bank fees – estate and trust bank accounts
||Funeral, memorial and related costs – cultural, faith-based, community or family expectations. Wake or similar
||Costs to collect promissory notes owed to deceased – loans to family members and businesses
|Terminal health care costs not covered by Government, group or personal plans
||Legal and Court costs to defend will is challenged or contested
||Payment of all legally enforceable depts. – including ones you guaranteed or co-signed
|On-going pet care
||Costs of care for children and other dependents (maybe your parents!)
||Costs to close your social media accounts and profiles
|Payment for ongoing business management until it is sold
||Short-term emergency funds and ongoing income for survivors
||General insurance costs for vehicles, property, valuables, etc.
||Contract cancellation fees – vehicle lease, cell phones, internet, television, etc.
||Murphy is alive and well – expect a visit along with family discord!
I can promise a few things about this list:
- your estate will have at least one cost not included here;
- you will be very unpleasantly surprised at the total amount of money (and time) involved;
- your estate will be cash-poor – not enough cash in the bank to pay these costs when means that;
- the net value of your estate, without proper planning and a source of replacement tax-free cash, could even be bankrupt which means your family and heirs would get zero.
Would you benefit from assistance in planning your estate?