What To Do When Your Parents Can’t Retire And You’re Responsible For Them
For many of us millennials, being a part of what many call the “sandwich generation” weighs heavy on our minds.
What exactly is the “sandwich generation”?
This clever phrase is a nickname for the generation who will be responsible for caring for their aging parents financially and maybe physically, while also caring for our own children. Currently around 13% of American millennials are caring for elderly family members in an unpaid role, and that number is expected to increase as Americans age.
This type of arrangement isn't new to our generation in particular.
Plenty of generations past cared for older parents while their babies were still in the house as well.
In fact, there are more Gen X Americans doing unpaid caregiving for older family members than millennials, although we aren’t far behind.
Regardless of the statistics, it's important to start formulating a plan now so that you can be prepared when the time comes to help a parent who may have little to no retirement income.
Here are a few of the best ways to prepare to support an aging parent in the future.
1. Buy Long Term Care Insurance Now
Long-term care insurance is there to cover the cost of medical care as people get older and start to need assistance with taking care of themselves. This usually includes things like nursing homes, retirement centers, and private nurse visits.
These costs are extremely expensive to pay for without insurance, and it isn't something that Medicare covers.
Medicaid does cover nursing care if the patient meets the limited income requirements, but keep in mind that only some nursing home facilities accept Medicaid patients. Your parent may or may not have a lot of flexibility in where they live in their older years if Medicaid is footing the bill.
On average, nursing home care in the US costs between $89,000-$100,000 per year for a private or semi-private room, and this number will vary wildly based on the cost of living in your city. Keep in mind that this number also doesn’t include extra services like memory care, speech therapy, or physical therapy.
In home health care for the elderly isn’t quite as steep at an average of $4,000 per month. Still, it's easy to see how quickly these costs could add up, especially when you may have a family of your own to take care of.
How to Protect Yourself Financially With Long Term Care Insurance
Fortunately, long-term care insurance is often reasonably affordable, and it will cover these costs as your parent gets older. The catch here is that the cost is much lower if you buy the policy before your parent turns 60 years old.
While there is generally no financial benefit to buying long-term care insurance before a parent turns 55, 55 is the best age to buy. Each year after that, the monthly premium goes up.
If you have siblings, this may be a good time to talk with them and find a way to share the cost of long-term insurance between you if your parents can’t afford a policy on their own. It will save you hundreds of thousands of dollars over the long run, and is by far the best thing you can do to prepare to financially care for an aging parent.
Of course, if your parents have assets like a home or retirement plans, you can use those to self insure for the first few years until those are depleted. Long term care insurance is the most useful for older parents who have little in the way of assets.
2. Decide As A Family Where Your Parents Will Live in Their Older Years
The next best step to take is to talk with your parents and figure out a plan for where they will live after they retire. If they own a home but will no longer be able to pay for it, you may need to talk with them about selling it and making other arrangements, or help to pitch in with the mortgage yourself.
One option many millennials are turning to is moving their parent or parents in with them. This could be a spare bedroom in their house, or a converted garage or mother-in-law quarters on their property.
If your relationship with your parents is strong, this could be a great way to keep them close in their older years and save money on housing costs as well.
If living so close isn't an option, another potential living arrangement to think about is subsidized retirement housing. This type of housing is often capped at 30% of the tenant’s income, so it can be a great option for those who don’t have much in the way of retirement income.
The key with this type of housing is that it can take years of being on a waitlist before your parent finds an approved apartment. If this is the route your family decides to go with, it's a good idea to apply several years in advance and get on as many lists as possible.
3. Help Them Figure Out Ways to Keep Working As They Get Older
For many baby boomers who do not have a sufficient retirement, completely stopping work may not be an option. That being said, their current line of work may not be feasible as they get older either.
This is a great time to talk with your parents and make a plan for what type of work they could continue to do after they turn 65. Ideally, this type of work will be low impact and easy on their body.
Maybe you could help them start a side hustle that would provide them with some extra income each month.
Or maybe they could consider going back to school for a technical certificate or associate's degree that would help them continue to make a living. Freelancing as a writer or consultant may be a great option for people with specialized knowledge.
Another way many millennial families are making the best of a tough situation is by accepting childcare help from an older parent who lives on their property.
Given that child care often costs as much or more than university tuition, reducing some of those costs with help from a grandparent can more than makeup for some of the cost that come with financially helping an aging parent.
Each family has a unique situation, so the best thing you can do is figure out what kind of work and housing situation will work best for everyone involved and then plan for it.
4. Help Them Reduce Their Monthly Expenses
If your parents have little or no retirement income to depend on, it's important that they start cutting their expenses as soon as possible. This might include things like selling their home and buying a smaller one or renting an apartment instead. If they have extra cars, boats, or other vehicles, those should be sold as well.
The important thing to keep in mind here is that your parents finances are their business until they ask for your help.
While many of us come from families with different financial values from ourselves, we must keep in mind that our parents are their own people and make their own decisions. If and when they do ask for your help, however, it would be an appropriate time to talk about their financial options.
5. Don't Miss Out on Tax Breaks for Elderly Care
If you pay for at least half of an elderly parents living expenses, you likely qualify for tax breaks that are designed for adult children supporting older parents. In addition, many of their medical expenses are also tax deductible.
For example, caregivers can claim a $500 tax credit if the person they are caring for is a dependent and has limited income. Caregivers can also deduct medical expenses from their taxes if the total medical costs of all dependents comes to more than 7.5% of the family’s gross income.
6. Make Sure That Their Insurance Policies Are Up to Date
The last thing you'll want to double check is that your parents have all of the insurance policies they need in good standing.
Insurance becomes even more important to protecting wealth and avoiding financial crisis as a person ages. If you plan to be the backup care person for your parent, making sure to cross your T’s and dot your I’s will pay off in the long run.
Medical insurance, of course, is the big one. If they don't have any medical insurance at all, or their policy doesn't cover much, this would be a really good time to help them find a better one!
There are a few types of insurance to consider depending on your parents situation:
- Medicare (for those over age 65)
- Medicaid (for low income seniors)
- Private health insurance (purchased privately through an agent)
- Medigap (to cover copayments and deductibles that Medicare doesn’t cover)
Homeowners or Renters Insurance
Homeowners and renters insurance are their to protect your parents belongings in case of loss, burglary, or fire. Everyone should have these policies, but it’s especially important for seniors to have them if they are on a limited income and couldn’t replace their belongings with cash if something were to happen.
Car insurance may seem obvious as every driver needs it, but it is a good idea to look at the details of your parents policy with them and make sure that the coverage is good. Some car insurance policies only cover $200,000 in medical expenses for bodily harm, which can be used up all to fast in a serious accident. Talk to your parents about raising their coverage to protect them (and you!) financially from huge medical bills.
While the looming idea of financially and physically supporting your parents in their older years often feels overwhelming, there is so much you can do now to make the transition smooth and protect your finances.
Proper planning can not only reduce the anxiety, but actually make the situation a pleasant one down the road. Let’s recap the steps millennials should take to protect themselves and their parents:
- Buy long term care insurance now
- Decide on the best housing arrangement for your family
- Help them figure out how to keep working past age 65
- Help them reduce their monthly expenses
- Don’t miss out on tax breaks for elderly care
- Make sure that their insurance policies are in place