9 Tips to Help Manage an Aging Loved One’s Finances
Navigating the financial side of caregiving can be a major source of stress, especially when you’re new to the role of caregiver for an aging relative. A lot of questions may spring to mind: How can you help protect your parent’s financial security? What’s the best way to budget day-to-day spending? How will you handle unexpected expenses?
To get you started on the right path, here are 9 things to keep in mind when supporting an older loved one.
1. Gather information about their personal finances and existing accounts
The best place to start is with an understanding of their current financial situation. Gather recent statements for bank accounts, credit cards, retirement funds, and any outstanding loans (e.g. home mortgage, auto loans, etc.). You’ll also want to review any insurance documentation about health, life, or long-term care coverage, as well as existing wills, estate plans, powers of attorney, or advance directives. Appropriate legal documentation is an important part of financial management; you may want to speak with an elder law attorney to ensure everything is in order.
2. Understand what income and assets they have available
Once you’ve gathered their financial documents, it’s time to identify what income is regularly coming in. For some people, this may be limited to Social Security payments, but others will be taking distributions from 401(k)s, IRAs, and other retirement accounts. (Note that once someone reaches the age of 73 they are required to take “minimum distributions” from certain retirement accounts, or they may have to pay a 50% excise tax on the amount not distributed as required.)
In addition to monthly income from these sources, identify what other resources could be considered assets. This might be a home they own outright or investments outside of a retirement fund.
3. Calculate what their care will really cost and set a budget
Account statements will also give you a good idea of how your loved one has been spending money, so you can estimate what to expect in monthly expenses. Consider:
- Living expenses like housing, groceries, personal items, and clothing;
- Healthcare costs like doctor’s visits, medications, and insurance premiums;
- Bank fees, debt payments, property tax, and other monthly or annual bills;
- Miscellaneous costs like gifts for family members, supplies for a favorite hobby, or social outings with friends.
If you find that their monthly expenses exceed what they’re getting from retirement funds and Social Security, you’ll need to have a conversation about what costs can be cut/reduced or what the plan is for covering this gap.
4. Prepare (as best you can) for the unexpected expenses
Even with the best plan in place, your loved one may be faced with unexpected costs that you’ll need to help them manage. This might include home repairs and maintenance, medical treatments and procedures not covered by Medicare, or costs associated with transitioning to an assisted living or nursing facility. In addition to budgeting for regular expenses, it’s a good idea to set up an emergency fund for any significant unexpected expenses, so you'll be able to cover these costs without taking on significant debt.
5. Put protections in place to help safeguard their savings
Unplanned but necessary expenses are one thing – but losing money to scams or predatory schemes is another. Older adults can be targets of scammers, so it’s a good idea to put extra protections in place to defend against them. If you want your relative to be able to make some purchases for themselves, the True Link Visa® Prepaid Card can be a good option. With the Spending Monitor, you can set up where the card can and cannot be used, block over the phone or online spending (where these scams are common), and set transaction limits to avoid big purchases. Here are some more tips on how to protect a loved one from scams.
6. Strengthen your own financial foundation
Care for an aging loved one doesn’t just impact their finances, the caregiver can also experience financial hardship. A 2021 study from AARP found that 78% of family caregivers regularly incur out-of-pocket costs when caring for a loved one, with the average annual expenditure topping $7,200. And that doesn’t include money lost to reduced hours at work or unpaid leave, lower contributions to your own retirement accounts, or lost healthcare benefits for yourself. It’s important to be clear on what costs you’re willing to incur for a loved one and avoid sacrificing your own financial future. In some cases, you may be able to receive compensation for your caregiving duties.
7. Solicit the support of relatives and document your agreements
If you have family members who are also involved in your loved one’s care, talk to them about how you can split up caregiving and financial responsibilities. Someone may be in a better position to provide monetary support while others have the bandwidth and desire to take on in-person care. It’s a good idea to get any financial agreements in writing.
8. Keep any caregiving-related spending separate from your own
Regardless of where the money is coming from, you’ll want to keep caregiving costs apart from other personal spending. This could mean opening a new bank account or using a separate card specifically for caregiving like the True Link Visa Card. If you’re sharing responsibility for expenses across family members, having one card that multiple people contribute to and review charges for can make everyone more comfortable about how money is being used. This can also be a good solution when hiring a professional caregiver who needs to be able to make purchases on behalf of a loved one.
9. Tax planning for caregivers (and potential tax benefits)
Depending on your specific situation, there are several tax benefits you may be able to take advantage of including dependent tax credits and deductions for medical expenses. Talk to your tax planner or accountant about these questions and what you need to do when filing for yourself and/or a loved one.
As you embark on this caregiving journey, remember that open communication with your aging parent is key to this process. Going through these steps together can help you navigate the financial aspects of caregiving and provide the best possible care for your loved one for years to come.
Disclaimer: This article is not intended to provide investment, tax, or legal advice. Before making decisions involving investing, legal, tax or accounting concerns, you should consult appropriate professionals regarding your speciﬁc situation. The AARP offers free assistance and tax tips for seniors through its Tax-Aide program. You can also find a wealth of information from the IRS for adults with disabilities, seniors, and their caregivers.
True Link Financial, Inc. does not provide investment management services and neither True Link Financial, Inc. nor True Link Financial Advisors, LLC provides legal or tax advice. Please consult the appropriate advisor regarding your specific circumstances. True Link is not associated or endorsed by the Social Security Administration or any other governmental agency.
The True Link Visa Prepaid Card is issued by Sunrise Banks N.A., St. Paul, MN 55103, Member FDIC, pursuant to a license from Visa U.S.A. Inc. This Card can be used everywhere Visa debit cards are accepted. Use of this card constitutes acceptance of the terms and conditions stated in the Cardholder Agreement.