When making plans for retirement, it's important you take all of your big expenses into account. Unfortunately, there's one expense that may not be on your radar -- and it could be a substantial one. If you aren't prepared for it, it could eat into your budget, and possibly lead to you draining your nest egg faster than you planned.
So what is this big expense? It's the costs associated with caregiving.
How could caregiving costs impact your nest egg?
According to Nationwide, providing care for loved ones can be extremely expensive. In fact, caregivers on average spend an estimated 26% of their own monthly budget on the costs associated with caring for others.
While caregivers include people of all ages, including millennials and members of Gen X, lengthening life spans mean an increasing number of people will still be serving as caregivers for parents or siblings even during their own retirements. And seniors could also be put into a position when they are left caring for a spouse as well.
For those who are still in the workforce when they're forced into the role of caregiver, spending so much on caring for a loved one can impact their ability to save for retirement. But for seniors on a fixed income, spending over a quarter of their own monthly budget on helping a loved one could be especially devastating. Such a large expense could lead to running through a nest egg much too quickly, leaving them with too little cash for their own needs later in life.
Sadly, many of those who take on caregiving roles don't necessarily do so because they want to -- they are forced into it by circumstances. In fact, as many as 58% of caregivers told Nationwide they felt they had no choice but to step up to provide assistance to a loved one. The same number said there had been no discussion in advance of the fact they'd need to provide care, and that they had not expected to take on the responsibility.
And caregiving can take not just money, but time as well. As many as 55% of caregivers told Nationwide they devote six hours a day or more to providing assistance to their loved ones. For both younger Americans and seniors, this can make it difficult to find side gigs or extra sources of income to defray some of the costs associated with caregiving responsibilities.
How to prepare for becoming a caregiver
First and foremost, it's important to talk with the people in your life about what role you can and will be able to play in providing care.
This could mean talking to aging parents, siblings, or even a spouse about what will happen if someone becomes incapacitated and needs help. If you know in advance that you may find yourself serving as a caregiver, you can make financial plans accordingly -- such as by saving more money when you're working so you have extra funds to help your parents or siblings after you've retired.
You should also make sure you and the loved ones you could end up caring for have evaluated whether long-term care insurance is a wise purchase. Long-term care can be extremely expensive, and if your spouse ends up needing it, it could eat into your joint retirement nest egg if you aren't insured or don't have dedicated savings to cover the costs.
By having open discussions about expectations, responsibilities, and financial realities, you can ensure you don't end up with too little income of your own due to caregiving. These discussions should ideally begin when you're still working, but if you're nearing retirement with living parents, siblings, or a spouse you may some day need to care for, it's especially important to have these difficult talks before it's too late.