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How to Care for Aging Relatives While Preserving Your Portfolio

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How Ultra High Net Worth Retirees Can Care for Aging Relatives & Kids While Preserving Financial Security

See How Much the Costs of Care Can Dent Your Portfolio

How much does it really cost to care for aging relatives? Is it enough to potentially threaten your retirement security, even as an ultra-high net worth family?

The surprising truth is – no one is immune from the risk of skyrocketing costs from caring for their aging relatives or friends. Even more surprising, these costs can outpace the costs of caring for children, even those with special needs.

Forbes reported on a study estimating that from birth through age 17, the average family spends $234,000 raising a child. This would likely be higher for ultra high net worth families, and then college comes next.

If you’re a grandparent and want to help care for your grandchildren, some of those costs will be coming around the mountain for a second time. So including four years of college, you could easily be spending over $700,000 per child to get them from birth through college.

But what about elder care?

If you’re already retired or very near to it, these questions carry much greater weight. You’ll no longer be earning new income from work. Expenses won’t be refilled quite as quickly or easily.

If you end up having to spend large unexpected amounts of time and money caring for multiple aging relatives, you may quickly find yourself worried about money and your own retirement security.

So how much can it cost to care for aging relatives, and what can be done to help your portfolio withstand these costs?

Costs of Caring for Elderly Relatives

The same Forbes article states that the average long term care out-of-pocket costs for one person add up to $140,000. But the real figure is actually much higher. That figure only includes the cost of full-time long term care, as in a nursing home facility. But before your aging relatives reach that point, you may need to care for them for several years in your own home.

To do that, you’ll spend:

  • At least $100,000 out of pocket on health care
  • Additional money on other costs incurred simply to care for an elderly person
  • Time off work, which reduces your pension, Social Security, and retirement benefits, not to mention your wages
  • Time caring for them you could be using for other things

According to Fidelity vice president Ann Dowd, “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.” Even for a high net worth woman, 12 years is quite a long time. If you earn $250,000 per year, losing 12 years of income means a loss of $3 million. And that’s just the raw income.

Again – that doesn’t include the lost benefits from Social Security, your pension, and your employer matched funds. Nor does it include the investment growth you would have earned from whatever portion of that $3 million you would have invested.

In fact, a Metlife study found that adult-child caregivers, cumulatively, lose $3 trillion. That figure includes the losses of income as well as the benefits listed above. Women tend to lose more than men, often because daughters tend to sacrifice more time to care for aging relatives, which often translates to lost work hours or leaving their job altogether.

If you’re not retired yet, don’t assume you can put this off. The average age of an adult-child caregiver is 49.2 years old.

So yes, you may well spend over $700,000 raising each child. But considering the medical costs not covered by insurance, drug costs, lost wages, foregone benefits, long term care costs, in-home hired help, remodeling for your home to accommodate your aging relative’s special needs, and all the other little things, you may end up spending well over $1 million for just one aging adult.

If you have to care for more than one, the costs keep piling up.

What About Me?

Lost in all this discussion about caring for aging relatives as well as kids is your own financial future. Caring for aging relatives of ultra-high net worth families will eventually mean caring for you.

You probably want to spare your kids from having to pay for that. But now, hopefully you see that as a high net worth family that doesn’t get help from the government for this sort of thing, you actually need to have enough money to care for your aging parents, your kids, AND yourself!

The millions are adding up…And let’s not forget that you also kind of want to enjoy your life a bit. You’ll want to be spending money on that too, right? The good news is, you can achieve all this and retain your financial security.

So we started with the scary stuff – how much caring for aging relatives can end up costing ultra-high net worth families. But now, let’s see why you don’t need to spend any time worrying about it.

5 Secrets to Preserving Financial Security While Caring for Relatives

You are not powerless against these looming costs of caring for elderly relatives. You can do something about it. You can take action.

Here are some practical steps you can take to fight for your financial future.

1. Save Money with Smart Tax Planning

No matter what you end up spending to help your aging relatives, don’t ever stop saving for yourself. The good news is, several retirement planning strategies also save you money on taxes.

Contributing to a 401(k), for example, reduces you taxable income. Stashing money in a Health Savings Account (HSA) reduces your taxable income and the investments grow tax free. HSA’s are particularly powerful in this instance because you can use your HSA funds to pay for medical costs for your elderly relatives.

That way, you’re not even touching your own retirement savings and can continue living your life and spending money as you always have been. Here are 10 tax planning strategies for high net worth families

2. Don’t Be Afraid to Hire Help

You might spend $200 per day hiring in-home care for an aging relative. But if that $200 means you can keep working full-time for several more years, then the income growth and the continued accumulation of your full benefits in retirement funds, Social Security, and pensions will more than make up for the seemingly high cost.

$200 per day equals $6000 per month, $72,000 per year (assuming they work 7 days a week). If you live in a place like Sausalito or Pleasanton and you make $250,000 per year, losing all that income to care full-time for relatives at home counts for a far greater financial hit than hiring help.

Hiring help might be the smartest move you can make if you’re not ready to commit to long term care in an assisted living or nursing home facility.

3. Trim Your Estate Plan

Assuming you’ve planned out how much you want to leave your heirs (ideally with the help of a financial advisor), this is an easy area to save money. Perhaps you’ve planned to leave $5 million to your heirs. If you trim that down to $4 million, you suddenly have an extra $1 million to care for your aging relatives without touching the rest of your financial plan.

If you sense that you’ll soon be in a situation where you’ll be caring for your aging relatives, this simple adjustment can help blunt the cost and the associated feelings of anxiety.

4. Delay a Couple Planned Major Expenses

Perhaps you’ve planned to buy a boat, a second vacation home, or some other major distribution. Every situation is different, but typically, you don’t have to care for aging relatives for more than a few years. That’s one reason these costs are so strongly felt, even by ultra-high net worth families. You might spend $700,000 raising a child, but that cost is spread out over 22 years.

The hundreds of thousands you can spend caring for aging relatives happens in just a few years. So the per-year cost is far higher.

But, since in most situations you will only have to care for this relative for a few years, simply by delaying a planned major purchase until after you no longer need to support this person, you can keep your retirement portfolio humming at a higher level.

The less deep the hole you dig during a period of caring for relatives, the easier it will be to climb back out of it.

5. Have a Wealth Manager Oversee Your Investments

Caring for aging relatives isn’t just costly; it’s wearisome. It drains you mentally and emotionally, often far more than it does financially.

Having to manage all your investments and worrying about your performance while also caring for relatives can simply be too much to handle. Plus, if you have siblings, or other people with opinions about how you’re handling all this, you can quickly ratchet up the rivalries and conflicts.

Entrusting your investments to an impartial wealth manager who works exclusively with high net worth and ultra-high net worth investors relieves most of this pressure and stress.

Plus, if you work with a wealth manager like Pillar, we also can help you get a much clearer picture of the health of your portfolio. We have an innovative process that recommends the adjustments you need to make to preserve your financial security while caring for your aging parent or other relative.

For instance, how much of your estate plan should you trim? Do you really need to delay that major distribution? For how long? What happens to your 30-year outlook if you work part-time instead of full-time?

On the flip side, what if your aging relative ends up passing away earlier than expected and you end up with an inheritance from their estate plan?

Having an objective, impartial, third party expert to help you work through these sorts of questions will keep your retirement portfolio as strong as possible while optimizing your investment performance.

Pillar Wealth Management has been working only with high net worth clients for over 30 years. We’ve helped many families navigate the tricky waters of caring for aging relatives, and sometimes with young kids (or grandkids) at the same time. If you’re caring for relatives, you don’t need me to tell you how stressful it is.

But we’re here to help if you’re worried about how it’s affecting your finances. By walking through a Wealth Management Analysis meeting, you can quickly learn how strong your portfolio is now, AND how strong it will be 20, 30, 40 years from now. And, we can include the financial effects of caring for your aging relatives to see if you need to make any adjustments.

But the sooner these adjustments are made, the smaller they’ll be and the less you’ll feel them. Ask about a Wealth Management Analysis Meeting