Unpaid Caregivers Soon May Get Help to Save for Retirement

A woman brushes her mother's hair while she sits at a table in her bedroom.

(Image credit: Getty Images)

Roughly half of U.S. adults care for a child, parent or other relative; that’s more than 53 million caregivers, according to a report on caregiving in America. As the country ages and as more individuals provide care to both aging parents and growing children at the same time, this number will only grow.

Caregivers routinely make significant personal and professional sacrifices, including stepping out of the workforce or moving from full-time to part-time work. Because of this, it’s no surprise that caregiving for loved ones can have a significant negative impact on savings and retirement readiness. The estimated economic value of uncompensated family caregiving was $600 billion in 2021, the AARP estimates. That’s up from $470 billion in AARP’s previous study in 2017.

At Edward Jones, we believe it is imperative to create additional savings opportunities for caregivers to help address these financial challenges. We strongly support the Improving Retirement Security for Family Caregivers Act and the Catching Up Family Caregivers Act, sponsored by Sens. Susan Collins, R-Maine, and Mark Warner, D-Va., and Reps. Brittany Pettersen, D-Colo., and Maria Elvira Salazar, R-Fla., to help the millions of Americans who provide caregiving services to family and friends.

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Proposed legislative changes

These bills would build on the success of the SECURE 2.0 Act by providing the following savings opportunities for caregivers:

The Improving Retirement Security for Family Caregivers Act would allow family caregivers to contribute up to $7,000 per year to a Roth IRA, even if they have no earned income. We know there are many single-income earners who step out of the workforce to care for a young child or an aging family member who do not want to lose the valuable opportunity to save for a secure retirement.
The Catching Up Family Caregivers Act would let family caregivers make catch-up contributions to employer-sponsored retirement plans, an option typically reserved only for those who are 50 or older. It would provide an extra year of catch-up contributions — up to a maximum of five years — for every year for which an individual is unable to work at least 500 hours due to caregiving. This would expand on the catch-up contributions provided by the SECURE 2.0 Act, which were created to help Americans with fewer years until retirement to “catch up” for time lost when they were financially unable to contribute at a younger age.

Harsh realities for the 'sandwich generation'

The generation of middle-aged adults (usually ages 40–59) who are “sandwiched” between caring for both older and younger family members have been fittingly deemed the “sandwich generation.” As one generation of young adults is struggling to achieve financial independence and another generation continues to age, the burdens and responsibilities placed on middle-aged Americans are increasing.

Nearly half (47%) of adults in their 40s and 50s have a parent who is 65 or older and are either raising a young child or financially supporting a grown child (age 18 or older), according to Pew Research Center. And 15% of middle-aged adults are providing financial support to both an aging parent and a child.

This generation faces a perfect storm of caring for older and younger family, while trying to work and manage their own finances — including saving for their eventual retirement. This balancing act is a tremendous challenge for a full- or part-time caregiver.

The adverse effects of caregiving are most acute for women and minorities

According to recent Edward Jones research, nearly two-thirds of women in the sandwich generation (64%) who care for both children and elderly parents or relatives say that their caregiving duties have negatively affected their ability to save toward their financial goals, and 57% say that they assumed less professional responsibility due to caregiving, which has resulted in less income than they might have earned otherwise.

Women typically have only two-thirds (67%) the retirement savings of men and live an average of five years longer, making these caregiving proposals particularly important for women saving for retirement.

There are also racial disparities affecting the experiences of unpaid caregivers. According to a 2020 report, Black caregivers more often provided an excess of 40 hours of care per week, compared with white caregivers (54.3% vs 38.6%).

What caregivers can do to prepare for retirement

While these proposed legislations would provide support for the long term, caregivers also need more immediate advice on what they can do now to set themselves up for success in retirement. Under the circumstances that caregivers face, this can seem overwhelming, financially and emotionally, but they don’t have to do it alone. Working with a financial professional can help caregivers set their short- and long-term financial goals with a clear path to achieve them. Steps like creating a realistic savings plan can set them on the path to retirement readiness.

But planning for retirement is about more than just saving money. To live well in retirement, planning must be comprehensive and holistic and should take into account not only financial considerations, but those related to health, purpose and family. According to Edward Jones research, in partnership with NEXT360 and Morning Consult, the majority of retirees regret not having done a better job of planning for the financial (61%) and non-financial (54%) aspects of retirement.

A financial adviser can help caregivers by identifying a strategy to make sound financial decisions and reviewing financial records and insurance coverage to help get a clear picture of their situation. Caregivers can also consider looking into community resources, such as support groups and other services available to caregivers and people 60 and older, including home-delivered meals, transportation and adult day care services. Other actions caregivers can take include working with their loved ones to make sure all medical and financial documents are up to date, as well as learning about their Social Security benefits and any other health care benefits, including Medicare, Medicaid and veterans benefits as appropriate.

Making a lasting impact

Edward Jones is committed to helping our clients build lasting strength through saving for a secure and dignified retirement. We strongly support these caregiving bills to provide financial relief to America's unsung heroes who give so much by providing unpaid care to family and friends in need.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Edward Jones Principal Lamell McMorris leads the Regulatory and Government Relations practice as Head of Policy. His team implements an enterprise-wide policy capability, through which the firm can develop and drive an affirmative, intentional policy strategy to proactively surface a wide range of policy and legislative issues. He joined the firm in 2021.