Helping Your Aging Parents Without Wrecking Your Own Finances

Sometime after you took your teenaged child on a college campus tour, and sometime before your third doctor visit of the month (and third medication refill), you probably experienced some dizziness. Funds you thought would be available for your retirement started to fund somebody else’s life, and most people will tell you just how quickly this occurs.

There are 63 million Americans, about one in four adults, that cared for an elderly or disabled family member within the last year, based upon the American Association of Retired Persons (AARP) 2025 report. They also spent an average of about $7,200 per year from their own pocket funds caring for that family member. It’s possible to love and support your parents while refusing to put your own future on fire. Here’s how.

Your own oxygen mask first

When flight attendants instruct you to place your own mask on before assisting another passenger, the reason for this instruction isn’t self-centered. When caregivers deplete their own resources, they become a second individual requiring care. This does nothing but harm everyone involved, especially your parents.

In reality, when you withdraw money for your retirement contributions, those monies are withdrawn from the top of your earnings before you can write a check to compensate for a parent’s expenses. If you discontinue making retirement contributions for several years during your fifties to supplement your parents’ shortfalls, you not only lose the contributions, but decades of growth associated with them, and potentially damage your own future Social Security benefits. Fidelity recommends creating a retirement savings target of about ten times your annual salary by age 67, and six times your salary by age 50. However, if the assistance you provide to your parents causes you to deviate from this target, the assistance will ultimately cause problems for your own children.

One practical way to establish limits is to determine a specific amount that you wish to contribute each month to assist your parents, but ensure that amount comes from sources outside of your retirement account or emergency funding reserves. Treat that amount as a limit, not a starting point.

“You’ve got to make sure that you’re not, as a caregiver, you’re not draining your personal finances, your retirement accounts, taking loans to give that care.”

— Sangeeta Moorjani, senior leader at Fidelity Investments (source)

An honest picture of your parents’ finances

You can’t make informed choices based on assumptions about your parents’ finances. Many adult children have no knowledge of what their parents possess. Before spending a single dollar of your own money to assist your parents, create an accurate accounting of their actual assets: bank accounts, brokerage accounts, retirement income and pensions, Social Security benefits, annuities, life insurance, the equity value and mortgage balance of their residence, and their debts and ongoing expenses. Also, gather documents that let you act for a parent should they become unable to manage their affairs. A durable financial power of attorney lets you manage their finances and pay bills. A health care proxy allows you to make medical decisions on behalf of a parent. Get your parents’ signatures while they’re still clearly competent, because banks and hospitals won’t accept any wishes that weren’t documented. Take an additional step and get approval for acceptance of the power of attorney from each bank in advance, because many banks will reject the power of attorney if it hasn’t been previously approved.

Frame this discussion as ensuring that your parents’ wishes are honored, as opposed to taking control of their affairs. Ultimately, the intent is for your parents’ money to perform as they desire, even if they can’t express such desires.

“Having the power of attorney in place early is an act of love.”

— Beth Pinsker, financial columnist and certified financial planner, via Fidelity (source)

Benefits that your parents already qualify for

Before using your savings as a substitute for your parents’ existing benefit eligibility, search for public benefits that your parents are eligible for. There are thousands of dollars goes unclaimed every year just because no one applies. Some examples of large public benefits that exist include:

“Family caregivers are a backbone of our health and long-term care systems—often providing complex care with little or no training, sacrificing their financial future and their own health, and too often doing it alone.”

— Dr. Myechia Minter-Jordan, CEO of AARP (source)

Taking care of a parent is one of the greatest acts of love you’ll demonstrate towards anyone. Don’t take away from demonstrating such love by destroying your own retirement savings. Establish ceilings on amounts contributed, organize the necessary documents and inventory, pursue public benefits earned by your parents, and protect the future version of yourself that will require such assistance.

Put the help in writing, even with family

The trouble with family and finances is that it usually comes down to a lack of clarity. So before any money is put on the table, have a conversation about what you’re dealing with: is it a one-way gift or a loan? Put an end to any ambiguity by jotting down a line or two and having both parties put a signature to it. You may find it a bit stilted for the moment, but in the long run, it’s the best way to keep hard feelings at bay.

For one thing, putting it in writing is a way to shield your parents. Should Medicaid come to look over their books, having a record that shows a transfer was a true gift or a loan with straightforward terms can be the difference. Unsubstantiated large sums have a way of incurring a penalty. It’s much less trouble to do some of the legwork on paper now than to deal with the kind of friction and head-scratching that comes from not having those details on file.

Watch the hit to your own retirement

There’s more to it. The price of being a caregiver isn’t just in the bills. It’s in the promotion you have to forgo, the hours you put in less, and the years you’re away from a paycheck. All of that has its way of catching up with you. When you aren’t in the workforce, you put aside less and your Social Security down the line may be less as well; after all, it’s based on the best of your earning years. You can give of yourself without reservation and still find some of that coming back to you in your own later years.

That’s no reason to stand by and do nothing. But it does mean you have to be clear-eyed about the price tag and put a hard limit on it. Come up with a number for the month that you can part with while leaving your retirement fund where it’s. Make of it a maximum, not a minimum. Put as much of a shield in front of your own future as you do in front of your parents; only time will tell when you’ll be in their shoes.

Get paid, or at least protected, as a caregiver

For one thing, when you’re in the role of a hands-on caregiver, there’s no rule that says it has to be a pro bono arrangement. In some households, it’s only logical to put a written agreement in place for a parent to put an adult child on the books at a reasonable rate. Done right, it’s a way to be made whole for the effort involved and can even fit into a sound Medicaid strategy. More than anything, it puts an end to unspoken assumptions and sets down terms that are plain to see for all concerned.

There are regulations to these agreements, and a misstep can be more of a hindrance than a help. That’s why it’s better to have an elder law attorney on hand as opposed to making things up as you go. You’ll find the same applies with tax matters or when a parent’s home or other sizeable assets are in the mix. A little time with an expert at the start will put off thousands of dollars in costs for most families, and it has the added benefit of seeing to it that what should be a cordial matter doesn’t become one for the courts.

Photo by Vitaly Gariev on Unsplash