Hopping the Hurdles Toward Retirement (the series)
November 03, 2010It’s hard enough to plan on retirement for just you, but what happens when you throw others in the mix. If you are married, your spouse may be part of your plan, but does your retirement plan also include taking care of aging parents? This week we’ll take a look at how to address this issue when planning for retirement.
Hurdle #3: Taking care of dependent parents
Susan and I are looking forward to retirement. We don’t know exactly what it will look like, but chances are it will involve spending time with grandchildren (with four kids we’d better have some), playing golf, fishing, maybe even going on a mission trip or some other form of volunteering. That all sounds pretty good, but what am I going to do about my mom? You see, my mom is a big part of the family. She takes the kids to movies, she watches them play sports. She’s in her sixties now (gosh, I hope she doesn’t hate me for telling you that), but that means she’ll be well into her eighties by the time I’m getting ready to retire. My mom may be fairly independent now, but that may not always be the case, and I’m not exactly sure how taking care of her will impact my retirement plans.
Here are three things to know about taking care of aging parents:
#1 Long-term care is expensive
Like it or not, we all face the possibility of needing custodial care at some point in our life. Whether it’s assistance with getting dressed, eating, and bathing, or the result of cognitive impairment from such things as Alzheimer’s disease, caring for a loved one in these circumstances can create a tremendous physical and financial strain.
Talk to an insurance professional about long-term care insurance. Not only can it help pay for long-term care, but many plans offer respite care for caregivers. Talk to your employer to see if they provide a long-term care insurance benefit. Some group plans even extend benefits to family members.
To learn more about long-term care insurance.
#2 Medicaid looks back 5 years
Every state offers Medicaid to help pay for custodial care, but most states require you to spend down most of your assets before you qualify for Medicaid benefits. Your parents may attempt to transfer assets to you in order to qualify for Medicaid benefits, but Medicaid will look back five years and include any assets transferred during this time in the exclusion period. If you think your parents may have this in mind, they may want to speak with an estate planning professional with experience in Medicaid planning. See here for help finding an estate planning attorney.
#3 Taking care of dependent parents has tax benefits
Just think, after all those years they were able to claim you as a dependent for tax purposes, now they are finally returning the favor. But before you go naming mom or dad as a dependent, remember that they must meet certain criteria. For starters, their income must be below the annual exemption amount, which for 2010 is $3,650. Also, you must provide for more than 50% of their support. Tax credits and deductions may also be available when you pay for certain medical expenses. The rules regarding these tax benefits can get a bit tricky, so you may want to consult a tax professional regarding your situation.
See here for more on the tax benefits of caring for aging parents.
Bottom line: The cost of caring for aging parents can hinder your retirement goals, so talk to them about what they would do if they ever became physically or financially dependent, and plan accordingly.