Financial Planning for Women – “Caregiving Risk” and How Do You Plan for Them?
When it comes to financial planning for women, the “headline risks” that women are likely to live longer than men and that they have a higher possibility of suffering from disability in their lifetime are often brought up as the major planning considerations they should be concerned about. Yet, in my work with female clients, these are not the major concerns that are usually brought up.
In my experience, what concerns my women clients are not something as “big picture” but something more “real” – the concerns about being unsure of how much to save, feeling that they are not saving enough and perhaps in some cases, a sense of guilt that they have been too short term in their thinking and planning. Often, these are the triggers that starts them on the financial planning journey.
In a way, it’s human that we choose to focus on something we can control (i.e. how much to save, saving a bit more…etc) rather than to focus on something we have little control over (i.e. longevity and the higher probability of disability…etc). This is perfectly understandable and as a woman, something I can totally relate to.
Yet, there is a risk, or rather a responsibility, that oftentimes catches the clients’ off-guard when it’s brought up in the planning discussion. The risk is the possibility of them having to be a caregiver sometime in the future and the impact it will have on their own financial plans and wellbeing. This is a risk that is both real and that they have very little control over.
I call this the “Caregiving Risk”.
Caregiving Risk – Being a Caregiver
A caregiver is defined as an “unpaid or paid member of a person’s social network who helps them with activities of daily living. Caregiving is most commonly used to address impairments related to old age, disability, a disease or a mental disorder.”
In a survey conducted on informal caregiving in Singapore, the demographics of the caregivers surveyed includes the following:
- 60.2% of caregivers are female
- 55% of caregivers are between the age of 45 to 59 years old
- 64.9% of caregivers are married
The study “found more female caregivers (60%) than male caregivers (40%). Most of the caregivers are middle aged, aged between 45 to 59 years old. The majority of them are currently married (65%). There is a substantial group of single (never married) caregiver (26%).”
While every actual caregiving situation will have their own unique set of circumstances, the facts show that on average, women are more likely to be a caregiver and at a period of their lives when they are likely to enjoy high income if they are working (i.e. age 45 to 59 years). The potential impact on their own financial plans can be significant regardless of their marital status.
Generally, when this subject is brought up, the client themselves will identify if this will be a probable concern. Sometimes, it’s because they are the only child. Other times, it’s because they are the closest to the parents. Yet often, it’s because they are the family “planner” who have been making the decisions and they accept that the primary care responsibility will automatically fall on their shoulders.
If you are concerned about this potential responsibility and risk, here are in my opinion 3 things you can do to mitigate the impact of “Caregiving Risk” to your own financial and retirement plans.
Mitigating “Caregiving Risk” – 3 Things You Can Control
1. Expect What You Inspect – Detail Out the Insurance Coverage
Get involved early in the financial plans of your parents (or the people you expect to look after). Learn and understand about what type of insurance plans they have and here are some clues on what to look out for:
a. Medical Insurance – What is their current coverage? Are there any exclusions? Are there any co-payments required?
b. Disability Insurance – Are they covered? If yes, how much is the payout? Is the payout in one lump sum or monthly over a period of time? When will the insurance terminate?
c. Critical Illness Insurance – Are they covered? What are the conditions/stages that are being covered? When will the insurance terminate?
d. Others – Do they have any other insurance plans that can provide funding should caregiving be necessary? Examples are annuity plans, life insurance policies with cash values…etc
This painful step will do 2 important things – it helps you “face the facts” early and gives you an opportunity to make adjustments which brings me to the next point.
2. Transfer out the Risks – Pay the small bills and let insurance pay for the big ones
After detailing out the insurance coverage, there are 2 possibilities. The first is that there are existing comprehensive insurance plans in place to pay for what has to be paid. In this case, you can then focus on tidying up the important legal documents such as Lasting Power of Attorney by having a discussion with your parents.
The second (and more likely situation) that you might find yourself in is that there are gaps such as co-payment for hospitalization, little or no disability/critical illness insurance, insufficient coverage or insurance coverage that terminates too early. In such a case, there is a need to have more cash savings or liquidity.
When I work through the calculations with clients, the final amount required can be quite daunting.
Here is an example of how the calculation might look like:
i. Funds required for medical co-payment (i.e. hospitalization) – $3,000 x 10 years = $30,000
ii. Funds required for Long Term Care (e.g. Nursing Home) – $40,000 x 10 years = $400,000
iii. Funds for other Expenses (e.g. on-going insurance premiums…etc) – $2,000 x 10 years = $20,000
If one parent could potentially need $450,000 for 10 years of care, both parents will need $900,000. When the amounts are calculated out, it can often be too overwhelming to think about. Yet, just because the amount seems huge does not mean that it should be ignored.
Work out your own numbers, budget for the amount in advance and explore where the sources of funds can come from. The funding may come from your parent’s exisiting savings or selling of assets such as downgrading of property. It may also come from the legacy fund that they have intended to leave to you.
If their health allows, you can explore enhancing their insurance coverage to transfer these risks to insurance companies. This may well be the most cost-effective way to provide for the financing required so that you can create more funds for yourself which brings me to the next point.
3. Create Income Earlier For Yourself
The majority of caregivers are between the ages of 45 to 59 years old. You can’t set up your retirement plans in the usual manner to provide income from age 60 or 65 onwards as you may have to completely stop work or reduce your workload earlier. The usual sources of retirement income such as CPF Withdrawal (at age 55) or income from CPF-Life (from age 65) may be too late to provide the financial relief required.
You will have to intentionally plan out and create your own income to start much earlier, perhaps from age 45 or 50 onwards. Here are examples of some options that you can consider:
a. Endowment plans that provides a lump sum of money (e.g. $100,000 at age 50)
b. Annuity plans that provides income for a limited number of years (e.g. 10 years)
c. Investment portfolio that you can draw down from without withdrawal penalties
Different options will be suitable for different people but the key is to have the money ready when you need it and intentionally building this flexibility into your plans well in advance. If you never had to shoulder the responsibility of being a caregiver, these funds can be easily redirected towards retirement with little negative impact.
Take Care of Yourself First – You can’t give others something you don’t have
Personally, I prefer to look at the possibility of caregiving as a responsibility yet professionally as a financial planner, I have to see it for what is it – a potential risk to a financial plan. If the financial impact of being a caregiver is being planned for in advance and it did not happen, there is no problem. If the financial impact of being a caregiver is not provided for in advance and the need to be a caregiver arises, it becomes a financial problem.
If being a potential caregiver is a risk that you are concerned about, you can download this Guide to Insurance Plans for Caregiver Financing which contains a list of 8 insurance plans (that requires less than $800 a year in premiums) that can be used to provide coverage and financing for medical and long term care needs of the people that you may have to potentially provide care for. The guide includes my comments on the focus area of coverage for the plans and the last entry age. I hope that this can be a useful resource to help you kick start your planning towards managing the Caregiving Risk.
Financial planning at its core, is about helping people help themselves. When the planning is done right, this topic of caregiving can be transformed from being a risk to a responsibility.
Good luck and enjoy the journey!
Article by Lee Meng, FChFP