Why planning for unpaid caregiving matters

Taking on unpaid caregiving during retirement changes the assumptions behind a typical retirement plan. Caregiving can mean new out-of-pocket costs (medical supplies, home modifications, paid helpers), lower income if you return to work part time or reduce hours, and added pressure on retirement assets. National data show unpaid caregiving is common: the AARP/National Alliance for Caregiving report estimated tens of millions of Americans provide unpaid care (AARP/NAC, 2020). Early planning reduces the risk that caregiving responsibilities will force you to deplete retirement savings or delay essential medical care (AARP/NAC, 2020).

Common costs and how to estimate them

Estimate costs across categories and plan for both ongoing and episodic needs:

  • Direct medical costs: co-pays, prescriptions, medical equipment, home health aides. Some of these may qualify as deductible medical expenses (see IRS Publication 502) (IRS Pub. 502).
  • Home modifications and supplies: ramps, grab bars, hospital bed rental.
  • Nonmedical supports: transportation, meal delivery, respite care.
  • Opportunity cost: lower earnings, lost employer retirement contributions, reduced Social Security by fewer work credits or lower lifetime earnings (Social Security Administration guidance).

How to estimate: build a 12-month caregiving budget. Track actual receipts for 6–12 months and use conservative estimates for recurring items. Add a contingency buffer (10–20%) for irregular costs.

Benefits, programs, and tax rules to investigate

Medicare

  • Medicare may cover limited in-home skilled nursing and therapy but does not generally pay for custodial long-term care (Medicare.gov). Review Medicare coverage details before assuming in-home care is paid by Medicare.

Medicaid and state programs

  • Medicaid covers long-term services and supports (LTSS) for eligible people; eligibility and benefits vary by state. Many states also operate Home and Community-Based Services (HCBS) waivers that let beneficiaries receive care at home (CMS.gov). If the person you care for becomes Medicaid-eligible, expect an eligibility process that looks at assets and income.

Veterans benefits

  • Veterans and surviving spouses may qualify for Aid & Attendance or other VA benefits that help pay for in-home care (VA.gov).

Tax rules and deductions

  • Some caregiving expenses can be treated as deductible medical expenses if you itemize and they exceed 7.5% of your adjusted gross income (IRS Pub. 502). In certain cases, you can claim the care recipient as a dependent (qualifying relative) if they meet IRS tests—this affects exemptions and credits. The Child and Dependent Care Credit is only available for qualifying work-related care costs (IRS guidance).

Social Security and work credits

  • Lower earned income reduces lifetime earnings used to calculate Social Security benefits. If caregiving leads you to stop working or drastically reduce hours, check how that may lower future Social Security income (SSA.gov).

State and local supports

  • Many states offer respite programs, caregiver training, and support groups. Local Area Agencies on Aging are a good starting point to find programs and volunteers.

(Authoritative sources: AARP/National Alliance for Caregiving, IRS Publication 502, Medicare.gov, CMS.gov, VA.gov, Consumer Financial Protection Bureau.)

Financial strategies to protect retirement security

  1. Create a caregiving budget and cash reserve
  • Separate caregiving expenses from your household budget. Maintain a caregiving emergency fund (3–6 months of caregiving costs) in liquid accounts.
  1. Preserve retirement accounts where possible
  • Avoid early or high withdrawals from retirement accounts. If you must use retirement savings, prioritize tax-efficient withdrawals and consult a fiduciary advisor.
  • If you’re age 50+, use catch-up contributions to rebuild savings when your employment income allows (IRS rules).
  1. Use HSAs strategically
  • If eligible, Health Savings Accounts (HSAs) are tax-advantaged for qualified medical expenses and can pay for some caregiving costs tax-free. Save receipts and follow IRS rules for qualified expenses (IRS HSA guidance).
  1. Consider insurance solutions
  • Long-term care (LTC) insurance or hybrid life/LTC policies can shift risk off your balance sheet. Compare premiums, elimination periods, inflation riders, and financial strength of carriers.
  1. Explore flexible work and phased retirement
  • Part-time work, consulting, or phased retirement can replace lost income without fully exiting the workforce. Design a schedule that protects your time and benefits.
  1. Plan for benefits changes and eligibility
  • If you plan to become unpaid caregiver, talk to HR about unpaid leave (FMLA for eligible workers) and portability of employer benefits. Document earned Social Security credits and projected impacts.

Legal and administrative steps

  • Durable Power of Attorney (financial and healthcare): appoint someone to act if you or the care recipient cannot.
  • Advance directives and POLST/MOLST forms: record care preferences.
  • Care plan and medication list: keep a single, updated file with instructions, physicians, and insurance details.
  • Review titles and ownership: joint accounts, beneficiary designations, and trusts can affect Medicaid eligibility and long-term planning.

How to talk to family and build a support network

  • Start early: discuss expectations, time commitments, and financial contributions from other family members.
  • Assign clear roles: caregiving, legal tasks, financial management, and medical decision-making.
  • Put agreements in writing: a simple family caregiving plan reduces conflict and clarifies who pays for what.

Real-world scenarios (illustrative)

Scenario A — Mary (retired homeowner)

  • Mary planned for retirement with a 4% withdrawal rule. When she became her father’s caregiver, she increased monthly withdrawals for in-home care and transportation. We revised her plan to reduce discretionary spending, used her HSA for qualified expenses, and purchased a small LTC policy to cap catastrophic costs.

Scenario B — Tom (near-retirement worker)

  • Tom cut his hours at age 62 to become a primary caregiver. He lost part of his employer match and saw a projected Social Security reduction. We used a phased retirement plan: Tom worked 20 hours a week on a contract basis for one year while applying for respite services and exploring VA benefits for his veteran spouse. That combination preserved enough income to avoid large retirement account withdrawals.

Practical checklist — first 8 actions

  1. Build a 12-month caregiving budget and cash buffer.
  2. Inventory current benefits: Medicare, employer plans, VA, and long-term care policies.
  3. Track caregiving expenses in one place for tax and planning purposes.
  4. Meet with a financial planner and a tax professional familiar with caregiving issues.
  5. Create durable POA and healthcare directives.
  6. Research state Medicaid rules and local respite programs (Area Agencies on Aging).
  7. Consider insurance options: LTC, hybrid policies, or umbrella coverage.
  8. Start a family meeting to assign roles and expectations.

Where to get help

  • Area Agencies on Aging: find local programs and respite care.
  • Social Security Administration: check how reduced earnings affect benefits (SSA.gov).
  • IRS Publication 502: rules for medical expense deductions (IRS.gov).
  • Consumer Financial Protection Bureau: guides for caregivers on money and benefits (consumerfinance.gov).

Useful internal resources on FinHelp.io:

Final considerations and professional disclaimer

Unpaid caregiving often requires both financial and emotional trade-offs. The right combination of budgeting, benefits navigation, legal planning, and insurance can reduce the long-term drain on retirement assets. In my practice, caregivers who plan early and document expenses preserve more of their retirement security than those who react under stress.

This article is educational and not personalized financial, tax, or legal advice. For guidance tailored to your situation, consult a licensed financial planner, tax professional, or elder law attorney. Authoritative sources cited include AARP/National Alliance for Caregiving, IRS Publication 502, Medicare.gov, CMS.gov, VA.gov, SSA.gov, and the Consumer Financial Protection Bureau.