Navigating the challenges of caregiving and custodial care

Retirement is a life stage that many look forward to — a time to spend with loved ones, travel, relax, or pick up an old hobby. However, retirement can also be a time of stress and financial sacrifice for those who need to care for an elderly parent, a spouse, or an adult child. While immensely rewarding, caregiving comes with a unique set of challenges that families must recognize and navigate effectively. Recognizing these challenges is critical for providing optimal care to those who need it, while also maintaining caregivers’ overall well-being.

What is caregiving and how does it differ from custodial care?

Some people may refer to caregiving and custodial care interchangeably, so it’s important to understand the differences to identify the level of support required and resources available for your loved ones. Caregiving and custodial care both involve assisting and supporting individuals in need, but they differ in the scope of services and focus of care.

Caregiving is a broad term that involves “attending to the needs of and providing assistance to someone else who is not fully independent, such as an infant or an ill adult,” according to the American Psychological Association.¹ It can involve various types of support, including physical, emotional, and medical care for individuals who require assistance due to health issues, disabilities, or age-related concerns. Caregiving includes not only assistance with daily activities (which falls under custodial care), but also a wider range of responsibilities, such as managing healthcare appointments, coordinating treatments, providing companionship, transportation, and medication management.²

Custodial care is non-medical care provided to support activities of daily living (ADLs), such as bathing, dressing, eating, toileting, mobility, and grooming for individuals who may not be able to perform these tasks independently due to age, illness, or disability.³ It is most often provided at home by loved ones, in a nursing home, or in an assisted living facility.

Both caregiving and custodial care can be provided at home or in care facilities. Custodial care often involves non-medical professionals, while caregiving can involve both non-medical and medical professionals, depending on the care recipient’s needs.

What are some of the challenges that caregivers face?

Regardless of the type of care, caregivers typically experience similar challenges that impact their overall well-being, including their physical, mental, and financial health. In fact, our research shows that working caregivers report significantly lower overall well-being than non-caregivers — 41% versus 31%.⁴ In addition, our research indicates that caregiving can take a toll on all three dimensions of wellness:

• Physical wellness: Caregivers tend to let their physical health fall behind in ways that could have a longer-term impact. In fact, only 1 in 4 working caregivers report good physical health, 1 in 5 rate themselves as “good” at eating healthy and exercising, and 1 in 3 say they keep up with annual physicals and routine doctor appointments.⁵

• Mental wellness: Caregivers often experience stress and mental health challenges: 40% say that their caregiving responsibilities negatively impact their stress levels, and not even a quarter (23%) of working caregivers report “good” mental health. Almost half (47%) have experienced increased anxiety, depression, or other mental health issues in the past year — 62% more than non-caregivers.⁶

• Financial wellness: Caregivers also struggle with their financial health, as the expenses for medical supplies, home modifications, and professional caregiving services can impose financial strain. Four in 10 working caregivers say their responsibilities have negatively impacted their household’s financial security. Moreover, half of caregivers live paycheck to paycheck, and more than a quarter say they have stopped saving altogether. Caregivers are also far less likely to own key financial protection products, such as life and disability insurance products, than non-caregivers.⁷

As caregiving becomes more prevalent across all populations, women are still disproportionately impacted. Working Americans who are also caregivers are primarily women at 56% versus 44% men.⁸ Additionally, according to a U.S. Department of Labor study, “unpaid family caregiving reduces a mother’s lifetime earnings by 15 percent, which also creates a reduction in retirement income.”⁹

Caregiving also presents a unique set of challenges for those in retirement, since retirees often have fixed income and limited financial resources. The enormous cost of care can strain retirement savings. According to AARP, the average caregiver pays more than $7,200 annually in out-of-pocket caregiving expenses.¹⁰ In addition, the average cost of nursing home care in the US is almost $8,641 per month for a semi-private room, and $9,872 per month for a private room.¹¹

Regardless of age or gender, caregiving can take a toll on individuals’ physical, mental, and financial wellness. Caregivers should proactively seek support and prioritize self-care to help address the challenges of caregiving and maintain their overall well-being.

Does Medicare cover caregiving or custodial care?

While Medicare provides coverage for various medical services and treatments, it typically does not cover any non-medical caregiving services, custodial care, or long-term care.¹²

It is important to note that Medicare distinguishes between “skilled” and “unskilled” care. Only skilled services provided by a qualified health professional, such as a registered nurse (RN) or a licensed practical nurse (LPN), are covered by Medicare. Generally, these services are short-term (100 days or less) and an alternative to recovering in a hospital or skilled nursing facility. Examples of these services include:

• Monitoring of a patient’s vital signs and overall health.

• Wound care for a pressure ulcer or surgical incision.

• Administration of intravenous drugs or nutrition therapy.

• Injections.

• Catheter changes.¹³

Does Medicaid cover caregiving or custodial care?

Each state has a Medicaid program that may cover custodial care if care is provided in a nursing home setting and not at home.¹⁴ Specific rules vary by state, but generally Medicaid pays after you “spend down” most of your personal assets.

Should you use personal savings to pay for caregiving expenses?

Given the typical high costs for care, many people consider using their existing savings and investment portfolio to pay for caregiving expenses; however, this strategy may be risky given that the duration of caregiving is often unknown. Senior care referral service A Place for Mom reports that the average duration of unpaid caregiving is 4.5 years, but the number of people providing care for more than 5 years has increased in recent years.¹⁵ A few other considerations you may want to think about before tapping into your personal savings include:

• Taxes: Do your savings and investments consist ofmutual funds and stocks that have increased in value over time? If so, you may need to pay taxes when you sell those assets, reducing the amount left available for caregiving expenses.

• Is the largest portion of your wealth in qualified money (e.g., 401(k) or 403(b) plans or IRAs)? If so, withdrawals are taxed as ordinary income and may push you into a higher tax bracket, reducing the amount left for caregiving expenses.

• Liquidity: Are your assets liquid and can you easily access the funds? For example, money in a savings account is liquid (available for withdrawal), whereas money invested in real estate is not easily accessible.

• Timing: Interest rates and stock market movements do not take into consideration the timing of your withdrawals. If you need funds at a time when the stock market is down, the negative impact on your savings can be dramatic.

• Legacy assets: Would you rather leave your savings and investments as an inheritance to your loved ones or part of your estate?

• Current income needs: Are the assets you’re using to fund caregiving expenses needed to fund existing retirement income?

Are there other options that help with caregiving expenses?

Fortunately, there are other ways to help support families navigating these challenges, along with solutions that can help alleviate the financial impact of care costs, such as life and disability insurance, annuities, long-term care, and hybrid products. For example, life insurance policies offer special features or riders that can help with chronic or terminal illness expenses. Disability insurance replaces a portion of your income so you can pay the bills if you get too sick or injured to work. Annuities can help address longevity risk by providing retirement income for life — which can be used to pay for caregiving expenses.

A financial professional can help you understand the challenges and financial implications of caregiving, as well as determine how that care might be financed. Even if you’re in retirement or helping a parent in retirement, working with a financial professional to assess your options can help you make the most of your resources. By acknowledging the challenges of caregiving and employing strategies to overcome them, caregivers can navigate the caregiving journey more effectively while protecting their own physical, mental, and financial well-being.