There is a financial story that millions of women are living right now, and it almost never appears on a financial planning checklist. It is the story of caregiving — of the years spent reducing work hours, declining promotions, leaving the workforce entirely, or absorbing significant out-of-pocket expenses in order to care for aging parents, a partner with health challenges, children with complex needs, or some combination of all three.

Women make up the overwhelming majority of family caregivers. They spend more hours per week on caregiving than men. They are more likely to make career accommodations to provide care. And they pay a long-term financial price for those accommodations that extends far beyond the years of active caregiving — into retirement savings, Social Security benefits, pension accrual, and ultimately the financial security of their own later years.

This is not a criticism of caring for the people we love. It is an argument for going into that caregiving with full visibility into what it costs — so that wherever possible, those costs can be anticipated, planned for, and mitigated.

How Caregiving Reduces Retirement Savings

The most direct mechanism is straightforward: time out of the paid workforce, or reduced hours within it, means reduced income, and reduced income means reduced retirement contributions.

For women in employer-sponsored retirement plans, this is compounded by the loss of employer matching contributions — free retirement savings that simply disappear in the years when a woman is not working or is working part-time. For women who are self-employed, it means a reduction in the maximum contribution amounts they can make to SEP-IRAs or solo 401(k)s in the years when business income is constrained by caregiving demands.

The compounding effect of these gaps is significant. A woman who steps out of the workforce for five years at age 45 — during what would otherwise be her peak earning and saving years — loses not only five years of contributions, but five years of compound growth on those contributions. Depending on the level of contributions she would otherwise have made, the retirement savings impact of that five-year gap can be in the hundreds of thousands of dollars by the time she reaches traditional retirement age.

The Social Security Penalty

Social Security benefits are calculated based on a woman's 35 highest-earning years. For women who spend years out of the workforce or working reduced hours to provide care, those years are either counted as zeros or entered at reduced earnings — pulling down the lifetime average and permanently reducing the monthly benefit they will receive.

This is one of the most consequential and least discussed mechanisms by which caregiving costs women financially. A woman who took five years out of the workforce in midlife, and whose 35-year earnings average includes those years counted as zeros, will receive a lower Social Security benefit every month for the rest of her life — potentially for 20, 25, or 30 years.

The only way to fully offset this impact is through additional retirement savings in working years and through maximizing benefits in years when Social Security strategy choices are made — including decisions about when to claim.

Out-of-Pocket Caregiving Expenses

Beyond the income and savings impacts, many family caregivers absorb significant direct costs: transportation to medical appointments, medications and medical supplies, home modifications for safety, adult day programs, respite care, and in some cases, contributing to the cost of professional care when family capacity reaches its limit.

The average out-of-pocket spending for family caregivers has been estimated in thousands of dollars per year, with higher figures for those providing intensive care or care at a distance requiring travel. These expenses typically come directly out of savings, reduce the amount available for retirement contributions, and often go entirely unplanned for.

What You Can Do — Even Mid-Caregiving

Make contributions, even small ones, in every year you are able. If you are working part-time or self-employed during caregiving years, even modest contributions to a Roth IRA (the contribution limit is based on earned income, not full-time employment) maintain the habit and continue to benefit from compound growth. A spousal IRA may also allow a non-working caregiver to contribute based on a working spouse's income.

Track your Social Security earnings record. You can access your earnings history through ssa.gov. Review it annually to verify accuracy, and use the Social Security Administration's benefit estimator to understand how caregiving years are affecting your projected benefit. This visibility allows you to plan more deliberately.

Have a direct conversation about financial sustainability. If you are providing significant care to a parent, a family conversation about financial sustainability — including what resources exist within the family or through the person being cared for to offset some of the caregiver's financial sacrifice — is a legitimate and necessary one. Caregiving is an act of love. It is also an economic reality that deserves explicit planning.

Consider the full caregiving picture before stepping out of the workforce entirely. In some situations, maintaining paid work — even at reduced hours — is financially more sustainable than leaving entirely, when the full long-term cost of the gap is calculated. Workplace flexibility, remote work arrangements, and professional caregiving support are worth exhausting before making an irreversible workforce exit.

Work with a financial planner who understands caregiving dynamics. Not all financial planners have specific experience with the retirement savings challenges caregivers face. Finding one who does — who can model the Social Security impact, help you maximize contributions in the years you are working, and build a retirement plan that accounts for caregiving gaps honestly — is one of the most valuable things you can do for your long-term financial security.

Recognizing What You Have Given

I want to close with this: the financial cost of caregiving is real, it is quantifiable, and it falls disproportionately on women. Acknowledging that is not self-pity — it is accuracy. And accuracy is the prerequisite for planning.

If you have given years of your life and productivity to caring for the people you love, that contribution has value that no spreadsheet fully captures. But your retirement security matters too — as much as anyone else's. Building it deliberately, with full awareness of what caregiving has cost you financially, is not just possible. It is something you deserve to do.

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Financial Disclaimer: The information contained in this blog is provided for informational and educational purposes only and does not constitute financial, investment, tax, or legal advice. The content should not be relied upon as a basis for making any financial decisions. Before making any financial decisions, you should consult with a qualified financial advisor, accountant, or attorney who can assess your individual circumstances. The author(s) and publisher of this newsletter are not licensed financial advisors and accept no liability for any loss or damage arising from reliance on the information provided.

References:

1. National Alliance for Caregiving and AARP. Caregiving in the U.S. 2020. caregiving.org

2. Social Security Administration. How Work Affects Your Benefits. ssa.gov

3. MetLife Mature Market Institute. The MetLife Study of Caregiving Costs to Working Caregivers. 2011.

4. Hartmann H, Hayes J, Drago F. Retirement on the Rocks: Why Americans Can't Get Ahead and How New Savings Policies Can Help. Institute for Women's Policy Research. 2014.

5. Fidelity Investments. Women and Investing: Building Wealth to Last. Fidelity research report. fidelity.com

The Cost of Caregiving: How Looking After Everyone Else Can Impact Your Retirement

Women make up the overwhelming majority of family caregivers.