How to Plan for the Hidden Costs of Caring for an Aging Parent

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When we think about the cost of caring for an aging parent, we tend to picture the bills: a home health aide, an assisted living facility, or a nursing home. But those costs are far from the full picture. The true cost of caregiving also includes the reduced work hours, lost income, retirement contributions put on pause, or years spent outside the workforce.

These costs may not feel distant if your parents are healthy and independent. But the best time to plan for the cost of caregiving is before care is needed– not decades from now, when your family’s options may already be limited.

If you have aging parents, consider this your reminder to start the conversation. And if you’re beginning to think about your own future care, share this article with your children as a starting point for discussing how your future care might be managed and paid for.

Caregiving is More Common, and More Costly, Than You Think

According to a 2025 report from the American Association of Retired Persons (AARP) and the National Alliance for Caregiving:

• Nearly one in every four adults is a family caregiver, whether that’s caring for an adult or a child with a medical condition or disability.
• A quarter of all caregivers are taking on debt due to caregiving. Nearly half report a negative financial impact due to caregiving. One third have stopped saving money.

Crucially, the number of family caregivers has risen by 45% since 2015. As of 2025, nearly half of all adult care recipients are aged 75 and older. That percentage will only grow in the decades to come as our population continues to age.

But those figures don’t fully capture what providing care can cost the caregiver over the course of a career.

Caregiving is More Than Just a Household Expense

“Caregiving is a long-term financial risk that belongs in the retirement plan,” says Lily Vittayarukskul, CEO of Waterlily, which uses AI to predict long-term care needs up to decades before they happen.

“The financial risk is not just the money spent on care. It is the income never earned, the promotion not taken, the retirement contribution that stops, or the years of compounding that are quietly lost because someone stepped out of the workforce.

“The damage doesn’t necessarily end when a caregiver returns to full-time work. Missed contributions also miss years of potential compound growth. Lower earnings can affect future raises and retirement benefits. A few disrupted years in the middle of a career can still be collecting interest– and just not the good kind– decades later.”

Women Bear the Brunt of Caregiving Costs

Caregiving is a financial risk that especially impacts women, who are more likely than men to care for an aging parent, spouse, or partner.

“Women often face what I think of as a double exposure to long-term care. They are more likely to become the caregiver for a parent, spouse, or other family member, while also being more likely to need care for longer themselves later in life,” says Vittayarukskul.

In simple terms, caregiving can change both sides of a woman’s retirement equation at once. Less money goes in, while more money may be needed later.

A report prepared by the Urban Institute for the US Department of Labor estimates that unpaid family caregiving, whether to children, parents, or spouses, reduces a mother’s lifetime earnings by 15%, or about $295,000 in employment-related costs over a lifetime.

That research includes caregiving for both children and adults. Still, it illustrates why seemingly temporary career interruptions can have very long financial tails.

Vittayarukskul also believes that the number understates the true financial consequence.

“Caregivers stop saving and draw down short- and long-term savings. They take on debt or reduce their participation in the workforce. That is why I think the financial cost of caregiving is systematically understated. We tend to count the checks a family writes for care. We do not count the wealth the caregiver never gets the opportunity to build, or the years of compounding that disappear with it. For women especially, caregiving can create a compounding problem in both senses of the word: the responsibilities accumulate, while the money that could have been compounding for retirement stops doing so.”

Let’s imagine that $295,000 was invested and earned an average 7% annual return over 15 years– it would grow to roughly $814,000. That’s about $519,000 of potential investment growth on top of the original amount.

Of course, that $295,000 is an estimate of earnings accrued over a lifetime, and not a lump sum available to invest all at once. In practice, not all of it would be invested, and returns are never guaranteed. But it still illustrates how lost earnings can become lost retirement wealth.

So, How Much Should You Be Saving for Caregiving?

An AARP study found that caregivers spend an average of about $7,200 each year on out-of-pocket caregiving expenses.

More than half of that went to housing expenses such as rent, mortgage payments, or home modification costs. Medical costs accounted for about 17% of caregiving spending.

But that number also varies depending on the care recipient’s situation. For someone with dementia, caregivers spent close to $9,000 a year, and for someone with a mental health issue, the average cost of caregiving was about $8,600.

These are, of course, simply averages. Like retirement planning, long-term care doesn’t come with a universal price tag, and several factors go into calculating costs.

Vittayarukskul recommends asking one question: “What would care likely cost, and how much of that could my household absorb without fundamentally changing someone else’s life?”

Start with the care you or your parent would want. There are several care options you’ll want to consider, from in-home support and independent living to assisted living, memory care, and skilled nursing. Vittayarukskul breaks them down in Eight Different Levels of Care for the Elderly.

Once you’ve decided on the care, work backwards by asking the following questions:

1. Where would you (or your parent) want to receive care?
2. Who could realistically help, and how much help could they provide?
3. What would professional care cost in that area?
4. Which income, savings, insurance benefits, or other assets could pay for it?
5. What would happen to a spouse or adult child if a large share of those resources went toward care?

“Then determine the gap between what you can comfortably absorb and what would begin to compromise retirement security, family support, or legacy,” she says. “That gap is what you need to solve through savings, insurance, or some combination. The goal here is to understand what level of risk your family can carry without losing optionality.”

Clarity on a Parent’s Resources is Crucial

The last two questions on the list are crucial for adult children to clarify with their parents.

Without a plan to pay for care, adult children are often forced to pull money from their own retirement accounts.

“The biggest mistake families make is converting one generation’s care crisis into the next generation’s retirement crisis,” Vittayarukskul says.

Tapping a retirement account also compounds the damage through taxes, possible penalties, and lost future growth.

She recommends taking a complete inventory of the parent’s resources: income, assets, insurance benefits, Medicaid programs, veterans benefits where applicable, and home equity.

If adult children contribute money, the commitment should be explicit and bounded. How much can each person afford and for how long? Which retirement savings will be displaced? What happens if the need lasts much longer than expected?

When is the Ideal Time to Think About Long-term Care?

The right time to plan is when problems still feel somewhat hypothetical.

Vittayarukskul recommends incorporating your own long-term care into retirement planning by your fifties, although families can begin talking much earlier.

That may seem early, but once a health crisis begins, your options will start to disappear. Housing decisions may be harder to change, and members of your household may suddenly have to rearrange work and family responsibilities. Cognitive decline can also make legal and financial decisions much more complicated.

A few things you should decide on:

• If I needed care tomorrow, where would I want to receive it?
• Who would coordinate and provide it?
• Which account would pay for it?
• Whose life would have to change?

Every question the family cannot answer points to work that still needs to be done.

One Caveat on Financial Planning: Medicare Health Insurance

Medicare is health insurance generally available to people 65 or older, and earlier if you have a disability.

It’s easy to assume Medicare will pay when someone can no longer manage daily life alone. That assumption can leave a very large hole in the family budget.

Medicare may cover medical treatment and qualifying short-term skilled nursing or rehabilitation services, but it generally does not pay for long-term or custodial care, which includes things like assistance with bathing, dressing, or using the bathroom.

“That distinction between medical care and daily care surprises families constantly,” Vittayarukskul says. “You can have excellent health insurance and still have very little coverage for the person helping your parent get out of bed every morning. That’s why families need to ask, ‘If my parent can no longer live independently, who is actually going to provide that help, and who is going to pay for it?’”

What About Long-Term Care Insurance?

One thing not addressed above is long-term care insurance. A long-term care insurance policy is a significant resource available that may help cover the very costs we’ve discussed above.

“I would separate long-term care planning from long-term care insurance. Insurance is one tool. The plan still has to come first. Insurance tends to make the most sense for families who have meaningful assets or retirement income to protect, but who do not want to self-fund the full impact of a prolonged care event,” says Vittayarukskul.

If your parent has such a policy, it is important to understand its terms– what it covers, what the daily or monthly benefit limits are, whether it includes inflation protection, and how long the coverage lasts. Those details can dramatically change the financial picture for the entire family.

And if your parent does not yet have a long-term care policy, it may not be too late for them to get one.

It is also worth noting that this article focuses on caring for an aging parent. But the same financial risks apply to your own future care. Planning for long-term care is not just something you do for your parents– it is something you should be doing for yourself, ideally well before you need it.

A Primer on Long-Term Care Insurance

Long-term care insurance is designed to cover costs that traditional health insurance and Medicare typically do not, including assistance with daily activities like bathing, dressing, and eating, as well as care in assisted living facilities and nursing homes. For the millions of Americans who do not qualify for Medicaid and lack deep financial resources, this insurance can be a viable way to cover long-term medical care and preserve wealth.

The need for long-term care is significant. According to the US Administration for Community Living, someone turning 65 today has almost a 70% chance of needing some type of long-term care services during their remaining years. And the costs can be staggering: one industry survey estimated annual median costs of more than $80,000 for a full-time non-medical caregiver and more than $115,000 for a semi-private nursing home room.

Long-term care insurance policies generally cover services related to chronic disease, age, or disability, and many include lump-sum payouts for a diagnosis of cognitive impairment, such as dementia. When deciding whether long-term care insurance is right for you, two key factors to consider are your personal health risk and the gaps in your existing health insurance coverage. As we noted earlier, Medicare does not cover non-skilled assistance with activities of daily living, which make up the majority of long-term care services.

“The key question is whether transferring part of the risk meaningfully changes what happens to the family,” Vittayarukskul explains. “For example, if insurance can pay for enough professional care that a spouse does not become a full-time caregiver, or an adult child does not have to leave work, that can be enormously valuable even if the policy does not cover every dollar.”

How to Pick the Right Long-Term Care Insurance Policy

Timing matters here. Long-term care insurance premiums increase as you age, and the longer you wait, the greater the chance of being rejected for coverage because of a pre-existing condition. Most experts suggest purchasing coverage in your mid-fifties, and by age 60 at the latest.

It’s also important to choose a policy you can sustain throughout both your working and retirement life. The National Association of Insurance Commissioners recommends spending no more than 7% of your income on premiums.

There are also a number of policy features worth understanding, including inflation protection riders, spousal and survivorship benefits, return-of-premium provisions, and the elimination period, which is the window during which you are personally responsible for the cost of care before coverage kicks in. These details can vary significantly from one plan to another, which is why working with a financial planner or insurance broker is highly recommended.

For a more detailed discussion of long-term care insurance, including how to assess your personal risk, evaluate policy options, and understand the role this coverage plays in estate planning, read Long-Term Care Insurance: What You and Your Family Should Know.

Caregiving Is a Retirement Risk, So Plan for It Like One

The financial risk of long-term care is easy to underestimate, especially when many of its highest costs never appear on a bill. Lost income, interrupted careers, reduced retirement contributions, and forgone investment growth can ultimately cost a family as much as, if not more than, the care itself.

That’s why planning early is so important. Just as you should begin planning for retirement long before you reach it, you should start preparing for the potential costs of caregiving long before care is needed.

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