When a family learns a loved one is suffering from a critical illness, many thoughts and emotions surface. Family caregivers must navigate a maze of legal and medical decisions, as well as cope with the day to day and long term logistics of caring for an ill loved one. And then of course, there’s the rising cost of medical care and caregiving.

According to a 2003 study by the National Family Caregivers Association, in Virginia there are almost 700,000 caregivers of chronically ill, disabled or aged family members, providing an estimate of 746 million hours of care each year. The “Partnership for Solutions” initiative led by Johns Hopkins University and The Robert Wood Johnson Foundation estimates that by the year 2030, nearly 150 million Americans will have some type of chronic illness, a 50% increase since 1995.

And caregiving is often not a short term commitment. The “MetLife Juggling Act Study” conducted by Met Life Mature Market Institute in November 1999 found that the average length of time spent on caregiving was about eight years, with approximately one third of respondents providing care for 10 years or more.

The temptation to procrastinate making financial decisions about long term care can be very strong. For many families, the mounting need for care is gradual, and the urgency of making important decisions might not be obvious. Others are confronted with a health-driven crisis that demands immediate attention, and sorting through the variables that affect financial decisions are predictably put on the back burner.

Additional factors can contribute to putting off money matters. Assuming control from a parent is never easy, and without harmony in the family about the need to look at financial matters, the issue can be put off. For some, having family members who don’t understand the reality of the situation can complicate and delay the grasping of the problem.

The reality is that families are forced to choose a course of action without having all of the necessary information to feel comfortable about their choices. Decision makers grapple with the possibilities that the sick family member could die, need more expensive care, or need a stable amount of assistance for a prolonged period, etc.

For many families, the high cost of long term care requires that savings be liquidated to pay the bills. Consequently, one of the dangers that often presents itself is a liquidity crunch. When immediate cash reserves are consumed, too many families fail to think ahead about the implications of cashing in a bond, selling an appreciated stock, or drawing down a retirement account. Depending on the family’s financial and tax situation, not having a well considered spend-down strategy could cost unwanted and unnecessary taxes, subject the portfolio to undue risk, or ultimately impact the estate’s ability to pay for quality care for as long as possible.

Families also should have a very good idea where to go to finance the cost of care for the next entire year. Funds earmarked for these expenses should be secure and easy to find. Only after a family plans for one year or more of projected expenses should they start to think about chasing higher rates of investment return. An overemphasis on higher (and non-guaranteed) rates of return for a family’s portfolio might result in having to make withdrawals in a down market, which could unravel the ability to fund care expenses for the longest possible period. Of course, individual situations may vary and consult a qualified financial advisor for specific recommendations.
Steps to Getting Your Financial House Organized
• Put together a basic cash flow statement which measures the amount of income from various sources coming in and the amount of expenses going out

• Pay particular attention to the expenses that are fixed and predictable (like taxes, utilities, mortgage payments, etc.) and the expenses that are variable and subject to change (for instance, long term care expenses, home modifications).

• Prepare a basic net worth statement, in which all of the asset values (home, investment accounts, bank accounts, etc.) and liability values (mortgages, credit cards) are identified.

• Have a reserve that represents at least six months of expenses in easily accessed, secure accounts, such as checking, savings, money market, etc. Keep this money liquid and be sure that this emergency reserve can be tapped at a moment’s notice.

By Thomas West


  • Thomas West, principal of Thomas West Financial Services, is a Chartered Financial Consultant (ChFC), and Chartered Life Underwriter (CLU) with particular expertise in planning and asset management for families facing the challenge of a health-related dependency. He has been active on this issue for years, helping found the Fairfax Caregiver Seminar Consortium in Fairfax County, VA; served on the Board of Directors for the National Capital Chapter of the Alzheimer's Association; and teaches through Fairfax County Adult Education on Long Term Care Planning. Tom practices in Virginia, the District of Columbia, and Maryland.