Caregivers, especially women caregivers, are getting cheated out of retirement savings thanks to the pandemic — and now the transition back to the office.
Here’s why.
As many of you know, caregiving duties — kids, elderly parents, lazy husbands — were a major factor that pushed droves of women to exit the workforce during the pandemic. And it's the reason many are still on the sidelines — or will soon be once again as back-to-office mandates make it impossible to do both.
And that has major repercussions on the ability for women to save for retirement.
To be sure, it’s something employers are starting to address from financial assistance to referral programs, though it may not be enough.
The numbers: An eye-popping 39% of us left the workforce in the past year to provide caregiving, up from 22% in 2022, according to a new report from Goldman Sachs Asset Management. And 22% switched from their full-time job to a part-time job for the same reason, up from 10% a year earlier.
The findings are based on a July 2023 survey of 5,261 US individuals.
While the report did spotlight that a sizable 65% of US workers are now confident in their ability to meet their retirement savings goals, up from 57% last year, caregivers aren’t dancing in the streets.
“It is not sufficient to simply tell people to save more,” Chris Ceder, senior retirement strategist at Goldman Sachs Asset Management, told Yahoo Finance. “That may not be possible. Caregiving may seem unrelated to retirement, which is exactly why it is important to raise awareness.”
The reasoning is clear. “The US retirement system is primarily employer-based, so people who are not employed because of undertaking caregiving responsibilities likely are not saving in a retirement plan, nor receiving employer contributions,” he added.
Meanwhile, among retirees, 50% retired earlier than expected, according to the survey. Within that group, nearly half retired for reasons outside of their control — most often for caregiving or poor health — and 54% retired more than four years earlier than they had planned for those purposes.
The damage is clear. Workers who stop working for four years in their early 30s may find themselves with 18% lower retirement savings than if there was no time-out, according to Ceder. And someone who retires four years earlier than expected may have a 25% lower retirement account than if they had stuck to their plan.
“For many of my clients, particularly Gen X and the sandwich generation, caregiving creates an impediment for saving for retirement,” Lazetta Rainey Braxton, a certified financial planner and co-CEO at 2050 Wealth Partners, told Yahoo Finance.
It comes down to this: “It is very difficult to ramp up retirement when you are not able to really manage your assets, which is your time, your energy, and your money,” Braxton said. If you are a caregiver, then you don't have the time to work, you don't have the energy to do something on the side, and you're not earning the money that you need to be able to save.”
The harm is not only from the inability to save in employer-provided retirement accounts, or set aside a portion of income in an IRA account from freelance earnings. It’s cashing out of retirement funds already saved, which further damages a caregiver’s retirement, said Cindy Hounsell, president of the Women's Institute for a Secure Retirement.
It’s not clear how many caregivers cashed out, but people who switched jobs certainly did. Overall, 44% of respondents cashed out retirement savings at least once as they were changing jobs, up from 42%, and 42% stopped saving for retirement as the result of a financial hardship such as credit card debt, up from 33%.
There’s a domino effect to stepping away from a job to take care of someone. “Leaving a job or cutting back hours to part time is not just about the salary, but leaving promotional opportunities, job security, and possibly leaving money on the table because you are not vested in your employer’s contributions to your retirement plan,” Hounsell said.
But “there’s some hope thanks to the tax code and some steps employers are starting to take," Zaneilia Harris, a certified financial planner at Maryland-based Harris & Harris Wealth Management, told Yahoo Finance. “One suggestion I have for some clients is to use the tax credit for being a caregiver towards funding a Roth IRA. (Taxpayers can claim up to $500 as a nonrefundable Credit for Other Dependents in their care if they meet certain criteria.)
Employers could help bridge the time-out gap in retirement savings by “providing employer programs that help people stay employed and balance their professional and family responsibilities,” Goldman's Ceder said. “These include caregiving and parental leave programs — for both men and women — as well as back-up childcare programs. Provide returnship programs that support employees coming back from a workforce lapse. And, if possible employees should increase retirement contributions well in advance of taking time out of the workforce.”
There are some bits of evidence that employers are catching the drift. “Caregiving and parental leave programs that help women and men together navigate their family responsibilities has been an expanding area in employer benefits,” Kathleen Barber, head of corporate benefits and compensation at Goldman Sachs Ayco, told Yahoo Finance.
If employers don’t help, what should caregivers do?
For employers that are providing help, the most frequently offered programs are unpaid leave of absence (40%), paid leave of absence (34%), online resources and/or tools (24%), and an employee assistance program that offers counseling and referral services (24%), according to a Transamerica Institute report published in May.
And about 1 in 5 employers offer training on handling caregiving situations for employees (23%) and for managers (21%). Large and medium companies are more likely to offer caregiving support programs than small companies (96%, 95%, and 79%, respectively).
General caregiver leave is expanding including back-up care that provides a certain number of days of emergency care assistance each year, Barber said. And a small percentage provides ongoing financial assistance toward regular care costs, she added.
“While retirement sentiment improved over last year, the financial vortex created by issues like caregiving remains a huge problem for many workers and will continue to impact new generations of retirement savers,” Ceder said.
Kerry Hannon is a Senior Reporter and Columnist at Yahoo Finance. She is a workplace futurist, a career and retirement strategist, and the author of 14 books, including "In Control at 50+: How to Succeed in The New World of Work" and "Never Too Old To Get Rich." Follow her on Twitter @kerryhannon.
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