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Recognizing the Challenges of Custodial Care

Recognizing the Challenges of Custodial Care

October 18, 2020

A Retirement Resource for Individuals and Families by Peter Stahl, CFP® Bedrock Business Results

The goal for most, when planning for retirement, is to ensure financial independence and never run out of money.

Retirement can mean time spent with loved ones, travel and adventure, or picking up an old hobby you once enjoyed. It can also be a time of stress and financial sacrifice should you need to care for an elderly parent, a spouse, or an adult child. This is why one of the most important components of financial planning is addressing the need for custodial care. Custodial care is best described as assistance with daily activities, such as bathing, dressing, and basic mobility. It is most often provided at home, by loved ones, but at times is delivered in a more formal setting, such as a nursing home. The enormous cost of care, combined with the non-financial impact on the caregiver’s life, make planning for custodial care of paramount importance.

What is it?

Custodial care is non-medical care provided to support activities of daily living (ADLs), such as bathing, dressing, eating, toileting, mobility, and grooming.

Who provides it?

Most often, a spouse, daughter, or daughter-in-law provides the care. It can also be provided by a professional caregiver. The national average cost for this type of caregiver is $23/hour.1

What are the consequences for family members providing care?

Custodial care has enormous practical, physical, and emotional consequences for family members who provide this care, including stress, anger, and financial loss.

One of the most important components of financial planning is addressing the need for custodial care.


As discussed, custodial care is best described as assistance with daily activities and is most often provided at home, by loved ones or by a professional caregiver at a cost. The common next question to ask yourself is, “Does my Medicare or Medicaid cover custodial care?”

Why doesn’t Medicare cover custodial care?

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), can be covered by Medicare. Ordinarily, these services are short-term 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
  • Patient and caregiver education

Does Medicaid cover custodial care?

Each state has a Medicaid program that does provide payment for custodial care. Specific rules vary by state, but generally speaking, Medicaid pays after you have spent the vast majority of your personal assets.


Physical, emotional, and occupational consequences

As discussed previously, custodial care is care needed for assistance with ADLs, such as getting dressed, cooking, cleaning, and toileting. Over 44 million Americans provide this type of care to an elderly parent or adult child.2 This means that two out of 10 people will provide this type of care, mostly in addition to their full-time jobs. Do you know someone who cares for an aging parent in this way? If so, then you’ve seen firsthand the types of physical and emotional consequences that providing this type of custodial care can have on a person. Family members who provide custodial care often suffer from:

  • Disruption to career and/or family life
  • Stress, fatigue, anger, depression
  • Friction among siblings
  • Financial sacrifice
  • Guilt or worry (“Is the care I’m providing good enough?”)

Further impacts on female caregivers

Many Americans are experiencing these consequences firsthand as our population ages. Considering that 66% of caregivers are women, it is important to illustrate the conflicting demands and the correlating consequences that will be specific to the female caregiver:3

33% of working women decreased their work hours

29% passed up a job promotion, training, or assignment

22% took a leave of absence

20% switched from full-time to part-time employment

16% quit their jobs

13% retired early

Family caregivers spend an average of 24.4 hours per week providing care. Nearly 1 in 4 caregivers spends 41 hours or more per week providing care.4 The reality is, when we consider the consequences on our loved ones, we should do what is in our power to put a plan in place to minimize the fallout for caregivers.

Two out of 10 people will provide custodial care, mostly in addition to their full-time jobs.


With proper planning, caregiving can be a fulfilling and satisfying experience. Having solid financial resources can be a massive relief to caregivers because it enables them to hire a professional to provide all or part of the necessary care. Allowing the family member to coordinate the bulk of the care instead of being the primary provider of that care can make a huge difference.

Considerations if paying for care from your investments

Should you use your existing savings and investment portfolio to generate income for custodial care? This strategy can work, but has limitations that make it cost prohibitive for most Americans. The cost of elder care in America, whether it’s skilled care, unskilled care, or nursing home care, is exorbitant. According to a 2015 Caregiver Study conducted by AARP and the National Alliance for Caregiving, the average length of time caregivers provided care for a loved one was four years.5 Layering the level of expense for custodial care onto most American’s retirement savings is simply not an option. If you do have a large retirement nest egg, there are still a few items to consider when determining if those savings will be enough:

  • Taxes

Is your nest egg comprised of mutual funds and stocks that have greatly risen in value over time? If so, you’ll need to pay a large amount of taxes when you sell those assets, reducing the amount left available for custodial care. 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 custodial care.

  • Liquidity

Are your assets liquid, meaning you can 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.

  • The timing of your need

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 retirement nest egg can be dramatic.

  • Legacy assets

Is the asset you are depleting one you would rather leave as an inheritance?

  • Current income needs

Are the assets you are using to fund custodial care needed to fund existing retirement income?


There are many considerations when evaluating your options. Your financial professional can explain the fees, taxes, time commitments, risks, and other details involved with each of these solutions. Consider that the people most impacted by the failure to have a plan in place will most likely be the ones you love the most. The mistake is not choosing the wrong solution, but choosing to ignore the need altogether.

Optimal ways to prepare for custodial care funding

Rather than trying to self-fund care needs from your savings, you should consider products designed to create income for custodial care. Some of these products are specifically developed to alleviate the financial impact of care costs; others are developed to generate income. Your financial professional can provide details on long term care insurance, hybrid products, life insurance, and annuities. Be sure to implement a solution that best suits your financial plan. Having a plan in place to fund custodial care not only benefits the caregiver by allowing your loved one to supervise a plan of care rather than deliver it, but it will also benefit you, by ensuring you have the means to get the care you need without the guilt of interfering with your loved one’s life. Solutions can create peace of mind, better health, and a better quality of life for you and those you care the most about.

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.


Brought to you by The Guardian Network © 2020. The Guardian Life Insurance Company of America®, New York, NY

EB017931 (02/20)

2019-90961 Exp. 12/21