Millions of Americans serve as caregivers for their family members, but when your full-time job is caring for a loved one, you may be missing out on more than just a paycheck. Once you’ve retired, your monthly Social Security benefits are based on the amount you earned during your working years.
During any period of time that you’ve taken off to care for an ill or disabled loved one, you’re not paying into Social Security. That means you’re missing out on both a paycheck now and one during retirement. But a proposal introduced in the House of Representative in July 2014 could change all that. Called the Social Security Caregiver Credit Act of 2014, this proposal (introduced to the House by Rep. Nita Lowey [D-NY]) would offer unpaid caregivers an earning credit to be used toward their future Social Security calculations.
About the Proposal
Social Security payouts are calculated based on the total earnings a person has made during his working career. The caregiver credit offered through the proposal would be added to a caregiver’s career earnings to determine how much Social Security he would receive after retirement. This would increase the caregiver’s retirement income, even though he wouldn’t be working or paying into Social Security during this time.
Only people who provide care for at least 80 hours per month would be eligible for this credit, the value of which would be determined by a sliding scale based on previous income. There is also a proposed five-year maximum on the credit.
Choosing to become a full-time caregiver for a family member requires sacrifices, which can be emotionally, physically, and financially exhausting. The last thing caregivers and their families should be worrying about is what their time off from work is doing to their financial security in the future. This tax credit could bring peace of mind, knowing that you will receive the largest payment possible when you begin drawing Social Security.
Women especially could benefit from this credit. According to the Family Caregiver Alliance, about 66 percent of all caregivers are women. Women already make less on average than their male counterparts. When women leave the workforce — or drastically cut their hours — to care for an aging parent (or child with special needs), they’re giving up even more of their income. And their self-sacrifices may not just impact them in the present. Their lower or absent earnings today could also translate into less income in retirement.
If the Social Security Caregiver Credit Act of 2014 is passed by the House of Representatives, it must still be approved by the Senate and then be signed into law. It could take a year or more for the credit to become available for caregivers. For now, the best thing you can do to protect your retirement income is to contact a financial adviser who is well-versed in Social Security and retirement planning.