Should You Retire Early to Care for Your Grandchildren?
May 31, 2016 | Home and Family
After 15 years as a self-employed medical transcriptionist, Dana Mueller of Hoffman Estates, Ill., found her occupation being phased out. At 54, she wasn’t ready to retire, but finding a new job proved challenging. Around the same time, her daughter and son-in-law announced they were having a baby. Mueller decided her next role would be caring for her grandson when her daughter went back to work.
According to a study released by American University’s Kogod School of Business, women of retirement age with new grandchildren are 9 percent more likely to retire early than their peers. Although the idea of grandparents caring for grandchildren isn’t new, you need to make sure you fully consider the financial impacts of the decision. Retiring early can sometimes create financial hardships due to loss of income and retirement savings you would have built during your final working years. You may also lose employer-provided insurance coverage before you are eligible for Medicare, resulting in added health care costs at a time when you are earning less. Personal factors, such as finding a balance between grandparent and caretaker, also come into play. Consider these four questions when deciding whether or not to retire early to care for your grandchild.
1. How will early retirement affect your income? While your children may be saving money, you may find yourself at a financial disadvantage. When Mueller retired, she let go of nearly 12 years of anticipated wages, which would have amounted to more than $400,000 before taxes. “We got hit pretty hard when I stopped working, but we make do,” she said. Mueller receives a small stipend from her daughter and son-in-law, which helps offset her 30-minute commute each way, but it doesn’t compare to her full-time salary.
Claiming Social Security retirement benefits early may also reduce your income. If you were born between 1943 and 1954, you can claim full Social Security benefits at age 66. But if you choose to claim those benefits early, they could be reduced significantly.
2. Is this how you pictured retirement? Doug and Vickie Peltier lived in Sidney, Ohio, where Doug was a school custodian and Vickie was a retired teacher. They had always envisioned living closer to Vickie’s family, including her ailing father, when they both retired. Those plans changed, though, when their daughter and son-in-law struggled to find a nanny for their new baby. The Peltiers decided Doug would retire early so they could both move to Virginia to care for their grandson.
“It’s an emotional strain,” Vickie said. “We put him [Dad] in a retirement community, so he gets a full range of care, but doing that long distance is a challenge and stressful.”
The cost of living in Northern Virginia is also significantly higher than in Ohio. Since Doug was only 60 when he retired, he was not yet eligible for any Social Security benefits. To make ends meet, the Peltiers live in their children’s home, and they share grocery and transportation expenses. Saving on housing costs frees up money for entertainment and recreational activities.
3. Will you lose insurance benefits? Salary is not the only benefit of full-time employment. Retiring early may also mean losing insurance benefits, especially if, like the Peltiers, you are not old enough to claim Medicare.
“When I retired, [Doug] carried me on his [employer-sponsored] health insurance,” Vickie said. At nearly $1,000 per month, the couple could not afford to pay the premiums on their own. When they decided to retire and move, their children agreed to cover that cost.
4. Can you draw the line between grandparent and childcare provider? When a grandparent provides child care, the role changes significantly from someone who sees the child occasionally to someone who is helping to raise the child.
“When you’re responsible for the daily living of a child, you have to think about his overall health and wellness,” Mueller said. Before she began caring for her grandson, she sat down with her daughter and son-in-law to understand how they parent and to set boundaries.
“I’m in their house all day,” she said. “I’ve really got to be careful not to interfere with the marriage.”
The Joys of Grandparenthood
For many grandparents, the benefits of spending time with their grandchildren as a care provider far outweigh the costs. “You need to enjoy life while you have it,” Vickie said. “The personal rewards are so much greater than the monetary or materialistic things we could have.”
Although it can be exhausting for a grandparent to keep up with a young child, the Peltiers and Mueller agree it is well worth it.
“When you’re raising your own children, you don’t have time to look at every aspect of a child. You’re busy planning your day. You have a million things to do,” Mueller said. “Your second time around, you have a tendency to be more observant of their growth. It’s really fascinating. It’s a whole different way of looking at a child.”