Most people who reach retirement age have, to one degree or another, planned and saved for their retirement. They are prepared for the challenge of a rainy day, and perhaps even a rainy season. But few people can withstand a financial monsoon that may hammer them relentlessly for years.
The biggest threat to your financial future
For most retirees, the biggest threat to their ability to leave a financial legacy for their loved ones is the prospect of paying for long-term care. It’s the financial monsoon that can devastate their life savings. In the St. Louis area, the cost of nursing home care already averages $4,500 to $7,500 per month … and in many cases more.
What’s worse, the cost of long-term care, like the cost of health care, has risen over the years at a much faster pace than the rate of savings or general inflation. Annual cost increases have often exceeded 10% in the past decade.
Adding to the worry is that there is a financial “death spiral” effect that explains why nursing home care costs figures continue to increase dramatically, even in a stagnant economy with otherwise low inflation. Generally speaking, when the economy is down, people choose to buy and spend less, and that holds down prices. But we can’t choose not to be sick or not to need long-term care. Because people often have less money in a down economy (just ask any senior whose investments have dropped in value from $250,000 to $150,000), more people who need to pay for nursing home care will run out of money sooner. That means that more will turn sooner to Medicaid to help pay for their care. The amount the government pays a nursing home for a resident on Medicaid is less, often substantially less, than the nursing home’s “private pay” rate. The more of a nursing home’s residents who are on Medicaid, the less its revenues per resident will be. In order to restore those lost revenues (just to stay even, not to make more money), a nursing home needs to raise its private pay rate. But the more it charges, the sooner more residents run out of money, the lower its revenues per resident, and the more it must charge. And so on.
It’s really easy to underestimate the impact of the rising cost of nursing home care over time. For example, let’s say that you’re 70 years old now. Let’s assume that the nursing home you would most likely choose if you need that level of care costs $5,000 per month now. If that cost increases at an annual rate of 8%, here’s how much a stay in that nursing home starting at age 80 figures to cost you:
- For a three-year nursing home stay, around $420,000;
- For a five-year nursing home stay, around $760,000.
Kind of makes your head spin, doesn’t it? If you’re a little bit younger now … say you’re 65 … the projections are even scarier. For you, that three-year nursing home stay starting at age 80 figures to cost about $618,000; the five-year stay will set you back around $1,117,000.
Unless, of course, you don’t have that much money to start with. In that case, you will suffer what’s already the single most common financial outcome when someone enters a nursing home – you’ll start out paying out-of-pocket, but then end up flat broke and on Medicaid. If you do, you’ll join the long list of people who, ten or fifteen years ago, couldn’t imagine that they would ever need nursing home care, and never dreamed that it could possibly cost as much as it does.
In case you’re thinking that the cost projections shown above must be “trumped-up” figures presented just to throw an unnecessary scare into you, and that nursing home costs can’t possibly rise that fast or that far, then you should consider what has already happened in other parts of the country. In several states in the Northeast, the average cost of nursing home care already exceeds $10,000 per month. For better or for worse, trends that start “on the coast” tend to eventually make their way to the Midwest. Imagine trying to squeeze an extra $10,000 out of your monthly budget!
In case you’re thinking, “I’m not going to worry about it, because I’ve told my family not to ever put me in a nursing home,” think again. Studies have consistently indicated that if you make it to age 65, there is about a 45% chance that you will sooner or later need long-term care. And trust that the statistics reflect the experiences of people like you, not aliens from another planet. Nobody wants or plans to go into a nursing home. But the fact of the matter is that, sad but true, many of us will eventually need that level of care.
Long-Term Care Insurance
If you’re young enough, in relatively good health and can afford it, investing in long-term care insurance can be a good idea. But that option is not available to everyone. You (or, if you are married, one or the other of you) may not be insurable, or financial realities may limit the amount or term of the coverage you can afford to purchase. If you are considering the purchase of long-term care insurance, we can offer specific and practical suggestions that will enable you to maximize the cost-effectiveness of the coverage you purchase, and we can supplement that form of risk management with legal planning known as asset preservation planning. It’s a safe and legally effective way of guaranteeing that the cost of long-term care will not exhaust your life savings.
If you can’t qualify for or afford long-term care insurance, then having an asset preservation plan in place will probably be the only thing that stands between you and potential financial devastation if you (or your spouse, if you’re married) later need long-term nursing care. If you don’t have an asset preservation plan at place, you’re at substantial risk of losing all or most of what you worked and saved for your entire life. That sounds harsh, but reality sometimes is.
Asset Preservation Planning
The good news is that asset preservation planning works extremely well, and it’s perfectly legal. For example, the 65-year-old or 70-year-old who, as shown above, would might otherwise wind up flat broke as the result of a nursing home stay starting at age 80 could, through wise planning, protect the great majority of their life savings from that risk. What’s more, that can be accomplished in a way such that the assets that have been protected can still be accessed, with family cooperation, if and when the need for them would arise. Meanwhile, the assets will be in a safe place (a trust), protected from the risk of adverse financial events (job loss, uninsured medical costs, lawsuits, etc.) that might otherwise place into serious jeopardy the ability of one’s adult children to protect assets given to them personally for safekeeping.
Asset preservation planning is probably the wisest investment any older person can make. Every dollar spent on planning can end up producing twenty, fifty, or even one hundred dollars or more of savings.
If you see yourself as someone who ought to consider asset preservation planning, call or e-mail us today, and we’ll be happy to tell you more about it, including how easy it is to get started. If you know of someone else whom you think would benefit from this planning (most people age 60 or above with much by way of life savings definitely would), call or e-mail us and we’ll show you how easy it will be for you to refer them to us for information and help.
“Your Trusted Advisor on the Elder Care Journey”
Dent-Coulson Elder Law is dedicated to providing families in the St. Louis area with their Elder Law needs. Our practice areas include Asset Preservation Planning, Veterans Benefits, Medicaid Eligibility, Alzheimer’s Planning, Special Needs Planning, Estate Planning and more. We understand the financial challenges you may face as you and your loved ones grow older. At Dent-Coulson Elder Law, our clients’ well-being is our number one priority. For immediate help, call (877)995-6876 or Contact Us and we will get in touch as soon as possible.