In my 34 years of advising retirees and those transitioning into retirement, I have not seen a stock market drop cause anyone with a properly managed and diversified portfolio and reasonable spending levels to go broke or significantly impair their retirement. In my August column, I promised my next few submissions for FLORIDA TODAY would discuss some of the things that cause people to have a retirement far less comfortable than they wanted.
Today’s cause of a retirement failure is a failure to plan for poor health.
Years ago, I didn’t think much about my health. These days, things are different. I’m still in relatively good shape but a while back I pulled a muscle — yawning!
In life, the body changes over time and not all the changes prompt a chuckle. While no one can predict what ailments might come our way, how severe the consequences will be or how long they will last, it is likely that we will need health care during retirement.
For early retirees, the financially catastrophic scenario is when the cost of pre-Medicare health insurance causes them to choose to skip paying for health insurance altogether or opt for a cheap plan with limited ability to pay claims.
For Medicare recipients, financial devastation typically comes due to the need for Long Term Care (LTC). Medicare is designed to primarily address acute care. Medicare can pay for skilled nursing care for rehab or medical treatment after an inpatient hospital stay but only for a maximum of 100 days. Medicare does not cover most other LTC services.
Most LTC services address what are called Activities of Daily Living. These are skills required to care for oneself like bathing/hygiene, dressing, eating, toileting, and ambulating (walking). Planning for how these services may be obtained and paid for can prevent financial devastation.
Qualifying for Medicaid: How does it work?
The government program that will pay for Long Term Care services is Medicaid. The key to getting Medicaid to pay for care costs is you must be basically broke. Care options are highly limited when Medicaid pays. If you are not impoverished, attempting to qualify for Medicaid is a complex matter best addressed by retaining a properly licensed attorney specializing in Medicaid and elder care matters.
For those with substantial savings or modest spending rates, the default method of paying for LTC is to pay out of pocket. LTC is expensive but most people who need the care, do not need it for very long. Studies vary but most say around 7% of those age 65 will need skilled nursing care, which is costlier than other types of care, for more than 2 years at some point in their life. If you have enough savings, the costs can be absorbed, and your family has more control of where the care is obtained.
Now, 7% may not sound like a lot but it is enough that most people can think of someone they know with a family member that needed LTC for many years. Couple that with the high cost of care and many turn to considering Long Term Care insurance.
Like all insurance, buyers are trading a relatively modest expense for a reduction or elimination of a potentially catastrophic cost. The LTC industry has a checkered past caused largely by insurers underestimating how much care they would pay for. Policies purchased today are on much better footing.
I do not sell insurance, but recommend clients make a decision about LTC insurance based on their situation and today’s products, not on their perception of the past. LTC insurance must be considered while one is healthy. Once ailments spring up, insurance is more costly if it can be obtained at all.
The specter of Long Term Care is real, and can be very expensive. Most care in America is provided by unpaid family members at great cost to those caregivers. Having the proper estate planning documents in place, and a plan for how care can be obtained and paid for can make it more manageable and less damaging to a family’s finances.
Dan Moisand, CFP® has been featured as one of America’s top independent fee-only financial planners by at least 10 financial planning publications and practices at one of America’s most decorated independent firms. For more info, e-mail him dan@moisandfitzgerald.com, visit moisandfitzgerald.com or call Dan at 321-253-5400, Ext. 101.
Originally published on FloridaToday. Read the original article here.