Long Term Care
Note: This is the number one most difficult and sensitive subject in the financial advising world. I’m going to try my best.
Will you, or your spouse, end up living in a nursing home? And how do you plan for that expense? I’ve wrestled with this question for years. And the advice I’m about to impart on you might sound a little counterintuitive, but stick with me until the end.
I want to be very sensitive to readers who have had loved ones go through this experience, or are going through it now. I offer my prayers and support to those struggling with caring for disabled loved ones.
You may disagree with what I have to say, but after 20 years of planning these are the best answers I have.
So, what do you do if you’re retired and nervous about the possibility of having to live in a nursing home, but also want to actually live a little during your retirement?
From where I sit, I see three possible options:
Spend as little money as possible.
Grow your net worth if possible and have the financial resources, if necessary, when the time comes. Of course, this means that for the duration of your retired lives you are going to have to scrape and battle to get by. No vacations. Few visits to the grandkids. And going out to eat consists of early bird specials at Denny’s.
Spend it all without a plan.
Say, “I’m spending all my money. I worked for it, I earned it, I’m going to enjoy it. If I end up in a nursing home I guess I’ll have to rely on the government and Medicaid to support me.” This might also be a little extreme. You need to find some sort of middle ground. Not to mention, you may up broke, healthy and 80 years old.
Spend a reasonable amount from savings each year.
Start spending a reasonable amount of money from your savings each year. I recommend 5% of your total savings per year. If you only spend the money that the money is making, at least you will still have the original principal in your old-old age and you can use it to pay for that inevitable stay in a nursing home.
But wait … is that nursing home really inevitable?
The nursing home reality for retirees.
As I said, I have wrestled with this subject for many years, so let me give you some statistics to inform your decision. All statistics are from Morningstar.com.
Percentage needing 5 years or more in a nursing home:
For those who do need long-term care services:
The average length of stay for a man: .88 years
The length for a woman: 1.44 years
Alzheimer’s is the #1 cause of long-term care needs. Alzheimer’s research is advancing at breakneck speeds. Many experts believe that a cure could be developed in the next ten years, if not sooner.
Long-term care statistics:
The first 100 days in a nursing home is covered by Medicare following a hospital stay. Nursing homes, including those covered by Medicaid, have improved greatly over the past twenty years.
If you are married and your spouse needs long-term care there are protections in place for the surviving spouse so they are not left destitute. The surviving spouse can keep their social security, pensions, primary residence and up to $120,900 in assets.
So, how do you plan for the unknown?
From my perspective, needing to be in a nursing home for five years is truly disastrous — both emotionally and financially. I don’t want to sugarcoat it. But there is only a single-digit possibility of that happening. Are you really willing to forgo the retirement you have worked toward all these years to protect yourself from a single digit possibility?
What happens if you defer gratification your entire life and don’t need long term care (like a majority of you)? Nothing very fulfilling.
Long-term care policies are generally hard to qualify for, quite expensive, and have limited benefits. I do not believe they are a particularly helpful tool at this time. But if you already have a long-term care policy from a number of years ago, Keep It. Plans available a few years ago are far superior to ones offered today.
And while I don’t want to advocate for you to rely on government programs, I’ve had several nurses and medical professionals say to me, “I walk around the nursing home ward and the people on Medicaid have the same experience as the ones who are self-paying.” I know that’s not always the case, but often times the “bad home” isn’t so bad after all.
And lastly, there is more support around you than you realize. When my wife got breast cancer two years ago we were shocked and amazed at the outpouring of love and support we received from people we barely even knew. You are not as alone as you may think you are.
Conclusion: If you spend the rest of your life worried about single digit possibilities you are going to drive yourself crazy. Spend a sustainable and reasonable amount of money from your retirement accounts as soon as you retire. Nothing in life is certain, but living in fear, worrying about the unknown is certainly a crummy way to live your retired life.