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Article Archives: 10/13/2004

The Biggest Financial Risk Retirees Face

As the life expectancy continues to increase, the need for long-term custodial care has become the biggest financial risk today’s retirees face. There are ways to protect your lifestyle and the inheritance you leave your children if you act before it’s too late.

In the 1930’s, just over 50% of men in our country lived to the age of 65. Today, those who reach the age of 65 can expect to live another 20 to 30 years. The shear numbers of seniors is rapidly increasing, as well. Currently, there are around 26 million Americans over the age of 65. By the year 2020, that number will reach over 76 million, representing over 25% of the U.S. population.

That means today’s retiree has to be prepared to not only cover normal living expenses for decades after retirement, but increased health care costs as well. The cost of long-term custodial care, when needed, will be the most expensive uninsured health expense you can incur. In fact, long-term custodial care cost would completely deplete the typical retiree’s nest egg within twelve months. This is a serious risk because there’s a 40% chance that each of us, one day, will require that sort of care before we die.

Despite the high costs of long-term custodial care and the high likelihood that we’ll one day need it, most are grossly misinformed on the subject. The number one misconception concerning long-term care is the belief that Medicare, Medicaid or a Medicare supplement policy will pay for custodial care. They don’t.

Medicare only covers costs associated with skilled nursing care and then only after a three-day hospital stay. Skilled care refers to care requiring on-going treatment by a physician or registered nurse.

The vast majority of care that seniors need is custodial care, not skilled nursing care. Custodial care covers help with bathing, eating, or getting dressed. If someone is unable to move from their bed to a chair or to use the restroom on their own, they are in need of custodial care. This type of care does not require the help of a physician or registered nurse. Therefore, Medicare nor Medicare supplement policies do not cover these expenses.

Medicaid, however, does cover custodial care, albeit at a level of quality you may not desire. Medicaid is welfare. It is only for the indigent—if you have more than $2,000 in assets you don’t qualify. Medicaid can even put a lien on your house so it can be sold at your death and the proceeds used to help defray the amount the government spent on your health care.

This brings up an important point concerning expenses associated with long term custodial care. The very poor need not worry about these expenses, because the government will take care of it. The very wealthy need not worry, because they have enough resources to obtain excellent custodial care.

The ones who need to be concerned are the vast majority of seniors who are neither impoverished nor extremely wealthy. You aren’t below the poverty level, but you’re not a multi-millionaire, either. Those in this category need to take active steps to make sure that any long-term care you or your spouse will need won’t decimate your finances and put an undue burden on your family.

That’s where long-term care insurance comes in. These policies will help cover custodial care provided in your home, an assisted living facility and a nursing home. A long-term care insurance policy will help you maintain your independence. You’ll be able to stay in your own home longer and won’t have to move in with your kids. You’ll be able to better afford the kind of care you want without having to worry about being an emotional or financial burden on your family. And you’ll still have an inheritance to pass on to your loved ones.

You must qualify in order to obtain Long Term Care Insurance. So it is important that you get Long Term Care Insurance while you are still active and healthy. Though it may seem expensive, it will protect you from the biggest financial risk you will face during retirement.

If you’d like free, clear, unbiased advice send your financial questions to jeff@guardingyourwealth.com.

Mr. Voudrie is a Certified Financial Planner™ Professional, nationally syndicated newspaper columnist and President of Legacy Planning Group, Inc., a Private Wealth Management Firm in Johnson City, TN. He can be reached toll-free at 1-877-827-1463 or at jeff@guardingyourwealth.com.

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