Live to 100. Sounds great. But what are the downsides? “How can there be downsides?” you may ask. After all, you’d have more time to golf, go fishing, and spend with the grandkids…do all the things that you dreamed of doing when you retired. Well, the risk may be that if you hadn’t planned to live that long you could end up running out of money. The end goal is to have more money than life left at the final checkout.
So how long of a retirement should you plan for?
According to the IRS, a 70-year old person is expected to live for 17 more years to age 87. However, this is an average. Half of the 70-year olds will live longer and half will not. Therefore, a 70-year old individual who is basing his or her retirement plan and spending habits on living to 87 is rolling the dice.
Furthermore, when you consider that there are more than 70,000 U.S. centenarians who represent the fastest-growing segment of our population, there is reason to take notice.
However, planning too conservatively could be detrimental as well. After all, you don’t want to cut your standard of living down to the point that you’ll be miserable. And of course, you always have the option to make adjustments in your spending as time goes on.
All of this comes down to two simple facts: You can control how long your money will last, but you only have a limited ability to predict how long you will live. So what can you do to reduce the risk of running out of money too soon?
A fixed immediate annuity offers an income that will continue for a lifetime, no matter how long you live. And it will help you plan for the possibility of living to 87, 107, or beyond. This brings up another important point about the state of your health as you age.
LONG TERM CARE
When planning for retirement, it is a huge mistake not to have the talk about Long Term Care and what it costs. This is not an unknown risk. Longevity is fast becoming the reason many retired people may die broke.
Costs of care are significant. A home health aid can cost up to $40/hour. Adult day care can go for $242/day. Assisted living facilities average $3600/month…but NOT in the northeast which can go as high as $11,250/month. Continuing-Care retirement communities charge over $200,000 entrance fees as well as $3000/month, or more, for your residence.
Below are statistics compiled by Morningstar regarding Long Term Care. I am not providing these as a way of making anyone nervous…but it’s important to know the facts. In random order:
*8 million Americans experience difficulty with self care and activities of daily living.
*13 million adults experience difficulty living independently.
*44% of men will need LTC during their lifetime.
*58% of women will need LTC in their lifetime.
*13.9% of individuals age 65 or older used some form of home health care in the past 2 years.
*0.88 years is the average nursing home stay for men.
*1.44 years for women.
*14% of population age 71 or older suffering from dementia.
*64% of nursing home residents have been diagnosed with some form of dementia.
*$17,904 is the average cost for adult day care five days/week.
*$43,200 is the average cost for assisted living.
*$55,115 is the average annual cost for nursing home in Monroe, LA.
*$182,500 for the same services in Manhattan.
*66% of caregivers are women.
*43.5 million adult family caregivers in the US
*$126,420 are maximum allowable assets for a healthy spouse when other spouse is covered by Medicaid.
* Only 100 days of care in skilled nursing home are covered by Medicare.
Alternatively, using the government to pay for your long-term care costs may seem like a good idea. And Medicaid planning has become a popular topic among seniors. But what’s in store for individuals who plan to rely on a welfare program for their special needs?
A study has shown that there was a shortfall between Medicaid reimbursements paid to nursing homes and Medicaid allowable costs. Among the 37 states surveyed, the average disparity was almost $10 per day on every Medicaid patient. And for the last year data is available, the total amount of un-reimbursed, allowable Medicaid costs exceeded $3 billion.
To wipe out this shortage, states would not only have to increase the reimbursements to nursing homes by at least $10 per day. They would also have to make allowances for future increases. However, considering the status of many state’s budgets, this is not likely to happen in the near future. Therefore, the chance is high that Medicaid shortfalls will increase. But this is a problem for the government and nursing homes to deal with, thus it doesn’t affect you. Right?
If nursing homes continue to feel a cash-flow squeeze, they could possibly reduce the number of beds available to Medicaid patients. The nursing homes would then be in a position to accept more patients who have insurance or pay out of pocket. And the Medicaid patients might end up in another part of the state where space is available.
Medicaid is the source of payment for 60% to 70% of the residents in the average nursing home. On the other hand, you may not want to count on the government’s program and the changes that politicians implement.
A long-term care insurance plan can give you the additional income that you may need to pay for those special-need expenses. In addition, it can protect your assets, and provide the freedom to choose where and how you receive the services.
A Briefing Chart book on Shortfalls in Medicaid Funding for Nursing Home Care for the American Health Care Association by BDO Seidman, http://www.ahca.org/brief/seidmanstudy0207.pdf