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Retirement Planning
 As you begin planning for your
retirement, it is important to take into account that probably doctor and
hospital bills will dramatically increase at retirement age and will, therefore,
become one of your largest financial expenses. However, in actuality, the
largest financial risk a senior citizen will face is the high cost of long-term
convalescent health care.
Unfortunately, according to a
recent survey conducted by AARP (American Association of Retired Persons), 79%
of those expecting to eventually need nursing home care believed - incorrectly -
that the government would pay their health-related bills. It will NOT! Everyone
must be aware of this and plan ahead to avoid a financial catastrophe.
Statistically, 50% of seniors
can expect to spend some time in a nursing home, but less than 3% do anything to
protect their lifesavings from the cost ravages of this eventuality. The
national yearly average nursing home cost is $25,000 (with the Chicago area
being closer to $35,000) and it is expected to reach $85,000 by the time the
Baby Boomers retire.
Medicare is a Federal program
for persons who are 65 years of age or older. Basically it is the health
insurance component of Social Security. However, due primarily to its 100-day
stay limit, it only pays about 2% of nursing home costs nationally. Based on the
AARP survey, most of us believe that Medicaid will pay the difference. Wrong. If
you can afford to pay for your care, Medicaid will pay nothing. It will only pay
if you are indigent; virtually penniless.
What exactly is Medicaid? It is
a program which pays medical bills for qualified low-income, "needy"
individuals. In other words, it is medical "welfare" administered by
the State and paid with State and Federal funds. It is similar to an insurance
policy only your lifetime savings are the deductible and your annual income is
the co-insurance.
Qualifying for Medicaid involves
satisfying complicated financial requirements. To obtain benefits you must have
little in assets (approximately $2000). Anything over that must be used to pay
for care before receiving benefits. They can require you to "spend
down" your personal assets including your vehicles, property, business
assets, lifesavings, CD's, mutual funds, stocks, etc.; all can be wiped out.
Also, under their "recovery rules", they can take your home. A
horrible fact is that one-half of all couples with one spouse in a nursing home
lose their lifesavings within one year.
Some people believe they can
avoid the government taking their assets by giving their assets to loved ones as
a sort of "advanced inheritance." They must not be aware that Medicaid
will "look back" to discover if any of these type of transactions have
taken place in the last 5 years. If they have, a pay back will be required.
Furthermore, since 1996, such an action can result in a fine of $25,000, up to a
5-year prison term or both.
AARP's survey indicates that the
typical person really doesn't understand how Medicare and Medicaid work. They
mistakenly believe that Medicaid will take over after they have reached their
Medicare benefit limit and pay their bills. Sadly, they find out that this is
not the case. Then they realize that they should have had a strategy in place
before their spouse became ill. By this time it may be too late for them to
avoid the possibility of being "wiped out" by the government.
One way to protect your assets
is by having a Revocable
Living Trust. This is a wonderful device for Estate Preservation. This will
ensure that you keep what you have accumulated and also pass it on to whom you
want, when you want. Because the trust avoids probate
costs and delays and helps eliminate federal
estate taxes, you have preserved your wealth.
On the other hand, Asset
Protection becomes the more important goal when concerned about Medicaid. This
utilizes various products to ensure protection of your assets from Medicaid's
rules.
Fortunately, there are realistic
alternatives to public assistance or if Medicaid is a necessity, to avoid losing
everything to the government. There are products such as long-term care
insurance, annuities and special living trusts. It should be extremely important
to you to consult with advisors that specialize in these areas as part of your
estate planning. Do not wait until it is too late!
For more information about
estate planning, see the Estate
Planning section on this web site. Feel free to Contact
Us if you have any questions.
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