Asset Planning with view to Long Term Care Costs.

Many have worked and saved for 40 or more years to build a nest egg that is designed to support themselves in retirement years. But so many have not saved enough in Retirement Savings (http://www.epi.org/publication/retirement-in-america/#chart1) or don’t have enough to pay for all types of health care costs at retirement.

Health Care is one of the biggest expenses and unknown variables at retirement. According to the Social Security Trustee report for 2015 (https://www.ssa.gov/OACT/TRSUM/index.html,) 49.2 million people received OASI benefits (social security), 10.8 million received DI (disability insurance) benefits. So the Government is doing part of the job. So how does a family plan ahead to pay what they can afford without going bankrupt? Hospital and Doctor and Prescription costs are covered by Medicare and supplement insurance. Eyeglasses, Dental and Hearing Aides are not cheap but they don’t drive you to the poor house either. The biggest health care issue is with extended long term care needs. Medicare and Insurance and Hospice cover specific situations like: Therapy, Skilled Care, Terminal or end of life needs. They even cover some medical supplies (Medicare DME (https://www.medicare.gov/coverage/durable-medical-equipment-coverage.html) but the chronic care that is needed with living alone or supporting a spouse with disease such as dementia, parkinsons, COPD, stroke can be difficult. Even aging to the point where one needs help with transferring from sitting to standing, or meal preparation, or dressing or just frailty or paying bills can be a big need. Most acute illnesses or needs are covered with Medicare or supplement or advantage plans but chronic are not. “So what!” some may say,..... until you see the cost!!

Here are some numbers from a Social Security Report that show us this issue: “The oldest Medicare beneficiaries-those over 85 years of age-account for 35 percent of this LTC population, more than three times their proportion in the general Medicare population (11 percent). Additionally, a greater proportion of beneficiaries with substantial LTC needs are women: 67 percent among the LTC population versus 57 percent for the total Medicare population (Figure 4). Because Medicare explicitly excludes LTC, it is Medicaid that beneficiaries count on if they need such care and cannot afford it. Medicaid is the primary payer for LTC in the United States, covering nearly onehalf of all nursing home expenditures and financing care for about two-thirds of all nursing home residents.” Now this report is shocking and gives us a snap shot of the issue, however this is not current information or even new, in fact it is from a report from 1996 or 20 years ago!!   (https://www.ssa.gov/history/pdf/WhyMedicareMatters.pdf )

At that time 37.6 million people were covered by Medicare. Today its close to 53 million people. Even with advances in health care, the population of chronically ill are not easy to care for and are growing as the population of elderly increases.

National Median LTC care rates in 2015 for:

• Home health care and homemaker service was $20.00

• Assisted Living was $ 3600 per month

• Nursing Home was $220 per day for semi private room

Source: Survey Results by Genworth https://www.genworth.com/dam/Americas/US/PDFs/Consumer/corporate/130568_040115_gnw.pdf

We pay for these LTC costs primarily with:

• Income: Social Security and Pensions Investment Income: many take a monthly draw off the assets they have saved for living expenses that supplement monthly expenses or draw funds for a few major expenses a few times a year. ( Property Taxes, vacations, homeowners insurance, new appliances ect)  (By the way, studies have shown that the old rule of 4-5% draw off your investments each year for income has a new chapter or a new way to do that in a down market. At the time of this writing the DJIA is at 18,597.70 near an all time high, and the nation has been in a bull market for seven years. So withdraw rates on investments that are sinking or declining due to market fluxuation or sell offs is a real concern for those at or close to retirement. That is discussed in another article and can also be effectively planned for.)
• Liquidate Assets: Sell off investments, cash in insurances, or borrow from home equity are frequent difficult choices when faced with these costs.

Lets now examine advance planning techniques for this type of risk. Similar to college funding or doing ones taxes this type of work has many options and variables unique to each family so the ideas here may or may not be effective or applicable to your situation. Always consult a professional with this area of planning as the guidelines vary by state but Federal Guidelines are a minimum. According  to the American Institute of CPA’s sevearl basics you should know  are here..(http://www.360financialliteracy.org/Topics/Retirement-Planning/Medicare-and-Medicaid/Medicaid-planning-basics )

Here are the areas that you need to understand:

• Assets and Income are viewed differently. Medicaid planning helps you legally shelter assets ("some or all assets" sheltered depends on variables like: on amount of family help and availablity, costs of care, how long before you need care, how foar in advance you started planning ect.) Legally some assets are “Countable” and others are “Non Countable”. Income to the “community spouse” or health spouse is mandated with minimums. This income minimum offers some help... but not much to most families.

• Countable assets means “ these have to be used or sold to help offset the costs of care…” or “ you cannot keep these assets and expect the Medicaid program to pay” Countable assets can include the following: 2nd car, RV, Boat, 2nd home, rental property, business, gas and oil interests, stock, bonds, IRA, 401k, whole life insurance cash value, and others. Some items that are countable can be used to purchase non countable assets in an appropriate manner.

• Non Countable Assets can be: pre-paid funeral costs, certain types of trusts (assets in this type of account need to be handled in advance of the need for care to maximize the effectiveness) gifting strategies, and funds preserved for special needs children can all be a greater or lesser part of planning.

• Annuity Income: An asset (or lump sum of money) that has specific features when converted into a proper (see Ohio definition, http://codes.ohio.gov/oac/5160:1-3-05.3v1) income stream can be used to help. However due to state mandated beneficiaries choices this has not proven popular.

• Look Back periods: This is usually 60 months from the time of application to Medicaid. However this time period and when it starts and stops can be part of the plan and be used to benefit a citizen. When planning, hospital stays with extended care or SNF stays in the same time period may offer advantageous options. Review these with your advisor for specifics.

• Entitlement Benefits: If you or a spouse were a Veteran and served during eligible war time then several options could be available to you. Depending answers to questions like: Medical Expenses, Survivor, Dependents, Assets, and Income ect. the Veterans Administration has specific pensions (that may or may not need some specific advanced planning ) can be used to provide up to $1,788.00 per month for veteran and up to $1,149 for a surviving spouse. This pension is specific to the third level (the others being “Basic” or “Homebound”) with the VA. This has been a benefit from the VA for over 60 years but is not well used or known by many.(http://www.benefits.va.gov/pension/aid_attendance_housebound.asp)

In the end crisis or non-crisis planning involve different types of work and options. In addition, the amount of help and care a parent or spouse has needed over the past few years can be a variable that may help. Also, special needs children/grand children or social security disability social variables can help. The way to plan for this type of care involves understanding what the state can recover or have you spend if you don’t act in advance. They will not advertise your options, it is up to you to take steps to understand, and set up a plan accordingly. In the end a combination of Advanced Planning, using some current income, entitlement benefits, some assets, and family variables all go together to help secure assets against these catastrophic costs. For a free “LTC PLANNING REPORT #14” or to set up a time for a free 59 minute review of your situation call or email us at colby@askcolby.net