When a man retires, he can expect to live to age 86 on average. A woman can expect to live to age 88.
In my experience, our clients far exceed the averages. Good genes, healthy habits, modern medicine, healthy eating are just some of the factors that lead to a long life.
This means that someone could be retired for 30 years or more! Often, the time spent in retirement lasts longer than the working years.
Just as in our pre-retirement years, there are changes and stages that take place in the retirement years. Understanding and planning for the later years in retirement is critical.
Unfortunately, much of the focus of the financial services industry today is in the pre-retirement and early retirement years.
You’ve all seen the commercials about “this is our orange money for retirement” or the big dominos that represent how much money you will need in retirement. How about the “follow the green line?”
Have you seen any commercials or ads about protecting your assets from long-term care costs later in life? I haven’t.
Long-Term Care Services and Supports (LTSS)
Currently over $300 billion a year is spent on long-term care services and supports (LTSS) by Americans. Government programs, private insurance and personal out of pocket spending make up this expenditure.
Paying for LTSS is the largest financial risk that middle class seniors can face in retirement. Yet, very few have a plan in place to deal with these costs should they arise.
According to Melissa Favreault of the Urban Institute and Judith Day of the U.S. Department of Health and Human Services, the odds that someone turning 65 today will need help with bathing, dressing or with other activities of daily living is 50/50.
Those that will need long-term care can expect $130,000 on average in costs. 5% of retired couples will incur costs of $260,000 or more.
We have had clients that have incurred costs of more than $500,000! With nursing home costs in Los Angeles running on average $7,000 a month, it is easy to see how these huge bills can add up quickly.
Compounding this potential problem is that people ages 55 to 64 only have a median balance of $104,000 in their retirement accounts according to the National Institute on Retirement Security.
Planning for Long-Term Care Services and Supports (LTSS)
You might be wondering what can I do to plan for future LTSS costs without going broke and losing my home, cash and retirement accounts?
Is there a way to plan for future LTSS costs without changing my lifestyle?
Is there a way to coordinate all of my bank and credit union accounts, life insurance, retirement plans, investment accounts and estate planning documents so that my pre-selected representative can easily handle my personal and financial matters according to my wishes?
Is there a way to make sure that I don’t lose my home? Is there a way that I can stay home for as long as possible but in case I need more help, I have a plan in place to pay for this care without going broke?
The resounding answer is Yes. It is called Post-Retirement Planning.
Post-retirement planning helps to coordinate all of the traditional retirement planning areas but also plans for the later retirement years and the “what if” scenarios without changing a person’s lifestyle.
Don’t confuse post-retirement planning with wealth management, a term often used in the investment business.
Post-Retirement Planning – The Process
1. A post-retirement plan makes sure that bank and credit union accounts are properly titled so that in the event of a healthcare crisis, the pre-selected persons can take over the management of these accounts to make sure that the bills are paid and other daily tasks are taken care of.
2. Typically we find that clients have too many accounts and consolidation may be necessary. Simplifying one’s banking or credit union relationships is important.
3. Titling the accounts properly to avoid probate as well as prepare for incapacity is also a focus of the plan. It is a little known step that needs to be done due to the Patriot Act that affects the movement of accounts.
For example, if an account is closed and a check issued, it needs to be deposited into an account that is similarly titled.
The same steps are also taken for investment accounts, life insurance, annuities and retirement accounts.
4. Of priority is making sure that in a worst case scenario, the State of California cannot recover against your home, cash, or retirement accounts if you have had to apply for Medi-Cal at some time in your life.
5. Finally, the review of the living trust, Durable Powers of Attorney for Asset Management, Advanced Healthcare Directive and Wills is the last piece of the plan.
Properly Drafted Documents
Seemingly unsurmountable problems can arise if no documents have been drafted.
Surprising to many are also the problems that will arise also from improperly drafted documents. Simply having a trust or powers of attorney may not be enough if trying to qualify for Medi-Cal benefits and to avoid recovery.
Some attorneys draft their documents to simply avoid probate. Others will draft documents to plan for long-term care and probate avoidance. The latter is what your post-retirement plan should contain.
A post-retirement plan should be done by a Certified Financial Planner™ experienced and knowledgeable in Medi-Cal planning, investments, insurance and estate planning. A good plan will not affect your lifestyle. It will certainly help you not be a burden on your family when LTSS is needed as well as protect your hard-earned life savings.
A comprehensive post-retirement plan is simple to implement and does not change one’s lifestyle but you have to plan ahead. Having a plan in place helps the family to have peace of mind. The benefits of a post-retirement plan are priceless!