Summer 2017|volume 10|Issue 4

    Your Finances

    Don’t Let Unexpected Healthcare Costs Sink Your Retirement

    Bill Taylor
    Imagine for a moment that you’ve spent years building a ship for a long voyage across the ocean. Your planning has been meticulous, and attention has been given to every detail to help ensure a safe journey. You know the risks that the journey holds. However, a final inspection reveals that your ship cannot withstand any impact, be it from an iceberg or another vessel. You are presented with the choice: do nothing, or find a way to protect the ship.

    The choice seems obvious, right? Interestingly, many people approach their retirement plans differently. Most will spend years preparing for retirement under the assumption that they have everything “figured out.” They neglect to plan for major illness or healthcare events—the type that can put an individual or couples in a long-term-care (LTC) facility. This can be a costly mistake, as a failure to consider potential healthcare expenses can be devastating to even an otherwise-sound financial strategy.

    There are a few things to differentiate in the area of LTC planning. Many people mistakenly believe that Medicare will cover the cost of long-term care. Not true! Medicare only covers a short stay in a long-term-care facility following a hospital stay. Medicaid can be an option, but we’ll talk about that in a bit. Many retirees think that they can manage with only fixed income from Social Security. This is also a mistake. The average cost for a private room in a nursing home in Pennsylvania averages $9,733 a month (Genworth Cost of Care Study, 2016). This amounts to nearly $117,000 each year! As the boomer population continues to age, cost of care is likely to rise over the coming years ahead of typical inflation. Without proper advice and planning, people end up spending down their assets on healthcare costs before they’re even eligible to apply for Medicaid.

    Medicaid does provide benefits for those who do not have any other means to pay for LTC costs. Before you breathe a sigh of relief, remember our sturdy ship from the analogy. Do you want to fully dismantle your assets for healthcare costs in order to obtain public assistance? There are other strategies that we ask you to consider first.

    First, it is recommended that individuals consider protection in the form of LTC insurance. While it is difficult to fully project the cost of care, insurance policies can go a long way in either replacing or supplementing the need for using your personal assets or fixed income. Another strategy is gifting assets to children or grandchildren. This can be effective, but a word of caution: Medicaid has a five-year lookback period from the date of application. A penalty will be imposed for all gifts made during this period that exceeded $500 per month, and the cost is assessed in months without benefits. As an example, a $50,000 gift could force you to pay for your own room and board for more than five months! Worse yet, Pennsylvania law allows the care facility to sue your children for any unpaid balance when the assets run out. Whether the gift occurred last week or four years ago, it is best to understand how these will impact planning. In certain cases, the establishment of a trust or a guided gifting plan can make a tremendous difference.

    These are only a few of the items that you should consider as you strengthen your own retirement plan. Take the time to talk to your financial advisor about other options that might be available to you. It is recommended that you coordinate with your attorney, particularly if he or she has elder-law experience. Rather than hope for a calmer sea, you should always strive to build a stronger ship!

    Securities offered through LPL Financial, member FINRA/ SIPC. Investment Advice offered through Fragasso Financial Advisors, a registered investment advisor and separate entity from LPL Financial.