By: Mike Gerali, HR Solutions
Like most of us, I began life not knowing or understanding the concept of illness or death. As I grew older, I was told stories of family members and friends who had passed away before I was born. It wasn’t until I was a teenager that I first experienced the death of someone who was close to me, my grandmother. She was 91, and I was 13. Thus began a long succession of illness and death among people I knew personally – first an uncle, then an aunt, a grandfather and another grandmother, the father of a friend. Some died quickly, and others died after a lengthy illness. There was nothing common or average about their deaths. Some of these friends were in presumably good health – they were in shape and took care of themselves; others had lapsed in caring for themselves – they were not in good health. Some lived into their 90’s others in their 50’s. Death didn’t discriminate in my situation
– it never does – and neither money nor exercise spared these people from their ultimate calling. The only thing that is average with these experiences is that they happen to all of us – but each situation itself was not at all average.
50 years after my birth, I understand one thing very clearly about life: People get sick, and people die; and, it is rarely on their or our timetable.
All of this brings us to the point of this article – when planning for healthcare costs in retirement, it is best to realize that no one can tell if they will be average.
As financial professionals in insurance and healthcare planning, it is not enough to tell clients that the average stay for a woman in a nursing home is 3 years. There is no solace in planning for 3 years when the reality may be 8 years as it was for a recent Alzheimer client – not only is there no solace, the funds to support the related expense were not available as a result. It makes our job and meeting our client’s expectations difficult when we have to rely on these averages – this extra $400,000 spent for the care of their loved one was not your fault, but because our industry relies on the average stay in a nursing home for planning, they had insufficient coverage.
We know that healthcare expense is not static – like taking a vacation or buying a new car. Because if its importance, healthcare planning is not something you can defer or decide not to fund or purchase. The need for healthcare often comes without warning and often at the worst time in one’s financial playbook. A seemingly healthy friend was unable to work because of a cancer diagnosis and had to depend on his 401(k) funds to make ends meet for his family – during the market correction of 2007- 2008 when his overall investment portfolio was at a low. Unfortunately, his 401(k) had experienced a 30% downturn resulting in his need to sell investments at a tremendously reduced value to raise capital. In theory, he had been doing all of the right things – prudent saving, personal health management – and the cancer episode pulled the ‘financial rug’ out from underneath him and his family.
Illness and death do not discriminate and on a one-to-one basis do not necessarily align to the average; they strike rich and poor, young and old, healthy and unhealthy.
Where do you and your clients fit? Will you be normal or average? Will you get sick and die quickly or linger on for years as your time and your money drain? Morbid? Yes! Your possible reality? Maybe!
Consider these facts …
• It is projected that by 2050, there will be 83 million Americans over the age of 65 – that’s an increase of almost 40 million from today. During that same time period, the number of Americans between the age of 45 and 64 will increase by only 10 million over today’s numbers – significant because it is those 45 to 64 year olds who are the primary caregivers for those over age 65. That’s a 4:1 increase in the people who need care over the people who provide it – not a pretty outlook.
• It is also estimated that by 2050, almost 14 million Americans will suffer from Alzheimer’s disease – that’s 1-in-every 2 people over the age of 85!
Will you or your spouse be one of the 4.7 million today or 14 million in 2050? We just don’t know.
What we do know is that in most cases YOU CAN plan for the unfortunate onset of a serious illness – and plan effectively if you understand potential future costs and risks.
Jester Financial Technologies (JFT) has developed a new calculator that can assist individuals and their advisors in projecting the future costs of Medicare, Medicare supplements, and other healthcare costs. You can then compare these costs to your projected social security income in retirement. This analysis allows the individual and or their advisor to modify their retirement planning approach to prepare for both the known and unknown costs of healthcare.
As the baby boomers age and begin to retire, one thing is clear: most of us are ill prepared for the shock of a catastrophic healthcare event. This fact is reflected in a 2009 report in the American Journal of Medicine which found that 60% of bankruptcies are due to medical bills.
First, we all need to better understand both the costs and the risks of a catastrophic healthcare event. Second, calculate the costs and risks for your own individual situation both today and in the future.
Third, we must proactively create a plan that protects against those risks, both while you are working
and when you are retired.
Fourth, communicate the plan to your spouse and other family members.
Fifth, review the plan on an annual basis or when significant changes occur in your life, i.e. illness, divorce, etc.
And finally, you can enjoy your life.
The purpose of this planning is to give you the peace of mind to actually live life knowing that IF something happens, you are prepared.
Give us a call at Jester Financial Technologies (JFT), and let us help you tackle this issue. Our calculator will help you project your future healthcare costs, and if your current coverage is adequate. In addition, because of our comprehensive understanding of current healthcare legislation (in addition to our expertise in Medicare and Social Security coverage), we can help you understand it too – and how it may impact your future.
Your retirement should be retirement – to enjoy your life….. without financial worries!