About a year ago I was talking to a retiree I used to work with in CVED and I asked him how retirement was treating him, he said, “Marty, have you ever heard of the term ‘The Golden Years?’ Well, just drop the G.” We laughed and then he ticked off a litany of nasty medical issues he and his family were experiencing. He was not enjoying retirement—well, actually, he was not enjoying the human aging process.
I don’t think the human body is designed to live as long as we do these days. Advancements in medicine and our affluent lifestyles have managed to extend our time on Earth for a much longer period than the physical body was designed for. 2000 years ago the average life-span was 24 years—about the time most of us graduated from the police academy. Today, many of us will make it well in to our 90’s.
Just how does this relate to financial planning—well, if we are going to live so long (we hope) we have to plan for those extra years. The State of Maryland has made things easy for us—we have a lifelong inflation-protected pension, we have a 457 Deferred Compensation plan, we have a Deferred Retirement Option Program and finally, if we get sick, we have fairly decent subsidized health insurance.
These are great perks—not many people in private industry have these options and benefits. (Of course, not many people in private industry go through the hazards of being a State Trooper either.) These benefits make the job of a financial advisor to a retired Trooper much easier than it is for a non-Trooper. We have a very secure financial base to begin the advising process.
But, and you knew there had to be a “but,” all is not golden in the Golden Years. Remember, our bodies were designed to live short, vigorous lives—hunting and gathering and propagating and then, well, passing on. We were not designed to hang around playing golf, watching TV and retiring to south Florida for half our lives. Our desire to live far outpaces our body’s ability to stay healthy. As a result, our society has spent a lot of time and money on health care services and medical facilities to treat our aging population.
One of the more necessary medical facilities is the nursing home. And that is the one thing that most of us are not financially prepared for–a long-term stay in a nursing home. Have no illusion; unprepared, a long-term stay will destroy almost any financial plan. All your hopes and dreams for financial independence can become worthless with one visit to the Doctor’s office. There are many things that can go physically wrong with us, but I’m specifically thinking of Alzheimer’s disease—a progressive brain disease that literally ruins who we are, how we think and eventually how we live.
The threat of Alzheimer’s disease is real to all of us—each day we grow older the greater the odds are that we’ll be stricken. The risk doubles every five years after age 65—and at 85 years-old you have nearly a 50% chance of developing the disease1. This is a personal illness but it hurts the entire family. Financially speaking, it is ruinous to a family’s wealth and security—for generations to come.
Alzheimer’s is perhaps the worse case scenario for any of us—yet almost everyone knows a relative or friend who has gone through the Alzheimer’s nightmare. The disease destroys the brain relatively quickly, but it can take up to 20 years to finally take the body. During the course of the illness, there will be a time when the patient must be cared for by a professional—most often in a long-term care facility—or, a nursing home. That’s when life is not only miserable, but expensive too. A private room at a long-term care facility can run well over $200 per day. That’s $73,000 per year for those of you without your calculators handy.
Surely, you might ask, the government has a program that takes care of that kind of hit, right? Well, as a matter of fact they do—it’s called Medicaid—and it’s available for people with very low incomes and low asset levels, people who can no longer afford to pay their own long-term care bills. In other words, you pay till you are out of money— then Medicaid kicks in.
This “pay till you are out of money” is euphemistically called a “spend-down”—or voluntary impoverishment. It’s voluntary the way a violator signing a traffic citation is voluntary. You use your assets to pay for your stay in a long-term care facility; you could have taken steps to protect your assets, but you voluntarily chose not to.
The financial issue I write about in this edition—after an incredibly long introduction—is of course, Long Term Care Insurance. LTC is insurance that helps pay for your stay in a nursing home. For a fee (premium), LTC takes the risk to your personal assets and spreads it across larger groups of people. The insurance pays off when you contract an illness that robs you of two of six “Activities of Daily Living.” The six activities are Bathing, Eating, Dressing, Toileting, Continence or Transferring2. Or, even if you can still do all of those activities but you have a severe cognitive impairment you can qualify for benefits. (A doctor or medical professional is required to periodically certify your condition.)
As a group, Troopers are individualistic and generally stubborn people—the kind of person who just handles it—whatever it happens to be. So as a group we tend to resist buying LTC insurance. But nobody can handle this—there is no cure for Alzheimer’s.
The problem with resisting or postponing LTC is this, the longer we wait to buy it, the greater the price. Insurance companies know the odds (50% over age 85) heck, they payout on those odds. You will not be able to afford LTC by the time you actually need it—even if you knew when that would be.
My recommendation to my clients is to buy yourself a 50th birthday present, perhaps the best gift you can give yourself—piece-of-mind—buy a LTC policy. A fairly standard LTC policy for a 50 year-old is somewhere around $1,200 per year. Not something you want to do, spend $100 per month, but if you wait till your 65, the same policy will be about $2,400, and if you wait till your 79, about $7,600 a year3.
And don’t forget your spouse, most companies offer substantial discounts for couples. There are “good health” discounts too. By purchasing early you can lock in a lower rate—but more importantly, you get yourself covered before you need it—since, you cannot insure yourself against a pre-existing condition, or a risk you already have.
As you near your 50th birthday–or if you’re already past 50–I suggest you talk to your financial advisor as soon as possible about Long Term Care insurance. He or she will first determine your needs and if you need LTC, they’ll shop around for the best policy and options for your financial situation. Additional information is available on the web at www.medicare.gov or you can call the Maryland Department of Aging at 1-800-243- 3425 to have an information packet mailed to your home.
1www.alz.com Alzheimer’s Association
2Transferring is moving from a bed to a chair—or similar movement.
3Own Your Future, Center for Medicare & Medicaid Services; Department of Health and HumanServices, USA
Marty Knight, MBA is a retired Captain from the Maryland State Police and is crrently a Financial Advisor with Chesapeake Investment Advisors, Securities and Advisory services are offered through Geneos Wealth Management, Inc. Member NASD/SIPC. He can be reached at 410-810-0735
