This post will be primarily about retirement planning and the importance of health care costs in regards to retirement !
Little update on my life, this week i managed to help my mother out with a client. Her good friend needed some help consolidating her retirement.Shes 51 and has worked for the school district for 15 years. She wanted to sit down with me and just find out if what she has is enough to retire .So I sat down with her and figured out her expected pension amount she will get from her work( Cal-Purs) and her total from her 403b accounts. I then factored in her social security shes expected to get and manage to tell her whats the monthly amount shes guaranteed to get after tax if she retires at 57, 59 , 62. Also she will also get social security at 65 to supplement on top of this. My advice for her was to consolidate her 403b into something better since she doesn't get an employee match and her current plan is giving her less than 4% annually.
Whenever I help someone retire I help them in 4 major ways. This honestly is what I believe a financial advisor should do but most only focus on one.
1.Income -I must plan with you how you will retire by first making sure you have an income.Using personal savings, pensions or 401k, IRAS, and social security
2.Debts - I must make sure you retire without any debts your income truly is used for your retirement!
3.Healthcare- I have to make sure your health care costs are managed because if your sick what good is your money? also its much easier to insure someone healthy now than sick later.
4.Legacy- And This is my favorite part. Estate planning. I help you make a legacy. I help you use your money to make a difference. Whether it be a charity, or passing money to your family when your gone. I make sure that when the inevitable happens you know that you left something that your proud to leave behind.
All in all shes doing great and will likely retire with the same income she has been getting. Since her retirement is now known , I told her that whats truly important in retirement planning is not how much money you have in the bank, its your health.
Im gonna post a lot of links for my sources but these are all either published medical journals or .Gov websites. I do not use opinion when it comes to financial or medical information.
- Nearly two-thirds, or 62%, of all bankruptcy filings in the United States in 2007 were due to illness or medical bills
. Source: American Journal of Medicine, June 2009
- Among the medical bankruptcy filers in 2007, most were well-educated, owned homes, employed in middle-class occupations, and three-quarters had health insurance. Source: American Journal of Medicine, June 2009
Now despite these shocking statistics, its not all bad. The cost of insuring you now is much cheaper than the cost of insuring you later. However most people don't know what to look for in health care options. They don't know the limitations of their current plans and what Medicare covers and doesn't cover.
When your young you get health insurance. However when your 65 you get something called medicare. When your younger health costs are low because your younger, stronger, easier to treat.
When your older thats the opposite. You are extremely expensive to treat.
"Medicare doesn't cover everything. If you need certain services that Medicare doesn't cover, you'll have to pay for them yourself unless you have other insurance or you're in a Medicare health plan that covers these services.
Even if Medicare covers a service or item, you generally have to pay your deductible, coinsurance, and co payments.
Some of the items and services that Medicare doesn't cover include
- Long-term care (also called custodial care)"
Now this is a huge problem for Americans and is quite unknown. Im sure many of you guys reading this blog know someone in a nursing home or has an aide help them.These expenses are not covered by Medicare!!!Also most health insurances do not cover chronic illness! If you know someone with Alzheimers, dementia, Huntington's, chronic pain, or anyone who needs assisted living they are paying out of pocket or a family member is doing the services for them.
The question people ask me is who really needs long term care?
Almost 70% of people turning age 65 will need long-term care at some point in their lives.
Source:http://longtermcare.gov/the-basics/
Many people believe that the medical insurance they currently have will pay for all or much of their long-term care. In general, health insurance covers only very limited and specific types of long-term care, and disability policies don’t cover any at all.The website below will tell you exactly what is covered and not covered!
Source: http://longtermcare.gov/costs-how-to-pay/costs-of-care/
Some average costs for long-term care in the United States (in 2010) were:
- $205 per day or $6,235 per month for a semi-private room in a nursing home
- $229 per day or $6,965 per month for a private room in a nursing home
- $3,293 per month for care in an assisted living facility (for a one-bedroom unit)
- $21 per hour for a home health aide
- $19 per hour for homemaker services
- $67 per day for services in an adult day health care center
This graph shows current Long term care costs in CA from longtermcare.gov
I dont want to scare you on the prices and statics on long term care but this is the reality you must face! The last generation did not plan for this because long term care is a NEW thing!!! Our life expectancy now is much greater than what the last generations was. Most seniors today didn't believe they would live past 75. Now you see seniors today out living their retirements because they are living longer than the planed for!!!Their medical costs and unexpected long term care costs are getting even higher and higher! We of the new generation cannot plan for retirement like our parents because we are living much longer. Most people today live past 80!!! If you saved 1 Million dollars for retirement at 60 you would have 50000 dollars a year for 20 years right? No you must factor taxes which is 11% marginal tax rate + CA tax rate+ social secuirty+other taxes.
Federal Withholding $5,928.75
Social Security
$3,100.00 Medicare $725.00
California $2,125.40
SDI $500.00
Net Pay $37,620.85
So you have $37620.85 a year for 20 years.
What happens if you live past 80?90?
Wheres that extra money coming from?
What happens if you are hit by Long term care costs?
Can you afford $3,293 per month for care in an assisted living facility (for a one-bedroom unit)?
Its becoming very common for people to reverse mortgage their homes to pay for theses expenses ,which breaks my heart to see.
Now here are the solutions! There are 3 major ways to get LTC (long term care insurance)
When shopping for long-term care insurance, you'll find three main options:
- stand-alone long-term care, or LTC, policy,
- fixed annuity with LTC benefit
- Life insurance with ltc rider
http://luongcooking.blogspot.com/2014/08/long-term-care-soultions.html
All in all your have options to help you pay for LTC and all the options above are much cheaper than paying the costs of LTC without a plan. Hopefully this gives you food for thought:)
If your younger then im glad you are reading this and gain knowelege about topic relevant to our generations retirement.Share this with the people in your life who are older so they gain awareness about this problem as well. If you are older than i implore you to take this issue into your own hands and find out a solution to LTC.
Shout out to Niles, Johnny, and Jason for this beautiful picture of us in Humboldt county
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