Are you an optimist?
Most of us maintain our most optimistic attitudes as we do the very best we can every day of our life. We try to live well today, as we set the stage for pleasant lives after we hang up the spurs from our working careers.
As we plan for a fulfilling retirement, we carefully craft budgets balancing the income we know we can get against our reasonably predictable expenses and against the prices we will be happy to pay to enjoy a continuing fine lifestyle and the ability to share our tomorrows with our children and grandchildren. We have worked hard, been diligent, saved carefully and will be prudent as we spend down what it has taken a working lifetime to amass. We try to consider every item that needs to be covered.
When clients meet to plan how to shepherd their assets and how they will cover their future expenses, it frequently turns out that they’re not considered one of the curve balls that life can throw.
The reality for many years has been that if there are two people in a room, one of them will eventually require some long-term care. In our optimism, it is quite reasonable not to have considered how such a circumstance would affect the rest of our retirements.
Long-term care can cost around $9,000 or more per month in some regions of the country, or a cash burn rate of about $108,000 per year! It is vital to ask the questions of what long-term care costs might arise and what assets will be used to pay for that care.
Some of those potential costs can be planned for by reducing certain future expenses. However, it is also frequently possible to purchase certain income-producing or care reimbursement for financial products that can fill in what would otherwise be a significant cash shortfall. A benefit of using such products is that they may lessen the need to reduce other future fun and family expenses that you’d like to enjoy.
Of course, some people will want to earmark assets, such as balances in CDs for possible use to cover such expenses. The amount of time such cash balances will last is easy to compute: take the balance you are willing to commit and divide it by the expected monthly costs. That gives the number of months that the earmarked surplus will last.
Will that be long enough?
To answer that, it is prudent to ask not only how the gap will be funded, but what impact a continued shortfall will have on family finances. Will it mean fewer trips to the grandchildren? Will it mean having to downsize your home on a forced basis? Will it destroy your savings?
There are products that can convert reasonable balances into a plan that will cover expense reimbursement for longer than the cash balance that was put in the plan. Some of these products can cover costs for a very long time. There are also a few programs that generate monthly income that can create higher amounts of income when a person requires care.
It behooves all persons wishing to continue to live comfortably and indignity to take the time to consider what impact future care needs might have on their lives and to learn about what solutions are available that would make them most comfortable, continue to provide them with sufficient income and preserve what they strived to accumulate during their lifetime.
It is to your advantage to take pause, continue being optimistic and to reinforce your basis for the optimism by being sure you’ve planned for how to handle curve balls that life may present to you.