One Critical Expense Most Financial Plans Don’t Address

Three words. Elder Care Planning.

With people living so long these days, why haven’t financial planners been more focused on how to help clients who are planning for retirement specifically plan for longevity? The more sobering side of longevity, that is.

Having worked for two major financial institutions for several years with a heavy focus and vast knowledge base in retirement planning, I can attest that the emphasis with clients nearing retirement was primarily on their income and spending prior to, and how best to replace that income.  While I agree that may be a logical starting point, it doesn’t begin to address the potential shortfalls those clients’ assets could be headed for with astronomical health care costs throughout the retirement years. Thus the need to address this in clients financial plans.

Here are just a few of those sobering statistics :

  • One in four Americans will end up in a nursing home at some point in their retirement years, and more than half will need living assistance (in home nurse, occupational or physical therapy, etc).
  • Those that do end up in a nursing home will most likely need Medicaid at some point to afford their stay and ongoing costs.
  • In many cases, in order to qualify for Medicaid, the individual and his or her family may have no choice but to spend down all of their assets and may lose everything, including their home.
  • The majority of the baby boomers today STILL believe that Medicare will take care of any unforeseen health care expenses in retirement, including nursing home stays and other long term care and assisted living needs, when this absolutely is not the case.

Having the cost of long term care modeled into a financial plan can be an invaluable first step in ensuring the success of one’s retirement plan, and one that every financial planner truly should be taking with investors. Once that awareness is created as to how much health care potentially would cost, the financial plan is then adjusted accordingly to show what steps  the investor can take today to ensure that their retirement nest egg is protected from being eroded by unanticipated health care costs in the future.

A cautionary note: Long term care costs can take a major toll on an individual’s portfolio, and combined with other retirement goals, is not always a cost that can be met without having a shortfall of assets in the long run.  A thorough financial plan should prioritize one’s financial goals, including health care, and determine how realistic these goals are (the probability that these goals will, or can be reached) with respect to one’s assets and other income needs. The plan should also present alternative planning scenarios in the event of shortfalls.

With people living longer today, there’s no question as to whether or not health care costs are a necessary expense that should be incorporated into every financial plan. The real question is: how well equipped is your financial plan to handle those costs when they arise?

To learn more about Betsy Vallone, view her Paladin Registry profile.

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