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Dear MarketWatch,
First I appreciate all the retirement scenarios that are shared here – they are very helpful!
However, I’m wondering about the difficult question of what happens if someone runs out of money near the end of their life?
For instance my parents are rounding the corner of life where they need much more care. They have good resources, advisors, and have made a good plan by living at a progressive care retirement community. However, what if they both require skilled nursing (a $10,000 bill each per month, with $6,000 each coming from savings, after pension, Social Security and long term care are applied to the bill). Now suppose that they both live for 10 more years in that environment (which is dreadful to think about). This would exhaust all of their resources regardless of how prudently it is invested.
What happens then when someone runs out of money to sustain their room and board? Does Medicaid kick in? Do other programs kick in? Would homelessness be likely? In their case there is a charitable aspect to the facility they are at, so this is less of an actual worry for them.
However for anyone that might not have the benefit of charity, what happens in this scenario? Everyone reading your collective advice likely has good intentions of saving to make their retirement comfortable. What about this worst case scenario when the resources are exhausted – then what?
Dear reader,
You ask really important questions.
The idea of running out of money in retirement, especially during a vulnerable time in one’s life, is a major concern for many Americans – and with good reason. Retirement is an expensive time, especially when taking into consideration health care and long-term needs, and retirees are typically living on a fixed income. Depending on how much they’ve saved, they might have enough to outlast the rest of their lives, or they could be scraping to get by.
It makes perfect sense then why individuals and their families, like you, would worry about paying for assisted living facilities, nursing homes and other retirement communities during this time. Long-term care is not cheap.
I’ll start with the good news. In a situation like the one you mentioned, homelessness is not very likely, said Karen Heider, a senior wealth adviser with Concenture Wealth Management.
There are a few ways to handle this type of situation, though it will come down to a few factors, including the state’s benefits and the facility. And this is assuming the individual has already spent down all of his or her assets, has sold the primary residence and doesn’t have long-term care insurance, Heider said.
Check out MarketWatch’s column “Retirement Hacks” for actionable pieces of advice for your own retirement savings journey
A family member may step in to help foot the bills, but that’s not always feasible. There are charitable opportunities, like you mentioned your parents have where they live, but that’s not always available either. Medicare doesn’t cover much in long-term care situations, unless it is short-term after a hospital stay. Here’s more information on Medicare and long-term care from AARP.
When all of those routes have been explored, the next option may be moving to another facility where they’ll be eligible to receive benefits.
“The more likely scenario is having to move from one facility to another to ensure Medicaid benefits are accepted there,” Heider said. “Some facilities accept a limited number of people through Medicaid, so finding availability could also be a reason for having to move facilities.”
The process can seem daunting. Individuals, or their family members if they’re lucky to have them helping, might feel like they’re on the phone for days making calls to their Medicaid representatives and local facilities to see what benefits they’re eligible for, how the application works (or how long it would take) and even if there are any rooms available to start. There might be an advocate at the current facility able to assist in finding information on transfers.
There are different plans available under Medicaid, as you may know, so coverage will vary and it is important to get explicitly clear information as to what options are available and what deadlines must be met. The process could take weeks or months, so jumping on this sooner rather than later is best.
Here’s more information on beneficiary resources from Medicaid.gov. Individuals should also reach out to their state’s Medicaid office. Veterans may also find helpful resources through the Department of Veterans Affairs, such as possible long-term care facilities. Look for local Area Agency on Aging agencies, which can be public or private nonprofits in your area that focus on the needs of the elderly.
Keep in mind, facilities might try to push a non-paying resident to leave, said David Bize, a certified financial planner at First Allied. State laws vary on how facilities can handle that situation. “Bottom line is whether you want to go through the hassle of fighting/suing the facility and potentially losing a court battle with further additional cost,” he said. “Obviously ask, ask and ask, in advance and get it in writing, so you know what to expect and no surprises.”
Additionally, families may want to consult an attorney who specializes in Medicaid “crisis planning” to navigate the potentially complicated rules around these benefits.
Also see: How to think through the risk of big expenses for long-term care
For readers worried they may fall into this scenario one day, the key is in planning. Look into long-term care insurance policies, which might look like standalone policies or be a hybrid model in conjunction with life insurance. Think years in advance about the type of care you want to receive in your old age, and where or by whom – then start estimating how much it will cost for that care (and take into consideration inflation as well).
And remember, this is a problem that can affect anyone. About a quarter of today’s 65 year olds will have a “severe need” for long-term care, and another 38% will require “moderate needs,” the Center for Retirement Research at Boston College found. Only one-fifth of 65-year-old Americans won’t need any long-term care services, according to the study.
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