Why Planning is a Must
This page includes the following topics:
- Why everyone need a plan for care
- Common planning goals for families and singles
- Why people with substantial assets must plan for the consequences of extended care
Everyone needs a plan for the possibility of long-term care
Without planning, your loved ones may be forced to make tough decisions and perhaps provide care services they may not be equipped to handle. Planning helps to mitigate the devastating emotional, physical and financial consequences of a long-term care event. Critical components of a long-term care plan include:
- Who will be my caregiver if I am to remain at home? Will this person be physically and emotionally able to take care of me? Will he/she leave a career to be my caregiver? Sometimes the bigger question is who do I not want to set aside his or her life to care for me?
- What type of care might I need? Care at home or in a facility? If I want to stay at home, is my home adaptable to such a situation? If I do not have a spouse/partner/child living with me, can I afford 24/7 home care?
- Where might I receive care? Will my children living in another community or state wish to move me closer to them?
- When is it likely to happen? Might I avoid dreaded diseases such as Alzheimer’s yet live long enough to become frail and fragile and need help as a normal part of aging?
- Why might I need extended care? Are there reasons to believe that I am more likely or less likely to need help than the average person?
- How will we finance and coordinate my care needs? If retirement funds and income are diverted to pay for care, how will our ability to meet ongoing obligations to loved ones be affected? Who will make decisions on my behalf?
Common Planning Goals
I find that my clients’ planning goals often align nearly perfectly with my own goals:
- Keep me at home for as long as possible without destroying the lives of my loved ones around me, especially my spouse if living, followed by my children
- Preserve the retirement plan and other assets for my spouse and children and other worthwhile causes
- Keep intact our other planning devices such as the estate plan, charitable giving plan, tax avoidance plan, business succession plan, the special needs of a disabled child, etc.
Without planning, you still have to live with your plan! Mr. Doe, it’s not about you! It’s about your family. It’s about allowing Mrs. Doe or your partner or child to serve as your care manager instead of your care provider. It’s about telling the family that they need not worry because there is a written, funded plan in place in case something happens. And it’s about making sure your spouse/partner never has to turn to the children for support someday because income and assets were spent on care.
Mr. Doe, it’s not about statistics. I know you like to think the worst will happen to someone else, not you. But as we age we realize that obligations to others do not subside, they increase. Clients, especially males, ask me about the average length of time spent in nursing homes, the average cost of care, and the likelihood the average person will use the policy. Does it really matter if the odds of needing extended care are, say, 25% after age 65, or if they are 70% as reported by the U.S. Department of Health and Human Services? NO! Mr. Doe, what matters are the consequences to your loved ones and your lifetime savings in the event you need extended care.
Without a plan for extended care:
- The spouse and family members will suffer the consequences if no plan is in place
- May become confused and frustrated regarding options and choices
- May have no choice but to get involved to make sure their loved one is safe
- Children may not contribute equally physically, emotionally and/or financially, causing resentment and hard feelings
"What if I don't have a spouse or children? Why should I have LTC planning?" My single clients often tell me they are interested in developing a plan for extended care for two very important reasons:
- Stay at home as long as possible, even if it means 24/7 home care, and
- Never run out of money
Why Affluent Clients Need Planning
Affluent clients often times think self-funding is a more prudential choice than insurance-based solutions. In my experience however, people don't actually self-fund - they bet that it will never happen to them and if it does, someone will just have to figure it out. But not having a plan for extended care will disrupt every plan put in place for retirement, including:
- A plan to help assure the financial viability of a surviving spouse
- A well thought-out tax plan
- A charitable giving plan
- A business succession plan
- An estate transfer plan
- A plan to fund the grandchildren's college education
- A plan to hold assets separately in a second marriage
- A special needs plan for a disabled child or grandchild
Nothing has been allocated to provide the additional monthly cash flow to fund care. The monthly income stream, currently used to provide for continuing lifestyle and ability to meet obligations to loved ones, will undoubtedly be disrupted.
Substantial income --> leads to substantial lifestyle --> leads to substantial obligations to others
Without planning, which of the following typical items will be sacrificed?
- Summer or winter vacation home
- Membership in golf club or country club
- Providing for a child who has not made the best decisions in life
- Assuming some or all of the cost of educating grandchildren
- Family vacations
- Providing for a child with special needs
- Favorite hobbies and activities
For many, none of the above items are discretionary expenditures!
Because nothing has been earmarked to fund extended care, the retirement plan may be invaded
…which may require additional withdrawals to pay the taxes…
…which lowers the remaining balance…
…which lowers the returns on investment…
…which results in a death spiral of the retirement plan
Assets do not pay for care, income pays for care. Plus, relying on assets may include severe pitfalls:
- Liquidity concerns: can enough cash be raised in a short amount of time to pay for care?
- Market conditions: will assets be sold in a depressed market, turning a paper loss into an actual loss?
- Taxes: liquidating qualified funds or low cost-based assets creates unnecessary and potentially serious tax liabilities
- Lost investment opportunity: the notion that paying premiums for LTC insurance causes a lost investment opportunity is dwarfed by the potential opportunity cost of draining one’s lifetime savings to fund care
- Legacy assets: will my most-prized possessions be sacrificed (eg, cabin in the mountains or on the lake, beach house overseas, car collection, etc)?
Having a plan for extended care will preserve every plan put in place for retirement, including:
A plan to assure the financial viability of a surviving spouse
A plan to minimize taxes
A charitable giving plan
A business succession plan
A plan to transfer the estate to those who deserve and/or need it
A special needs plan for a disabled child or grandchild
A plan to educate grandchildren, especially if the parent has not made the best choices in life
A plan to hold assets separately in a second marriage