Asset Spend-Down and ER

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Ego
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Post by Ego »

In the past few weeks I've encountered the concept of asset spend-down on two separate occasions and thought it might be useful to think through the possible ramifications for the future.
Retirees will be living longer and because of advances in healthcare will be alive but sick for many of those years. They'll be digging deeper into their own pockets to pay for their own healthcare which will become more personalized and much more expensive. More people will run out of money before they run out of life and it will happen faster as healthcare inflation increases.
One of our tenants spent down to zero (or the medicare equivalent) without being admitted to a hospital. His outpatient costs were such that he had no money left. Medicare took over his medical expenses but he was suddenly struggling to buy groceries, pay rent, utilities, and other expenses. The social safety net took over and his life is not much different than it was before his medical condition began.
A friend's parents had worked high-stress jobs and saved several million dollars for retirement but never felt they had enough. Finally her mother became disabled and stopped working. She required 24 hour specialized caregivers. Then her father began showing signs of Alzheimer's disease. Within six years they had spent-down their assets. All of their accumulated wealth went toward keeping them in their home for those few years. At the end they were no better off than any destitute Californian. Her father is in a publicly funded Alzheimer's facility today.
Will these services exist when we reach retirement?

Does anyone else have experience with this?


dan23
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Post by dan23 »

Two points

1. I believe you mean medicaid and not medicare. Medicare is for 65 and up and while your premium amount differs by income, your assets don't matter. Medicaid is for people who are low income.

2. Under the Affordable Care Act, they changed Medicaid to have no asset test (so no spend down required) for the health care part of medicaid (goes into effect in 2014). It will be purely income based. However, there still an asset test for the long term care (nursing home) part.
Bottom line:

Health care costs should not be a problem, but nursing home costs will be if you need a nursing home (you can pay for long term care insurance, but it is expensive and the insurance company can jack up the rates). If you end up getting LTC through medicaid, how good your experience is will depend on what state you live in and how well you or your relatives know how to navigate the system.
As to whether Medicaid's LTC component will continue to exist when we reach retirement, obviously no way to know the future, but I would say yes. I don't think it will be acceptable to society to provide no long term care whatsoever to seniors who need it and are not in the top 10% or so (my guess at what you'd need to fund it without LTC insurance otherwise.


George the original one
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Post by George the original one »

1) Anyone counting on current law to stick around forever is fooling themselves. Most of it probably will, but if you look at the past century, most laws regarding retirement have, er, evolved. Several times. Plan to be independent and be grateful if you happen to fall into a safety net should you need one.
2) In the USA, there is definitely a difference in government assistance depending on what state you're residing in. It may be as wide a difference as if you were picking countries to live in. Choose your residence wisely based on many criteria, not just available government assistance.
3) Alzheimer's, dementia, and diminished physical capacity are all the worst parts of growing old. At this time, they are not easy to predict, thus we can only pile up money (or insurance) to ward off the need for care.


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Ego
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Post by Ego »

Dan23, you're right, I meant medicaid. I didn't know that they removed the medicaid spend-down requirement in Obamacare. Not sure how I feel about that. I guess it is good for those who retire with low income but plenty of assets. That really sucks for our tenant.
George, I agree that our laws will continue to change... that's what makes it fun. I wonder about your point #3 though. From my two experiences it seems our relatively poor tenant did as well or even better than the friend's parents who had a pile of money. He didn't have to work as hard to accumulate a pile of money and his situation hasn't really changed all that much in the aftermath. He lives relatively close to the earth so there wasn't really all that far to fall. The parents fell far. I think that hurt everyone involved as much as the physical consequences of their illnesses and disabilities.


Spartan_Warrior
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Post by Spartan_Warrior »

The whole idea of being alive longer yet sick and in need of medical care the whole time disturbs me a great deal. I would rather die naturally (or at least on my own terms) in peace and dignity, with my assets intact as a legacy to my family, than die a slow hideous death while doctors and insurance companies leech out everything I've worked for. Long-term care, expensive. Handgun and one bullet, cheap.
That said, I agree that if you (or your spouse/children/caregivers, who I suppose are the ones who are actually in control when it's Alzheimer's and the like) are willing to go through this crap and cling to "life" at all costs, then yeah, it seems to make little difference how much you've saved. If you last long enough you'll eventually be reduced to the baseline minimum care available through government programs. I don't see how that's an argument for not saving though.


RealPerson
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Post by RealPerson »

These posts bring up some interesting observations. Obviously, the law can change in the future, so we can only work with how it is today.
I have up to now decided to not buy LTC insurance. Most people spend a relatively short time in high-level LTC, so the financial risk is usually not as bad as most people think. There are always exceptions, but that is true for everything. What is ROI drops and SWR goes to 0.5% or so? Very unlikely scenario, but could happen.
Some of ERE is predicated on your ability to continue to earn revenue in a flexible manner. That would be undermined by old age, physical ailments or dementia. Riding that bicycle becomes problematic when you have balance issues and walk with a cane or walker.
What is this forum's thought on buying LTC insurance? In Germany, they are solving part of the cost issue for LTC by moving the patients to the old eastern Europe, but even as far as Thailand.
Spartan_Warrior: the bullet is fast and cheap. In Europe, notably Belgium, euthanasia is becoming more and more mainstream. They are expanding the conditions that qualify for euthanasia. Some see this as humanitarian, some as the "death panel" part of Obamacare coming.


J_
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Post by J_ »

Ere principals works for every age I think.

The most important line is avoiding the health-risks you see in abundance now, and wire your web of goals in such a way that you avoid as much as possible stress, unhealthy food, unhealthy environments and a sedentary way of life. Many of us are proactive and practise a healthy life style, it helps a lot when fi is not far away or already reached.
Later in life you can create living circumstances which allow for the inevitable decrease of functions.

You can write a will for the case that you become in such a state that you now already say I dont't want to live any longer if so and so. In our country there are elaborate laws to get euthenasie (but that is not so easy as I write) And S_W there are more elegant ways than the bullet, we call it the pill of Drion, to choose your end.
I know that fate can easily change the ways I describe. As long as you are master of your life you can take those measures.


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Ego
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Post by Ego »

We are adaptable creatures. At first I looked at some of my tenants and said myself, "turn me into Soylent Green when I get to that point". But now that I've had a year to watch them I realize that most are experiencing very small incremental degradations of their abilities, so small that they adapt and continue with a life that gradually becomes no life at all.
With no real moment of crisis to prompt the bullet solution they just keep going.... keep adapting.
I wonder if having long-term care insurance would somehow encourage my tenants to fail to adapt to the small degradations. Would they became helpless faster because they have a safety net set up in preparation of helplessness?


George the original one
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Post by George the original one »

The cruel part of long term care is the segregation and isolation. Tucking elders away in private rooms to commiserate with others in the same situation is the crappy answer modern western society has come up with. For this, there's got to be a better way...


J_
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Post by J_ »

@Georg too. As I understand from other posts of you, luckily you did not send your 92 old mother into isolation at all, and did you find a better way.

But let's be now more concrete: how would you organize your old age, if you may reach it?
I think there is wisdom in Ego's observation, that the longer one realises that he/she has to take care for themself, and that is there is not (automaticly) a safety net, the better he/she will perform continuity in one's life.


mrjay
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Post by mrjay »

my grandmother passed away about four years ago - before that she had a good four to five years of dementia. It was a slow ongoing process, but she was fortunate enough to have four rental houses that gave her a nice passive income - as well as some good investment/dividend income (i'll just say it here - it was vanity fair).
That income gave her the ability to stay home 90% of her condition. For the last two years or so she had 24/7 care,in her house, for less than the nursing home cost her last year.

She progressed to the point of being "combative" - and the women staying with her could no longer keep her in her house. She kept trying to leave and would get very upset when she wasn't allowed.
Bottom line? This was about a three week period. We didn't know it at the time - but had we managed to strong-hold our way through that period - after that - she became very much more passive - and went into the sleep more, recognize you less phase.
A year after that, the disease finished her off, and I believe her official cause of death was congestive heart failure. Nevertheless, had we made it through those three weeks, we could have avoided the nursing home all together.
That is my goal for both of my REMAINING grandparents (entering into their 90s) and my parents (both approaching 65-67)
There is a nest-egg with both of them (grandparents alive now and her ; my other grandfather died when I was 3 - a heart attack). Only question is how long does that nest egg last?
It helped her a LOT that she had that income producing property. In fact, I forgot, but there were two commercial buildings as well. She probably had rental income of $3000 / mo. Of course, my dad took over power-of-attorney (and thus over control of the rental property) when she began to show signs of trouble. So - although i keep using passive income over and over again - it did require someone to maintain those assets.
(i have no kids and no plans to get married....eek!) lol


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Ego
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Post by Ego »

Mrjay, the question I am struggling with is whether it is logical to work extremely hard to accumulate the largest pile of cash possible when the sole purpose of that pile is to buy the security of cushioning the last few days/weeks/years of life. Actually, I am questioning whether a pile of money can actually buy cushioning at all.


mrjay
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Post by mrjay »

It seems like long term care insurance might be a better investment ; but, by the same token, if my grandmother could love at her house paying for 24/7 care for less than a nursing home, why would anyone go to a nursing home?
me thinks this will be the trend in the future...


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