Guess what might be one of the most painfully underestimated costs of all? If you guessed healthcare and end-of-life care you are correct. Read on for a handful of reasons why it can be dangerous to avoid addressing this topic.
First a brief introduction. Anyone who has been a direct or indirect care giver for an aging relative or friend knows the pain and stress that can be involved. Of course, there are joyful care relationships, which ultimately are the goal. Where the difficulty begins is in estimating the costs of later-in-life care. Then, even worse can be executing the logistics of care and the ultimate reality of having to pay for – or running out of funds to pay for – care, whether for oneself or a spouse or relative. Timing is often almost completely unpredictable.
Virtually NO ONE wants – in the present – to talk about:
- Aging
- Needing care someday
- Seeking care someday
- How much it might cost for care someday, whether in a nursing home, continuing care retirement community or at one’s own home.
- How to plan today for paying for care someday amidst an unpredictable situation.
But dipping one’s toe into the “infinity pool” of long-term care planning can save destruction, yes destruction, of even the best designed investment and savings portfolios. Here are real examples of what can go wrong, financially speaking:
- The majority of “available” funds later in life are held in tax-deferred accounts (IRAs, annuities, or life insurance). The issue is that net funds available after-tax can be much, much lower than account balances appear AND other taxes and penalties will consequently pop up such as surcharges on already expensive Medicare premiums.
- Necessary care cannot be provided for by a family member and all of a sudden daily and monthly payments multiply. Medicare does not cover long-term care. Medicaid is NOT a pleasant “way out”.
- Savings and investments earmarked for other necessary and discretionary expenses must be tapped for what starts out as basic health care…and then snowballs to ongoing, expensive, necessary care.
- Funds run out.
ALL of these situations can be planned for in the present, although with no guarantees of success. The silver lining is that portfolio destruction can be avoided while portfolio design today can minimize future taxes and penalties.
Why do planning in the first place for such unpredictable life and health events? If only to have “eyes wide open” to the future costs of care and to gain knowledge of the variety of vehicles and strategies that can be put in place today with current income and savings before retirement. Planning and advice today can really make all the difference.
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied upon for, tax, legal or accounting advice.