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Disability insurance may help with basic expenses. However, neither insurance nor Medicare will provide sufficient coverage for nursing home care.  As a last resort, you must consider Medicaid coverage.  Then you learn that the retirement accounts that are intended to be there for your use during your retirement years will need to be spent on your spouse’s care before he/she will qualify for Medicaid coverage.

Life Care Planning, Estate Protection, Disability,
VA & Medicaid Assistance Lawyers

Retirement Plans Are Vulnerable

Retirement Plans Are Vulnerable

 

            Some, particularly younger persons, fear that Social Security benefits may not be available or will be inadequate when they retire.  Many have sought "safe" alternatives such as IRAs, Roth IRAs, 401ks and other similar retirement savings accounts.

 

            Married couples often have separate retirement accounts for both spouses. If and when one spouse develops a serious illness or dies, the plan is for the well or surviving spouse to use the retirement savings to live on and to maintain their style of living.

 

            Unfortunately, efforts by some states to balance their budgets are now threatening these "safe" retirement savings.

 

            Imagine that you are 45 and your spouse is 43. You have two children, ages 15 and 12.  You own your home, with a mortgage, but have very little savings. Both of you are employed and have a modest, but comfortable lifestyle. You have combined retirement accounts of $130,000 ($60,000 in wife's 401k and $70,000 in husband's IRA).

 

            Then tragedy hits. Your spouse is diagnosed with Lou Gehrig's disease and is no longer able to work. The doctor tells you that in six months your spouse will not be able to walk and will require in-home care. Eventually your spouse will require nursing home care for 36 to 60 months prior to his/her death.

 

            Disability insurance may help with basic expenses. However, neither insurance nor Medicare will provide sufficient coverage for nursing home care.  As a last resort, you must consider Medicaid coverage.  Then you learn that the retirement accounts that are intended to be there for your use during your retirement years will need to be spent on your spouse's care before he/she will qualify for Medicaid coverage.

 

            While Medicaid started out in the 1960s as a program for the poor, today it is the primary way middle-class families finance long term care.  This is particularly true of our older parents, who did not have the opportunity to purchase long term care insurance due to age or health. It is also true for Baby Boomers who failed to obtain long term care insurance, believing it too expensive or that they would never need it or a laundry list of other rationalizations.

 

            Hopefully, as more people become active in planning for their retirement years, they will look to privately funded programs as alternatives to running out of money and then turning to government programs for assistance.  The long term care insurance industry is making commendable strides in redefining the benefits and pricing of long-term care insurance policies to make them more widely available and affordable.

 

            President Bush and Congress continue to explore new and inventive ways to entice Americans to save for their own retirement. Unfortunately, state Medicaid agencies are finding new and creative ways to attack those same retirement plans.

            The attacks by states on retirement plans will force couples to rethink their planning. They may make elections regarding their retirement plans much earlier, or they may decide to forego retirement savings entirely. If President Bush's initiatives for the partial privatization of Social Security are successful, it is likely that these new private accounts would be considered by states as available for Medicaid purposes as well.  Middle class families will need protection from state Medicaid agencies should privatization of Social Security occur.  Americans are entitled to plan for their retirements with assurance that what they are working for will be there when they decide to retire.

 

            Richard Habiger is an estate planning and elder law attorney.  You may contact him at 618-549-4529 or Richard@HabigerElderLaw.com.