The Future is coming, whether you like it or not. In fact, some parts are going to be very positive, and some aren’t. You have to be prepared to deal with both. The sooner you start to prepare, the lower your costs will be!
We like to think about buying a house, buying a car, fancy weddings, babies and graduations. We don’t like to think about down payments, maternity costs or paying for college. However, as economist Milton Friedman famously wrote, “there’s no such thing as a free lunch.”
The statistics are simple.
- The average life expectancy (LE) in the US is 78.8 years (1) — shorter for the poor and Southerners; longer for women and the affluent.
- The healthy life expectancy (HLE) in the US is 68.1 years. By comparison, the HLE for Bosnia is 68.8 years and for Canada it’s 72.3 years. (3) HLE in the US varies by state and is shorter for Southerners. (2)
- The difference between LE and HLE is the amount of time you can expect to have to deal with some kind of physical impairment. In the US, that amounts to a decade of trouble on average.
A new study confirms what people with elder parents already knew: older people need help with daily living. Even if they are fairly independent, both finances and medications can get out of control. They may not have or want to be dependent on family members to manage either.
Over 10 years, 10.3% of those aged 65 to 69 needed help managing medications and 23.1% needed help managing finances. These rates rose with age, to 38.2% and 69%, respectively, in those over age 85. Women had a higher risk than men, especially with advancing age. Additional factors linked with an increased risk for both outcomes included a history of stroke, low cognitive functioning, and difficulty with activities of daily living. (4/5)
There are resources, but they aren’t free.
- The average cost of in-home healthcare in the US is $3,600 per month, as I mentioned in a prior blog. The average cost of a nursing home is $9,200 per month. Medicare can pick up the first 100 days. One of the Trump proposals for Medicaid reform involves eliminating Medicaid as a way to deal with these expenses.
- There is a category of professional, “daily money managers.” These aren’t financial planners, but they deal with records management, budgeting, checking the validity of expenditures, and bill payment. Costs for these services vary but can start at around $450 per month. (6) Not only do they keep things together for their clients, they are an important line of defense against scammers preying on seniors.
So, how are your parents going to deal with this? How are you going to deal with this when it’s your turn?
These problems are best addressed when you do what most people don’t — act early on them.
- Set aside dedicated savings for retirement.
- Purchase permanent life insurance with a rider that allows you to take up to 50% of the face value of the policy for disability and long term care expenses. (7)
Both of these actions are best done earlier in life rather than later
- Starting savings early allows the most time for compounding of interest.
- Starting life insurance early minimizes cost. Insurance premiums are directly related to the length of time the carrier expects to have your money before they have to pay out. The earlier you buy, the less it will cost and the more you can afford. For example —
- In NJ, for a woman age 24 non-smoker, a new $200,000 whole life policy might cost $113.68 per month.
- In NJ, for a woman age 44 non-smoker, the same policy would cost $365.08 per month.
- In NJ, for a woman age 59 non-smoker, a new $100,000 policy would cost $395.08. From the carrier used to quote these examples, a $200,000 whole life policy would not be available for someone that age.
With age, the price goes up and what you can buy goes down.
Procrastination costs you money. Don’t put this off.
If you practice a healthy life style, you can try to minimize the gap between LE and HLE, but you can’t count on eliminating it. There are just too many factors outside of your control (e.g., ice, drunk drivers, pollution, etc.).
- Centers for Disease Control and Prevention, “FastStats,” 17 March 2017. https://www.cdc.gov/nchs/fastats/life-expectancy.htm
- Centers for Disease Control and Prevention, “State-Specific Healthy Life Expectancy at Age 65 Years — United States, 2007–2009,” 19 July 2013. https://www.cdc.gov/mmwr/preview/mmwrhtml/mm6228a1.htm#fig1
- World Health Organization, “Healthy Life Expectancy at Birth — 2000 to 2015,” http://gamapserver.who.int/gho/interactive_charts/mbd/hale_1/atlas.html
- Nienke Bleijenberg, Alexander K. Smith, Sei J. Lee, Irena Stijacic Cenzer, John W. Boscardin, Kenneth E. Covinsky. Difficulty Managing Medications and Finances in Older Adults: A 10-year Cohort Study. Journal of the American Geriatrics Society, 2017; DOI: 10.1111/jgs.14819
Wiley. “Many older adults will need help with managing their medicines and money.” ScienceDaily. ScienceDaily, 7 April 2017. <www.sciencedaily.com/releases/2017/04/170407113035.htm.
- There are some companies that offer these riders for term insurance, which is much less expensive than permanent. The problem is that term insurance typically terminates by age 65, and home or nursing home care expenses typically start after that age. There’s no point having a rider that’s not going to be in force when you need it.