Families face many hardships, and the serious illness of a loved one can be one of the most difficult, emotionally and financially. This week, we look at couple navigating the next steps after an Alzheimer’s diagnosis.
The Situation
Robert and Helen, both 71, have lived and worked in north Denver for 50 years. The couple has three grown daughters who all live out of state. Robert worked as a manufacturing executive and Helen as a part-time secretary for their church.
Robert was recently diagnosed with Alzheimer’s, and family members are trying to weigh all of their options while he is able to participate in the decision-making process.
Robert realizes that he may need to go into a nursing facility eventually. He wrote to What’s the Plan to identify the best method for funding the cost of this care and making sure his wife is taken care of.
The couple’s assets include Robert’s traditional IRA, with $530,009; his Roth IRA, $142,555; as well as Helen’s Roth IRA, $78,206; and her trust account of $173,801. Robert has long-term care insurance, but his benefit in addition to his required minimum IRA distribution will not cover the cost of monthly care in a home.
Helen is concerned about filing a claim on the long-term care policy because the benefits may run out. She has reallocated her travel savings account of $32,000 to pay for as little in home-based care as possible. Helen has also cut out all fun money and discretionary spending.
The daughters would like to contribute in any way possible, but living out of state with young families of their own makes visiting their parents more than once or twice a year difficult.
The couple has no way of knowing how long Robert will live — nor how long Helen will live after his death.
Recommendations
“Will I outlive my money?” is a chilling concern for most retirees. Helen is in excellent health and has longevity in her family history. The couple will want to be careful with spending, but they probably do not need to be as stingy with themselves as they have been.
Robert and Helen made several good decisions after retiring. The couple took out a long-term care policy, updated their trusts, and established medical and financial powers of attorney.
There are many misconceptions about long-term care insurance. It’ is often viewed as an account whose balance is saved for an even bigger need later in life. But it’s not a savings account; it’s a benefit that you can use. If you never use it, you lose it!
I recommend that Robert and Helen use their long-term care policy’s benefits first, saving their assets until the policy runs out.
Robert is required because of his age to withdraw approximately $15,000 per year from his traditional IRA, or roughly $900 per month. In addition to this, the couple can reasonably withdraw an additional $980 from the other accounts. This $1,880, combined with Robert’s pension and insurance, will provide for the nursing-home care and Helen’s living expenses.
After Robert passes, Helen will inherit all of the assets and will be able to continue on an income of approximately $7,000 per month after tax. In the event the cost of care goes on longer than expected, the couple still has a safety net: They can use the equity in their home by either downsizing or acquiring a reverse mortgage.
Robert and Helen worked hard to create a strong retirement. Despite the medical curveballs, they are still financially stable and can invest their energy toward enjoying the precious moments they have with each other and their family.
Pam Dumonceau has 21 years of experience in the financial planning industry. What’s the Plan is not a substitute for financial planning or dedicated professional advice.
What’s your plan?
Ask financial planner Pam Dumonceau what you should do — e-mail whatstheplan@consistent to get advice. Names and identifying information are changed to protect confidentiality.
