The Threat That Can Consume Your Retirement Plan and Jeopardize the Farm

Jeffrey S. DeWald CLU©, ChFC©, CBEC©
Farm Succession Planning Specialist
Lincoln Agribusiness Services

We’ve all seen a friend, neighbor or family member who, after a distinguished career of hard work, was looking forward to a comfortable retirement. They had plans to travel, fish, enjoy their grandchildren, explore a new hobby, or maybe go on a mission trip for their Church. A fitting celebration of a life well-lived and a job well done.

But that retirement dream was derailed when one of the spouses needed long term medical care, or was diagnosed with Alzheimer’s.

It’s a more common problem than you might think. According to a 2018 study by the US Department of Health and Human Services, 70% of all Americans over 65 will require some level of long term care during their lifetime, 53% requiring care for 12 months or longer. A 2019 study by the Alzheimer’s Association revealed 5.8 million Americans were living with Alzheimer’s disease, with the average living 4 to 8 years. (Source: https://www.moneytaskforce.com/money/long-term-care-statistics)

Those statistics hit close to home, because both my parents needed care. My father needed round-the-clock home care for the last two years of his life. My mother had a series of strokes, ultimately culminating in dementia, and spent the last 5 years of her life transitioning from living independently … to an assisted living facility … then finally to a series of nursing homes.

From firsthand experience, I’ve seen how expensive a proposition this can be. Across the country, a private room in a skilled nursing facility averages $303/day nationally, and home care averages between $25 per hour for a home health aide, and $138 per visit for a Registered Nurse. These expenses can be significantly higher in many locations. (Source: https://whatcarecosts.con/lincoln. (For a personalized review of what care costs in your community, visit that web site and use sponsor code “Lincoln”).

Long term care expenses are increasing faster than the rate of inflation. This trend may accelerate as more Baby Boomers require care, immigration policies limit the number of workers available to the industry and facility operators attempt to recover from the economic impact of COVID.

Those costs need to be paid by “someone”. Many seniors mistakenly believe that Medicare, Medi-Gap or private medical insurance pays for long term care expenses. Unfortunately, that is not the case. Medicare may pay for up to 20 days of skilled nursing care, and make a partial payment for another 80 days, but there are significant restrictions. No benefit at all is available for extended stays, for home care, or for stays which do not meet the Medicare requirements. For an excellent overview, see: https://www.genworth.com/aging-and-you/finances/limits-of-medicare-medicaid.html.

Since neither Medicare nor private medical insurance pay for long term care, who does? There are only four sources:

  1. For those who had the foresight to purchase coverage, long term care insurance can be a lifeline. Fortunately, both of my parents had coverage, many American seniors do not.
  2. When there is no insurance, retirees must deplete their savings to pay for care. This can have a debilitating impact on not only the sick spouse, but also the health spouse. (My mother lived 17 years longer than my father. If their life savings had been drained for her care, she would have had a much different experience in her “golden years”).
  3. When the retirees’ savings are depleted / exhausted, they may hope family can pay for their care. Unfortunately, Generation Y and Millennials may be ill-equipped to deal with these expenses: Many are struggling with the economic impact of COVID, struggling to pay off student debt, and worried about financing their own children’s education and their own retirement.
  4. Lacking insurance, having depleted their nest eggs and exhausting family resources, the only remaining option for many Americans is government assistance. Medicaid will pay for care when other options are exhausted, but only in a Medicaid-approved facility. This may not be the type of place you (or your family) would like to be in, but it’s the last resort for seniors who do not plan.

So with so much to lose, why do many seniors fail to plan to protect their nest egg? It’s human nature to hope “I will be the lucky one. It will be the guy next door who needs care.” And a lot of farmers, growers and ranchers are literally “betting the farm”.

    [Some of our clients have told us, “If I get sick, my family will care for me.” That sounds fine, in theory. Until you’ve watched your own 105 pound, 77-year-old mother try to wrestle her 210 pound husband into and out of the shower and onto and off of the toilet. Speaking from personal experience, the last thing I want is someone with my same last name changing my diapers. That’s not the image I want my kids to remember]

Fortunately, there are alternatives, and you don’t need to bet the farm and your family finances on being one of the lucky ones. And some of those alternatives can have attractive tax benefits.

Many farmers, growers, ranchers and packers have at least one regular “C” corporation in their enterprise. And these corporations may provide coverage for owners and managers with distinct tax advantages. You should consult your own tax professionals (or a member of our team) to see how this may apply to your situation.

There are also at least two different types of long-term care insurance that can be used to protect your retirement and your farm: “traditional” long term care policies and “hybrid” policies. Each may have unique advantages, and potential disadvantages.

Finally, some states offer Long Term Care Partnership programs. These are designed to encourage residents to carry long term care insurance, and may provide tax or financial benefits for doing so. A financial advisor skilled in long term care planning for farmers, ranchers, growers and packers can help you navigate these alternatives and assess which one(s) work for you. Our Lincoln Agribusiness Services would be delighted to help you in this process.

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Jeffrey S. DeWald CLU©, ChFC©, CBEC© is a registered representative of Lincoln Financial Advisors.