For most adult children with aging loved ones who were responsible investors, there is a sense of security. There is nothing to worry about. They have a seven-figure investment portfolio and they own their home outright. No one expects them to run out of money. But can they?
The answer depends on two things: how long they live and how much it costs to pay for needed care. Sometimes, even people considered wealthy ($1M+ in net worth) are not as financially secure as they think or you may think. The costs of aging are truly shocking. Here’s a true life example.
Ray was 98 when I met him, in the context of a fight between his daughters. I offered guidance through that fight, as well as his need for focused caregiving during the pandemic. He owned his own home, which was a duplex with a tenant next door. He had a doctorate level education and had two government pensions besides investment income. He needed help all day and was paying for his home care out of pocket. Sound fine? It was until it became clear that he had been giving away money for years to various friends. His real estate agent took advantage of him in finding a new tenant. His neighbor did too. He made numerous decisions about money that could be considered reckless. His savings were declining. Then the pandemic hit. He tested positive, which meant a 40% increase in the cost of care at home. It was like “hazardous duty” pay. No one would work without it. Surprisingly, he survived, and costs of care went back down, but it was still very expensive.
His daughter, Angie, appointed to act on his behalf with the Durable Power of Attorney, expressed alarm. First, she saw that his investment portfolio was much less than she had believed. What he thought he had was inaccurate. Caregiving around the clock cost him over $350,000 per year. This is not unusual in the most expensive areas of the U.S. He kept treating all his nearby friends to meals out, even when they could afford to pay on their own. He made donations. His home was in disrepair. “Generous to a fault” is how Ray described himself. The fault was that he was going to run out of cash within a year. Angie had a terrible time with Ray, as he did not want to give up control over his money, but he couldn’t remember things from day to day. He fought her. They had never discussed his finances before. She finally got access to his accounts.
To her shock, Angie realized that even if he got a mortgage on his house, given the needed repairs, the cost of caregiving and his habit of giving away significant sums of money to others, he was not going be able to sustain himself. The biggest cost was the 24/7 home care. She had promised him he could stay in his own home. In truth, a senior care facility would not have been cheaper, as he required a lot of help that a normal assisted living facility could not offer. He would have refused a move anyway. She did everything she could to control the finances without irritating Ray who was given to yelling at her. The money dwindled. She was facing a threat that he would need her financial support if this continued!
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When Ray was down to “fumes” in his accounts, he passed away at the age of 99. Angie was, of course, saddened by her Dad’s passing, but there was a sense of relief too. Her Dad’s estate planning attorney, who was to administer the estate, told her that it was unlikely that anyone who was designated to inherit anything other than the duplex would receive a dime. There was nothing left to distribute to heirs after basic expenses of the estate were paid.
Longevity can bring many unforeseen expenses, particularly the cost of care at home. Most people do want to stay in their own homes as they age. With extensive care needs as Ray had, there is no low cost way to provide full time care unless the person is low income and qualifies for Medicaid. Then their choices can be severely limited. If your aging loved ones are “wealthy” as Ray was, that wealth can diminish more rapidly than you might expect. Discuss this with your loved ones at the first sign that they need help with their daily lives at home. Working together, you can avoid the scare Angie faced. Ray could have agreed to stop giving away money mindlessly. Angie could have taken control over his finances much sooner than she did, to prevent him from doing foolish things. With transparency and planning, you can stretch resources to meet your loved one’s needs.