In my book, my seminars, my workshops, and my radio show, I talk a lot about retirement plan failure. It’s a new concept for many people.
What is retirement plan failure? Why is it on the rise among American retirees?
Before I answer those questions, let me explain how I define retirement plan success.
I consider a retirement plan to be successful if it allows you to grow old in the home you choose, without running out of money paying for uncovered medical and long-term care costs, and without creating burdens for family members by recruiting them into service as your unpaid caregivers.
If any one of those outcomes doesn’t happen, retirement plan failure is the result.
Let’s look at an example.
A woman in her sixties—let’s call her Susie—is sitting at home watching her favorite TV show. Out of the blue, Susie experiences a massive headache. Instantly, she knows that this is not an ordinary Tylenol headache. She dials 911. When the EMTs enter Susie’s residence, they determine she suffered a stroke and rush her to a hospital.
The U.S. Centers for Disease Control and Prevention report that an estimated 795,000 people will suffer a new or recurrent stroke each year[i]. Provided they get medical treatment within three hours of the first onset of symptoms, chances that a person in America will survive a stroke today are better than ever before. However, surviving is not the same as thriving[ii].
Retirement Plan Failure Starts with a Health Problem
Susie’s episode starts out as a medical issue .
The treating physician advises Susie that she should improve her eating habits, exercise, and lose some weight. That’s great advice for preventing the next stroke, but it doesn’t help much with this one.
A few days into this episode, the doctor tells Susie that she no longer needs to be hospitalized, which sounds like great news. It’s not. Susie isn’t yet strong enough to live at home on her own, so the physician signs discharge papers that send her to a rehab center to receive physical, speech, and occupational therapy.
Let me pause Susie’s story for a moment to give you some context. In my work with clients, I’ve seen again and again that people who are able and healthy simply cannot fathom what things will be like when they’re on the verge of being sent to a long-term care facility. When you’re healthy, you have no problem telling yourself (and others) that when your health fails, you’ll move to a facility if that’s what’s required. After all, you don’t want to be a burden.
It sounds good in theory, but it rarely works that way in practice. As your health deteriorates, as you spend more time in hospitals, the more it dawns on you why people don’t like living in institutional care settings. It’s not like room service at a hotel where people are falling over themselves to wait on you. You push the call button, and no one comes. You can’t get to the bathroom on your own, but it takes a long time for help to show up.
Poor service isn’t the only problem. It’s the environment in which this service is delivered that makes the experience even worse. You’re dealing with a bunch of people you don’t know, people who will be telling you what to do and when to do it. You’ve lost just about all control over your life.
The horror created by this loss of agency doesn’t become real until you have lived it yourself. Once you’ve experienced it, you will do whatever you can to avoid it. My clients who are still healthy look at me like I’m insane when I tell them what will happen. “You’ll be going to a place where you don’t know anyone. Everyone else will tell you what to do, and you’ll have no control over your life,” I tell them. Most of them just look at me and say, “Yes, and….?” They just don’t get it.
You may think that living in an institution is no big deal, but that’s not the tune you’ll be singing when you’re about to be admitted to a long-term care facility and it dawns on you that life as you’ve always known it is ending.
That’s what was on Susie’s mind as she was laying in her hospital bed with her family gathered around her trying to decide which rehab center to choose. Susie hadn’t planned for this. She didn’t think she needed to. She was expecting to die in her sleep – at home. Why study up on rehab center options when you’re certain you won’t ever need one?
Even though Susie and her family don’t know which rehab center to choose, the discharge planner insists they pick one. The hospital staff is not permitted to make a recommendation. How does Susie’s family decide?
They flip a coin.
There’s another problem, though Susie doesn’t yet realize it just yet. She doesn’t know that in America, the terms “rehab center” and “nursing home” are effectively synonymous. Technically speaking, a rehab center is a place where you go for short-term care following an illness or accident. A nursing home is for long-term care. People check out of rehab centers; most people who go to nursing homes don’t come out. That’s the American view. And while this is how things play out in most cases, it is not a guaranteed outcome that you will return home from a rehab center.
When I’m viewing this situation through Indian eyes, I look at it this way: You took me to the hospital. Thank you, hospital, for saving my life. I’m grateful, but please don’t send me to a place where I don’t know anyone, where everyone’s going to tell me what to do, and where I have no control over my life. I would much rather go to the familiarity of my home, where at least I know what is where.
Susie doesn’t have that perspective. At first, she views the rehab center as an extension of the hospital, simply a continuation of the medical care she has been receiving all along. However, shortly after entering the rehab center, there’s no hiding from the fact that she is in some form of a nursing home. She can hear it. She can see it. She can smell it.
Susie, like most Americans, never wanted to see the inside of a nursing home as a patient. If Susie knew about the study that revealed that 61 percent of Americans would rather die than live in a nursing home, she would count herself in that group[iii].
She starts to rationalize. This is a temporary arrangement required by special circumstances, Susie tells herself. It won’t last forever. It can’t last forever.
For the first two or three weeks, Susie is confident things will get better. She works hard in therapy. She’s determined. But as more weeks go by, the rehab center experience starts to get old. She wants out.
When Susie’s husband, Frank, comes to visit, she is impatient.
Frank asks, “How are you doing?”
“How cares how I’m doing,” Susie snaps. “Just tell me when I’m getting out of here.”
What Susie doesn’t yet know is that Frank has just talked to her doctor. Because her physical limitations are severe, it will be difficult for her to go home. Her wheelchair won’t fit through the narrow doorways in their house, and it won’t work at all on the stairs.
Retirement Plan Failure is a Housing Problem
Susie’s medical problem has created a housing issue—but not just for her. She is exactly where she needs to be after a stroke, even though she has no desire to be there. What no one realizes just yet is that Susie’s housing problem will have to be solved by her family, the very people she vowed never to burden.
Frank and Susie don’t panic just yet. No matter how tired Susie is of being in the nursing home, at least the cost is being covered by Medicare.
Susie and Frank expect Medicare to cover the bill for 100 days, because the booklet from the Department of Health & Human Services on Medicare Coverage of Skilled Nursing Facility Care says on page 14 that you can get up to 100 days of Skilled Nursing Facility coverage[iv].
Susie and Frank, unaware that “up to” means that the number can be significantly less than 100 days, are surprised when on day 33 (it could be any day, and ironically, it’s usually a Friday), a social worker walks into Susie’s room and announces that Medicare is going to stop paying for care starting Monday.
Susie and Frank are surprised. They didn’t realize that Medicare will only pay for care if Susie’s condition is improving. Her doctors have determined that she’s progressed as much as she can, which means that Medicare will no longer cover her rehab stay.
What Susie doesn’t know is that she’s not getting the whole truth. The rule about how much skilled nursing care will be covered by Medicare was clarified in 2013 after a class action lawsuit[v]. The rule states that facilities cannot refuse people Medicare because they have stopped making progress. The rule has always been that if therapy and rehab are needed to maintain a person’s current status, or prevent further deterioration, then the facility must continue to provide Medicare-covered skilled services.
That’s not how this rule is often applied. In many cases, as soon as the facility determines you’ve stopped making progress, they decide that your Medicare coverage will end. This is an arbitrary decision on the facility’s part. Medicare doesn’t have any say in the matter; they are relying on the rehab facility’s incorrect interpretation of the rule—and of Susie’s progress. As a result of this faulty interpretation, Susie is refused rehab under Medicare well before her 100 days are up.
Now, Susie and her family have less than 48 hours to make other arrangements.
What should they do?
Susie can’t go home. She can’t safely navigate in her home. That leaves one option. Susie can remain in the nursing home and pay privately.
Frank and Susie resign themselves to this option, to pay privately–that is until the social worker tells them how much it will cost. In the Seattle area, the private pay rate for “rehab” in a nursing home ranges from $15,000 to $18,000 per month. When Susie and Frank hear this news, they gasp. Who has that kind of money laying around? They certainly don’t. They could opt to forego rehab and move to the nursing home part of the same building, but the cost for long-term care in that setting isn’t much cheaper. It’s $9,000 to $12,000 a month and rising each year.
Retirement Plan Failure is a Financial Problem
In addition to the housing problem, Susie’s stroke has now created a financial problem.
Keep in mind that creating a financial plan was the main thing Susie and Frank did to plan for retirement. They had a house they owned free and clear. They saved money. They bought the right insurance policies. None of it matters now. Despite all that planning, Susie’s health problem may just bankrupt the family.
One of Susie’s friends hears about what happened and calls her at the rehab center.
“You need to see an elder law attorney,” the friend says.
Susie objects. “Why do I need to see a lawyer ?” she asks. “I have a lawyer. I have a Trust. My kids won’t go through Probate. I have a Power of Attorney. I have all the legal documents a lawyer can help me with.”
“Elder law attorneys do different work,” the friend says patiently. “If you go to an elder law attorney, they will help you find a way to pay for the long-term care you need without burning through all your assets. An elder law attorney can help you apply for Medicaid or VA benefits, but even more than that, the right elder law attorney can help guide you through the maze of our medical system and help you build a plan that will allow you to live as good a life as possible under the circumstances, without your family losing their sanity in the process.”
Susie is confused. Why hadn’t the attorney who worked on her estate plan advised her about these issues? Why hadn’t her attorney told her that Medicare did not need to end in 33 days or that Medicaid or VA benefits could pay for her care costs once Medicare ends? Why hadn’t she told her that it was possible to organize care at home and not in a rehab center or a nursing home?
Unfortunately, most estate planning attorneys are unaware of the options they can offer their aging clients. Most people who don’t have a long-term care insurance policy, or those with one that doesn’t provide enough benefits, don’t know that they can plan for the day they might need Medicaid to pay for long-term care before catastrophe strikes. Many general practice attorneys aren’t aware of this, either. Without that knowledge, Susie’s attorney is limited in what she can do. This does not make the attorney a bad attorney, just one who can’t be expected to give advice on topics that the attorney is not familiar with.
Retirement Plan Failure is a Legal and Family Problem
So, despite having a lawyer, Susie and Frank now have a legal issue on their hands, something they may not even recognize unless they are lucky to have someone give them this insight, as Susie’s friend did.
Finally, Frank, frustrated and overwhelmed, informs his children that he needs help caring for Susie. When Susie was in the nursing home, Frank believed he had the situation under control. Now, he doesn’t know where to turn.
His children, unaware of the severity of the problem, are suddenly faced with decisions about caring for their mother that they were not prepared to make, decisions about finances, caregiving, housing, and legal affairs.
This issue has now become a burden to the family , a scenario Frank and Susie wanted to avoid at all costs.
Retirement Plan Failure Happens to 70 Percent of Retirees
Susie isn’t the exception. She is the rule. All it takes is one health problem to unravel all your carefully laid retirement plans. This is why I say that traditional planning is a recipe for disaster for most retirees. It leaves you with a false sense of security that you have done all you are called upon to do to live a happy and secure future, where, in fact, you have a lot of holes in your plan.
What can you do to avoid this kind of retirement disaster? The solution is to create a retirement plan that coordinates your plans for health, housing, financial, legal, and family issues. I call it a LifePlan.
Learn how to create your own LifePlan at AgingOptions.
[i] “Stroke Facts,” Centers for Disease Control and Prevention, updated April 5, 2022, https://www.cdc.gov/stroke/facts.htm.
[ii] One study performed six months after a stroke found that in people 65 and over: 30 percent needed assistance to walk, 26 percent needed help with activities of daily living (such as bathing, toileting etc.), 19 percent had trouble speaking, 35 percent had feelings of depression and 50 percent had some degree of paralysis. Here’s the most important statistic though: 26 percent became nursing home residents. Jose Vega, “Facts and Statistics About Strokes,” verywellhealth.com, accessed August 17, 2022, https://www.verywellhealth.com/facts-and-statistics-about-stroke-3146382.
[iii] Harris Poll, The Nationwide Retirement Institute® 2021 Long-Term Care Consumer Survey, November 2021, 11, https://nationwidefinancial.com/media/pdf/NFM-21387AO.pdf.
[iv] Centers for Medicare & Medicaid Services, Medicare Coverage of Skilled Nursing Facility Care (Baltimore: U.S. Department of Health & Human Services), 14, https://www.medicare.gov/Pubs/pdf/10153-Medicare-Skilled-Nursing-Facility-Care.pdf.
[v] “Jimmo v. Sebelius Settlement Agreement,” Centers for Medicare & Medicaid Services, April 4, 2013, https://www.cms.gov/medicare/medicare-fee-for-service-payment/snfpps/downloads/jimmo-factsheet.pdf.
From Your Retirement: Dream or Disaster? by Rajiv Nagaich, published by Hasmark Publishing. Copyright© by Rajiv Nagaich 2023.