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Scott Neal

Scott Neal, CPA, CFP, is the president of D. Scott Neal, Inc., a fee-only financial planning and investment advisory firm with offices in Lexington and Louisville. Reach him at or by calling 1.800.344.9098.

A Personal Journey

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My father has Alzheimer’s Disease. Usually a very mild-mannered, quiet, and reserved man, in December his condition changed and he suddenly became combative, first with my 81-year-old mother and then with my younger brother. Mother was already bone-tired from being his primary caregiver for the past six years, and these episodes became the trigger for moving him to a long-term care facility. We had prepared for the eventuality that he would need some sort of assisted living. However, the family’s plan for using the facility closest to home was quickly dashed because it, like so many throughout Kentucky, is not staffed and equipped to handle residents with dementia, especially if they become combative. Any family who has been at this crossroads knows the gut-wrenching anguish that accompanies these decisions. Advance planning lessens the burden. But let’s be honest, life gives us events that simply cannot ever be fully anticipated. I am reminded of Carl Richard’s Venn diagram containing two large overlapping circles, one is labeled “that which is important” and the other “things we can do something about;” the small center portion where they overlap is where planning needs to truly focus.

You will be glad to know that nearly all our planning clients place health care at the top of their priorities for setting spending targets; however, few are ready for the realities. Many people falsely believe that Medicare will cover their health care costs during retirement. The Employee Benefit Research Institute ( reported in late 2013 that Medicare covers only about 62 percent of the cost of health care services (not including long-term care) for Medicare beneficiaries age 65 and older, while out-of-pocket spending accounts for 12 percent. They went on to report that a married couple age 65, both with drug expenses in the 90th percentile throughout retirement would need $360,000 to have a 90 percent chance of having enough money to cover health care expenses (not including long-term care). It’s important for you to know that most of your patients have probably not planned for anything like this level of expense. Moreover, while you are probably more focused on the reimbursement rate from Medicare, patients are more concerned, and often surprised, with what it doesn’t cover.

Most people falsely believe that Medicare will pick up the tab for a stay in a long-term care facility. In fact, Medicare covers very little of those costs. It pays 100 percent of the first 20 days in a long-term care facility but only if it occurs after a qualifying three-day hospital stay. The next 80 days are partially covered, but ongoing therapy is required for the benefit to be paid. After those 100 days, Medicare does not pay for long-term care. The rules for eligibility were relaxed somewhat just this year. Prior to 2014, the standard was for therapy to “improve” the patient’s condition; now it is simply to “maintain.” So just how much does long-term care actually cost?

Genworth Financial has a very useful website that breaks down the cost of care and, as you might guess, the costs vary by locale. For Kentucky, the 2014 median annual costs are $16,510 for Adult Day Care, $39,165 for Assisted Living in a private one-bedroom, $44,616 for Home Health Aide, $73,000 for a semi-private room in a nursing home, and $80,300 for a private room. Based on my own recent search, I can say that these estimates are fairly accurate. Furthermore, these costs grow by as much as five percent per annum. Bear in mind that these are median costs for all adults. Care for someone with dementia is considerably more expensive.

Another variable that often gets overlooked in planning is how much long-term care will be needed. The U.S. Department of Health and Human Services site provides some statistics for the type of care, duration, and percentage of people who use long-term care services. Keep in the mind “the flaw of averages” as you read statistics. Averages are based on large populations. You and I and everybody else comprise a population of one, subject to “black swan” events. On average though, “someone turning 65 today has almost a 70 percent chance of needing some type of long-term care services and supports in their remaining years. Women need care longer (3.7 years) than men (2.2 years). One third of today’s 65-year-olds may never need long-term care support, but 20 percent will need it for longer than 5 years.” Interestingly, more people (65 percent) use long-term care services at home (and for longer periods) than in facilities. Many falsely believe that staying at home is cheaper. It can become more expensive and is certainly more costly if you take into account the lost productivity and travel costs for care-giving family members.

Even if you are one of those physicians who says, “I’ve got this covered,” it’s a good idea for the entire family to be prepared. If you don’t know your parents’ plan, now is the time for “the talk.” Caregiving often extends to every family member and sometimes even to friends. I don’t have to remind you that care for dementia patients is an extremely stressful proposition and waiting for a crisis to develop before taking action only increases the stress. Eventually, the primary caregiver, which is usually the spouse, will become exhausted or simply reach the end of his or her rope. Half of all caregivers report experiencing significant psychological distress, including depression. This obviously leads to other health issues and is all-too-often preventable. We are recommending this conversation to occur for anyone over the age of 60.

Scott Neal is the President of D. Scott Neal, Inc., a fee-only financial planning and investment advisory firm, with offices in Lexington and Louisville, where we talk about things like this. If you, or someone you know, would like to have a conversation with us, email or call 1-800-344-9098.