How Traditional Retirement Planning Fails America’s Seniors

Retirement Plan Failure: A Silent Epidemic

How can so many Americans be experiencing such dismal results?

The way we define success in retirement is a marketing bait-and-switch scheme. Those photoshopped images of older people living the dream as depicted in the glossy retirement planning brochures don’t paint an accurate picture. Retirement planning the way it’s done today assumes your later years unfolding in one gleeful, adventure-filled phase. You live a healthy and active life until you die in your sleep.

Unfortunately, that’s not how it will go for most of us. Most of us will spend some (possibly many) of our retirement years dealing with health problems that gradually increase our dependence on others. A few lucky people will die in their sleep. For the rest of us, retirement will be a long, slow, downward skid toward an undignified end: Broke. A burden. Stuck in a nursing home.

That’s what makes retirement planning the way it’s done today such a tragedy. We aren’t planning for the reality of sickness and frailty, even though most of us will experience these things. If success in retirement is pitched as having the money to live your best life when you’re healthy, shouldn’t that best life include the years you spend in failing health? Wouldn’t you want to have control over where you live, how your affairs are managed, how your money is used, and how your needs impact the lives of your loved ones even as your independence is waning?

If your retirement plan is successful, you should be able to live where you choose until the moment you take your last breath, even if your health fails—without being forced to move to move to an institutional care setting like a nursing home. You should be able to protect your nest egg from unplanned long-term care costs, so you don’t end up broke. You should be able to grow old, sick, and frail without becoming a burden on your family while you’re alive, or a source of conflict and disorder when you’re gone.

Why will so few of us accomplish this? It's not that we don't plan for life in retirement. Americans do more planning than just about anyone else, yet most of us are unable to achieve our basic retirement wishes.

The traditionally accepted formula for retirement plan success is focused on money. Conventional wisdom says that if you have a paid-for home and a hefty nest egg by the time retirement rolls around, you should be okay. Social Security will provide additional monthly income. Maybe you even have a long-term care insurance policy to foot the bill for future long-term care costs. Other than possibly moving to a sunny climate, most Americans don’t do any special planning for their housing in retirement. More than three quarters of Americans plan to age in their own homes. Planning for health care in retirement centers around enrolling in Medicare and possibly getting a supplemental policy. Legal planning for retirement means getting estate planning documents such as Wills, Trusts, Powers of Attorney, and Advance Directives.

Will this planning keep you from being forced into a nursing home, going broke, or becoming a burden when your health fails?

Probably not.

I first confronted the deficiencies in the American formula for retirement planning when I met my future father-in-law, Bill Wallace, in a nursing home. Bill and his wife, Vivian, had prepared for retirement in the way I’ve just described. Bill’s Alzheimer’s diagnosis quickly revealed the shortcomings in that plan. Vivian ended up spending down most of their assets to qualify Bill for Medicaid so he could access funds to pay for care in a nursing home, even though the family wanted to care for him at home.

I’m certain that Bill never imagined that he would spend his retirement years living in an institution. When his health failed, no one knew what to do. Vivian and her family were swimming upstream against a current they couldn’t see.

This situation is what sent me to law school.  I simply refused to believe that we would be living in America with rules that turned a blind eye to Bill, his family, and the public forced to pick up the tab.

If you’re thinking that this only happens to poor or middle-class people, think again. Famous people whose names you would recognize (actor Tim Conway, singer Glenn Campbell, and radio personality Casey Kasem, to name just a few) learned the hard way that great wealth isn’t enough to keep you out of a nursing home or burdening family members. In fact, great wealth isn’t enough to keep you from going broke.

How Retirement Plan Failure Happens

A woman in her sixties—let’s call her Susie—is sitting at home one day 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 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.

Next, 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 go home, so the physician signs discharge papers that send her to a rehab center to receive physical, speech, and occupational therapy.

Susie, her husband Frank, and their children have now gathered to help are given a list of rehab centers. Which one should they choose? They have no idea. Susie was betting she would never be in this situation. She was planning to die in her sleep.

Given that Susie and her family don’t know which rehab center to choose, the hospital picks one. The hospital might choose the right one for her—or they might not. Susie also doesn’t yet realize that “rehab center” and “nursing home” are synonyms. To her, going to the rehab center feels like 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 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. 

Susie starts to rationalize. This is a temporary arrangement required by special circumstances, she 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.

What Susie doesn’t yet know is that her husband Frank has just talked to her doctor. Because her physical limitations are severe, it will be impossible for her to go home. Her walker won’t fit through the narrow doorways. She can’t use the walker on the stairs.

Susie’s medical problem has created a housing issue. 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 bill is being covered by Medicare. Or is it? 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.

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 didn’t realize that Medicare will only pay for care as long as Susie’s condition is improving. Her doctors have determined that she’s progressed as much as she can.

They have the weekend to make other arrangements.

What should Frank and Susie do?

Susie can’t go home. She can’t safely navigate in her home. That leaves one option. Susie can remain in skilled care and rehab  and 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. The cost for long-term care in the nursing home part of the building isn’t much less; it’s $9,000 to $12,000 a month.

Susie’s stroke has now created a financial problem. Despite having a nest egg for retirement, Susie’s health problem may bankrupt the family. One of Susie’s friends hears about what happened and suggests she see an elder law attorney to get specialize legal help to protect assets from the high cost of long-term care. Susie now has a legal problem.

Finally, Frank, frustrated and overwhelmed, informs their children that he needs help caring for Susie. The 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.

As you can see, one health problem is all it takes to unravel your carefully laid retirement plans.

This is why traditional planning is a recipe for disaster. 

A Better Way to Plan

The alternative to traditional retirement planning—I call it LifePlanning—starts by thinking differently about the planning process. You learn what goals to set, how to set them, and when to start planning. Instead of assuming that your financial planner, estate planner, and other professionals are coordinating their efforts (they aren’t), you learn how to hold them to a higher standard while stepping confidently into the role of project manager of your retirement plan.

Here’s how LifePlanning works.

First, planning for health in retirement isn’t just signing up for Medicare and then going to the doctor when you get sick. LifePlanning is about developing healthy habits and using your health insurance to focus on preventative care so you can prolong your years of healthy independence, possibly eliminating the need for expensive long-term care.

Second, planning for housing in retirement isn’t just hoping you will live in your current home until the end. LifePlanning gives you a way to turn that hope into action by finding a housing option that works for you while eliminating the need to move to another setting or into an institution when your health fails.

Third, planning for finances in retirement isn’t just managing your nest egg. It’s about having the information you need to make important decisions about how you spend your money. The goal of LifePlanning is for you to be able to pay for housing, care, and services during incapacity without going broke, no matter what size your portfolio.

Fourth, legal planning for retirement isn’t just creating estate planning documents that are overly focused on your death. The legal planning you do in a LifePlan protects your quality of life no matter what happens with your health. It also ensures that your needs will not make you a burden on those you name as fiduciaries in your legal documents. 

Fifth, aging is a family affair because the people closest to you will become involved in your life as you grow older. The LifePlanning process gives your family clear guidance about what they should do when it’s time for them to step into your life—without creating unnecessary burdens.

Traditional retirement planning gives you a 70 percent chance of going broke, becoming a burden, and ending up in institutional care. LifePlanning give you a better than 80 percent chance of living the kind of life you want—until the end.