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Sunday, June 26, 2011

Guest Post: Retirement Stages

I forgot to ask my reader if I could identify, so until the reader self-identifies, I will not put an identity onto this Guest Post/Comment sent to me offline.
Thank you ProfK for your insightful comments and guest post. ProfK blogs at Conversations in Klal.

When people discuss retirement, they are often discussing different things, hence statements like that of one of my friends, "retirement is goyish." The first time I heard of this comment arguing that saving for retirement was unnecessary, I was perplexed/floored. What could possibly be "goyish" about having the money stop working because it is simply impossible or not in the best interest of the client/patient to be in the workplace? What could possibly be goyish about retaining some dignity and not come to rely on others when your expenses exceed your income (which can and does happen even if you continue to work)? What could possibly be "goyish" about leaving the classroom because your heart is no longer there?

Once I put my thinking cap on (dan l'chaf zechut), I realized that my friend has a T.V. view of retirement where retirees cease being productive. Personally, I have no issues with people who have worked for many years, met their obligations, and put their children on their own two feet, taking some of their hard earned money to do things they are interested in doing, be that traveling the world or leaving the world of earning to sit and learn or volunteer. I guess there are always those who will park themselves in front of their TV and speed the aging process. But that doesn't make retirement bad, does it?

In the spirit of full disclosure, I tend to jump straight to "stage 2" as defined by my guest poster because I'm hoping to reach the audience that views retirement as only fun, fun, fun, forgetting that retirement also means expenses that made yeshiva look like a bargain.

From now on, I'm hoping to use "stage 1" or "stage 3" in posts about retirement because I like the demarcation. It is important to remember that one spouse might be in a "stage 1" while the other hits "stage 3" pre-maturely. Or a couple might never enjoy a "stage 1" because they slowed down while they were still working.

Nonetheless, when thinking about retirement, there is much to consider. So, without further ado, my guest poster:
----------------------------------------------------
Just a few thoughts on the posting on retirement that you put up that the article referenced doesn't cover and that might be helpful when you do your commentary later.

Given the age that people live to today talking about retirement is a misnomer--there are at least 2, possibly 3, retirement levels for people over 65, and each level has differing requirements. Level 1 is the "yippee, I no longer have to work all year and can finally do all the things I've put off doing and see all the places I've put off seeing" level. During this time period, generally from immediately post retirement until some time in the late 70s, retirees seem to like to travel, and still pretty much have the energy to do so. People on this level are likely to move away from their home communities, particularly if those communities are in cold weather areas. Trying out new experiences is part of this level. Generally speaking people on this level are still fairly healthy, although some problems may be developing or first show up. Most seniors on this level are still fairly self-mobile, most continuing to drive their own cars. Obviously there are exceptions, but I'm talking about the general run of people in this age range. This level lasts until the mid to late 70s. While there are some who may require assisted living facilities or nursing homes, the majority of those on this level can remain in their own homes.

Level 2 is from the late 70s into about the mid 80s. This level is characterized by a reduction in "energy," with activities slowing down. Many serious health issues can become problematic during this level. In particular, vision and its related ailments starts playing a larger role in the lives of people on this level. People on this level may find themselves needing to be closer to family--and moving to be closer if they are living elsewhere- because they need extra help they didn't need for Level 1. Mobility may become an issue for some on this level--you see a lot of knee and hip replacements as joints wear out and bones break easier. Many on this level no longer drive a car, so getting places can be more difficult. Certain heretofore quite doable household chores take much longer, if they can be done at all. A number of people on this level may find themselves requiring assisted living facilities or nursing homes.

Level 3 does not have a large population of people, although that will change as they are constantly upgrading average life expectancy. People on this level are from the mid 80s to in the 90s. Fully healthy, fully independent people on this level are rare. While some may live by themselves in their own homes, they need assistance with many/most ordinary tasks of living. Short and long term memory problems are common on this level. Any health issues that arise present more of a difficulty as people in this age range have less resistance to such health issues, less ability to fight back. For wont of a better word, people on this level are fragile. On this level living independently becomes the exception rather than the rule. Certainly a large percentage of these people find themselves living with family or living in nursing homes.

From an economic point of view, the monies required differ for each level as expenditures change. Planning for retirement income, therefore, requires people to look at the three levels and see how much will be needed to sustain them on each level. As the article noted, nursing homes are notoriously expensive. If that possibility may exist as you go to Level 2 and Level 3, spending will need to be adjusted in Level 1 to account for this.

. . . . just some thoughts I thought I'd share.

24 comments:

ProfK said...

SL, thanks for posting my comments to you--retirement doesn't get enough discussion in Klal, and I'm glad to see you tackling the subject. As you point out above, there are those who consider retirement as a goyish concept, although how they arrive at that conclusion still alludes me.

And yes, for some, perhaps for many, retirement is going to make paying yeshiva tuitions look like small change in comparison. Using the figures given in the comments on the original article, 4 children times 13 years of school at $15K a year=$780,000. A mother and a father at $180,000 a year in a nursing home facility, times an average of 4 years in residence==$1,440,000. Very scary to contemplate.

tesyaa said...

Having worked in the long-term care field in the past, I know that the median nursing home stay is well under 4 years. And tuition is rarely limited to 13 years; 2-3 years of nursery is common, plus the obligatory year or two in Israel. Retirement is, though, a major expense, and it's largely ignored.

Anonymous said...

Tessya: I have known people in nursing homes for much longer, and I do believe that apart from the 2-3 month rehab situation, once someone has a permanent condition where there is no reasonable hope of being able to live at home without 24/7 skilled care, the 4 year figure is not exagerated.

tesyaa said...

Most people die before 4 years in a nursing home are up. Most people can't survive 4 years in a nursing home. Naturally, if the median is 3 years ( for example ), some will be there longer.

abba's rantings said...

i'm sure there are studies that can tell us how long people survive in nursing homes, but at least anecdotally what i hear is that going to a nursing home is a death sentence and families should try their best to keep relatives at home (assuming they don't specialized care that can't be provided at home)

ProfK said...

For a general look at how long people stay in nursing homes, broken down by sex and age at admission, go to http://www.elderweb.com/node/2771 The charts are based on CDC figures. Bear in mind that nursing home is a very general term. Some of them provide rehab facilities, particularly post-surgery, so the stay is relatively shorter. Some also provide hospice care, generally used for the terminally ill, so the stay is shorter.

The CDC itself says that, depending on reasons for admission and age/sex at admission, around 30-40% of those in nursing homes will be there from 2-12 years.

Here's the thing though: no one, and that is absolutely no one, can know precisely which percentage of the population they will fall into when they get to Level 1, 2 or 3 of retirement. This is one case where planning for a worst case scenario when budgetting for retirement is important. When the chances are approximately 1 out of 3 that you will have to spend from 2-12 years in a nursing facility somewhere between the ages of 65 and 90+ are you really going to play Russian roulette with how that will possibly get paid for?

Orthonomics said...

tesyaa--do you have any idea of what the average length of time people hire in home nursing care for ADLs and more?

tesyaa said...

Othonomics, I don't have those figures readily at hand (as Abba's Rantings says, there are various statistics available), but people who can get long term care services in-home live longer than those in nursing homes. Home care is cheaper than custodial care, though still prohibitively expensive for many.

tesyaa said...

ProfK - I can't imagine many people actively planning to fund 12 years in a nursing home, and many if not all LTC policies max out at $1 million in benefits. At that point most people would reach the level of impoverishment at which Medicaid would kick in. And I think primary residence is now excluded from calculating assets in determining eligibility.

Saving $2.4 million for a couple's needs that might come after 85 is beyond the ability of most people, especially if they retire 15-25 years earlier. I'm not saying people shouldn't plan for the worst case scenario, but for most people that kind of money is impossible, even if they never paid a dime of tuition in their life.

ProfK said...

Okay, look at various costs, in a nursing facility and at home, and see if at home is really going to be affordable. (http://www.longtermcare.gov/LTC/Main_Site/Paying_LTC/Costs_Of_Care/Costs_Of_Care.aspx)

The average costs in the United States nationally (in 2009) are:

$198/day for a semi-private room in a nursing home
$219/day for a private room in a nursing home
$3,131/month for care in an Assisted Living Facility (for a one-bedroom unit)
$21/hour for a Home Health Aide
$19/hour for a Homemaker services
$67/day for care in an Adult Day Health Care Center

For New York state the costs are much higher in general. That semi private nursing home room costs $352 a day, and kosher/orthodox homes cost even more.

Then there is this: Even if you have a modest need for assistance at home with personal care, say a visit [a visit is defined as up to 4 hours in duration] from a home health aide 3 times a week, based on 2008 average costs, you would have to pay about $18,000 a year for those services.

That was in 2008--want to bet that costs have gone up? And will continue to go up?

elanit said...

Financial planners call the 3 phases such: a) Go Go; b) Slow Go; c) No Go.

Better than calling them Phase 1, 2, and 3. :)

Orthonomics said...

Elanit, thanks.

tesyaa said...

A few more things about LTC policies:

1) they are hardly worth buying unless they include inflation adjustment, and those policies are extremely expensive (less so if you buy them at a young age).

2) LTC insurance does not sell well; many customers hesitate to buy it because they fear they'll never use the benefits. A few carriers offer hybrid products that offer a combination of life/LTC insurance. If you don't use the LTC benefits, you receive death benefits. These are also expensive and don't sell well.

If frum people are not buying LTC insurance, they are in good company; hardly any Americans buy this insurance.

3) Most carriers have raised premiums significantly because they underpriced the product, and other carriers are exiting the market. This is a hard business to make money in, and there are few choices available to the consumer.

I don't know why more people don't try to self-fund LTC. Just having the insurance doesn't take away the possibility of significant expense, since most policies have maximums and not all services are covered.

It can be a useful product, but it's not a panacaea. If you buy the insurance and think all your nursing home worries will go away, you or your family may be rudely surprised.

Mark said...

ProfK - 4 children times 13 years of school at $15K a year=$780,000.

Another comment on the numbers. These are extremely inaccurate for a few reasons:

1. High school costs more than $15k, it's about $22k in most places.
2. It's more than 13 years if you include ages 2 through 5.
3. What about a year or two at Yeshiva in Israel? That's about $25k/yr.
4. What about college + graduate school to enable your kids to have a profession that has a chance of supporting a frum lifestyle?
5. And the biggest item, what about the 16 grandchildren? How much will it cost you to [help] put them through Yeshiva?

That's all going to cost a lot more than $780k!!!

ProfK said...

Mark,
High school costs more than $15k, it's about $22k in most places.

Sorry, but there are high schools that still run in the $15K range and a few that are even cheaper then that. It's a question of which school you choose, and choosing cheaper is an alternative.

It's more than 13 years if you include ages 2 through 5.

Children age 5 are included in the 13 years. There are plenty of cheaper alternatives available for preschool, both in privately run preschools and in yeshiva preschools.

What about a year or two at Yeshiva in Israel? That's about $25k/yr.

Unlike Tesyaa in her comment above where she calls that year or two obligatory, I'm willing to call a spade a spade and say it is nothing but a pure luxury, not obligatory nor necessary at all. The reason (or at least one major reason) that Israel became so popular in the last 20 years is that it gives parents so inclined a place to warehouse their children before they jump straight into shidduchim.

What about college + graduate school to enable your kids to have a profession that has a chance of supporting a frum lifestyle?

What about them? Last time I looked there were many lower cost schools available (CUNY and SUNY for instance) and students can apply for financial assistance if they qualify. And then there is working hard at your studies so you can get academic scholarships. It is quite possible to prepare yourself to make a living in places that won't take $35K+ per year in tuition.

And the biggest item, what about the 16 grandchildren? How much will it cost you to [help] put them through Yeshiva?

In a fair system it should cost the grandparents absolutely nothing--it should be the parents' responsibility to educate their kids. If they can't afford the bills then they need to retrain to a profession that would allow them to afford it OR they need to look for a lower cost yeshiva.

Mark said...

ProfK - Sorry, but there are high schools that still run in the $15K range and a few that are even cheaper then that. It's a question of which school you choose, and choosing cheaper is an alternative.

Yes, that's true in the NY area, especially if you are willing to compromise on hashkafa to some extent. But here in OOT, we generally have only one yeshiva high school to choose from.

And I'm curious, which MO high schools are only $15k? Maybe in Monsey or the 5T?

Children age 5 are included in the 13 years.

Not always. Many schools have a cut-off birth date for kindergarten of 1-Aug or 1-Sep, that means that if the child isn't 5 by that date, they aren't entering kindergarten that year. Additionally, not all children are ready for 1'st grade at age 6, many wait until they are closer to age 7 until they are emotionally ready to begin "real" school.

I agree with you re: the year or two in Israel, however even MO who don't go into shidduchim right after yeshiva/seminary in Israel still send almost all their kids for a year or two.

... and students can apply for financial assistance if they qualify.

Almost none of us (frum folks) qualify for that kind of financial assistance for college. We generally earn too much, and despite the fact that we are spending much of our earnings on private education, we still aren't eligible (because private secondary school tuition is not taken into account for much of that kind of aid).

In a fair system ...

Agree 100%. But I am living in (and commenting about) today's system.

tesyaa said...

Mark, it's actually relatively common for yeshivas to recommend an extra year for a child who meets the cutoff but is immature socially. So that translates to an extra year's tuition.

(Public schools rarely hold back a kid for being immature; in fact, he child may qualify for extra services while remaining at grade level. There's no reason an immature but intelligent child should be bored academically.)

Mark said...

tesyaa - it's actually relatively common for yeshivas to recommend an extra year for a child who meets the cutoff but is immature socially. So that translates to an extra year's tuition.

That is, in fact, what we are doing with our two youngest (who just barely meet the cutoff).

tesyaa said...

Mark, it's fine to hold your kids back if it's YOUR choice. I have seen too many cases, though, in which yeshivas insisted that bright but immature kids repeat a year when the parents were not in favor of it. Like I said, this is rarely done in public schools.

My feeling is that yeshivas do this for two reasons: reputation (they want to have the reputation of having the top kids), and to make things easier for the teachers, some of whom, of course, do not have nearly as much training as certified public school teachers.

Anonymous said...

Most people don't actually pay for their nursing home stays. It is important to plan for you old age much like estate planning and qualify for medicaid or else your money can be flushed in a really short time. Consult with an attorney or CPA to plan.

Anonymous said...

I have heard that nursing homes that Medicaid pays for are not the same level of quality as truly private nursing homes. The question is, do you want your savings to ensure a decent quality of life in your old age, or do you want to preserve your estate as an inheritance for your children?

This may vary for different people, but I'd guess that the choice might be different if the adult children are in on the decision. Make these decisions while you are still mentally competent.

Shoshana Z. said...

I'm actually less concerned about the lack of long-term care insurance compared to the almost complete neglect of life insurance. Both issues are important, but the latter is more pressing and dangerous for families in the short term. We cannot afford LTC insurance right now but we have hefty 20-year term policies. It is hard to write the check, but I sleep better at night knowing its there. We also went through estate planning and have designated people to care for our children and manage their assets in the (cv's!) event of our demise. We are not at all wealthy, but felt that it was a vital step to protect our family.

assisted living said...

Most people don't actually pay for their nursing home stays. It is important to plan for you old age much like estate planning and qualify for medicaid or else your money can be flushed in a really short time

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