Money Matters: Planning for the future - The Fed and states say it's your job

In our society, many citizens often believe it is the job of the state and federal government to fill the gap when their own assets are not sufficient. There is unemployment insurance, Medicaid, and many other state and federal programs designed to fill the gap. Now, I do not want to get into a political debate, but more facts are indicating that both state and federal governments are saying it is not "our" job to take care of US citizens when they fail to sufficiently provide for themselves.

Legislation has passed at the federal level to strengthen the position that all citizens should have Long-term Care insurance. The federal government realizes it does not have the resources to provide this care to the millions of baby boomers currently approaching retirement. Federal tax laws already permit the deduction as medical expenses the cost of long-term care policies and provide as tax-free income the benefits when paid. But, it appears this has not been sufficient to encourage the baby boomers to purchase long-term care policies.

The legislation currently being considered will permit the states to partner with its citizens and the insurance companies. The design as it presently stands would allow a state resident to avoid spending down their own assets, provided they purchase the state mandated coverage. In the event the coverage was not adequate to meet all of the long-term care costs, the state administrated Medicaid program would take over the cost of care. This is a significant change in mindset.

At this time, most citizens look to their parents’ assets and start gifting and transferring the balances to the children, so their parents can go on Medicaid should the need arise. To my knowledge, every state has laws to prohibit or govern the transfer of assets in anticipation of state-assisted aid being provided. Most states now review their records for every person who dies in their state to determine if any state aid was provided; and if so, they attempt to recover the value from the decedent’s estate. The states generally have what is referred to as the "look back period", and this timeframe can vary whether the transfer was direct to an individual/s or involved in a trust. Recently, Tennessee received a federal grant to aid in the promotion costs of encouraging older Tennesseans to obtain long-term care insurance. Thus, it is becoming clear both state and federal governments are expecting those who have assets to become insured or be prepared to reimburse the state if they provide the care.

Another area that is fast becoming the sole responsibility of the individual is that of retirement income. Many corporations are doing away with their old defined benefit plans. These plans provided a guaranteed income generally for life. Today’s workers rarely stay with an employer long enough to be in this type of plan ten years, and thus these plans are declining in numbers and new ones are rarely being established.

Today’s plans are defined contribution which means a certain amount was contributed by either the employer or the employee, but there are no assurances the amount will generate the income you hope to have at retirement. The companies used to run the calculations to make certain sufficient assets were set aside to meet the predicted income level and duration of pay. Today, the 401-K or Savings Plans are becoming the dominate retirement plan of choice by most employers, and no one is doing the calculation of whether what is being saved is sufficient. Most likely if you participate in a 401-K plan, you looked at your budget to see what you could afford to contribute to your retirement. The thought of whether the amount was sufficient rarely comes to mind; and for most of those when it does, the decision to verify is put off until you are closer to retirement. Generally, the only time when someone will consider investing more into the plan is if a match is being offered and you can increase your investment to get more of the match, or you realize you are running out of time and you need to tuck away as much as possible.

For both of these issues when they are addressed earlier in your life rather than later, the cost to meet your needs is almost always lower the earlier you start. Take advantage of time and start your long-term care planning or your retirement planning today.


Would you like a response to a financial question? Send your question to Doug Horn, 115 W. Broadway, Maryville TN 37801. Be sure to mark your envelope Money Matters.

Doug Horn, CFP, is an area financial planner with more than 21 years financial experience and founder of Quality Financial Concepts, located in downtown Maryville on Broadway.

Doug Horn, CFP, Registered Investment Advisor in Tennessee and Texas and Registered Principal, Branch Office of and Securities offered through CUE Financial, Member NASD, IPC.

© 2007 All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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