← HerMoney with Jean Chatzky
HerMoney with Jean Chatzky
Ep 519: When Health Derails Wealth: How Women Can Safeguard Their Retirement
00:32:07
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- [00:01]
A
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- [00:31]
B
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- [00:58]
C
if you are healthy and you do have a higher risk of dementia because you're going to live a long time, that's where your average long term care need could be. Five years or more. And about a quarter of people with dementia need care longer than five years. And so you've got to make sure you have the resources. And this is where annuities to me would fit in better. And again, immediate fixed annuities that are going to pay out for your lifetime. They'll guarantee that you're not going to run out of money.
- [01:28]
B
Hey everybody, thanks so much for joining me today on HerMoney. I'm Jean Chatky. When retirement plans fall apart, we tend to assume it's because someone overspent, maybe on travel or hobbies or helping out those adult kids a little too much. But often that is not what does the real damage. It's health. It's the rising premiums and prescription drugs, the surprise diagnosis, the long recover, the long term care needs that no one saw coming. Health shocks big and small are one of the fastest ways to derail even the most carefully crafted retirement plans. And preparing for the unknown. Boy, that's hard. That is really hard. Which is why I am so excited to welcome back one of our favorite guests, Dr. Carolyn McClanahan. Carolyn's path, for those of you who don't know her, has been anything but typical. She started her career as a physician caring for patients and seeing how quickly health and the lack of planning around it could change a person's financial future. In fact, when she and her husband went looking for a financial planner themselves, they couldn't find the right fit. So she did something pretty extraordinary. She went back to school and became a planner herself. She fell in love with financial planning, ultimately building a career at the intersection of medicine and money. Today she is the founder of Life Planning Partners, a fee only financial planning firm. And she's become a national voice on how healthcare, aging and finances collide, writing for major publications and and advising both consumers and professionals across the country. In this special episode of the Hermoney podcast sponsored by Limra, she is here to help us understand how unexpected health costs impact women and more importantly, what we can do now to protect our financial security later. Carolyn, it's always so great to see you.
- [03:40]
C
Jean. It's always great to be with you. You do such great work and that was like the most kindest introduction I think I've ever had. So thank you. So. Yeah, that was just wonderful.
- [03:50]
B
Well, you are welcome and we mean every word. Tell us a little bit more about your path and how you came to this realization about how deeply health and wealth are truly connected, especially in retirement.
- [04:06]
C
You know, it's very interesting because when I was a practicing doctor, both of my parents became ill with cancer and we had to take care of them and they unfortunately died too young. But they died fairly quickly, quickly after their diagnosis, so we didn't have to experience those long term expenses. But I saw just what it took when somebody got ill, how families needed to come together and how expensive it did get just even in the short term. And so I kind of always had that experience in the back of my mind. And then once I became a financial planner and I saw how little financial planners understood about health issues and what happens when somebody gets ill. It's gosh, so many people in finance helped me with starting my practice and teaching me things. I found this perfect way to give back to the profession and just have really been honored and enjoyed taking all those things because I still, I practiced in medicine. I still continue to practice in medicine as a volunteer to keep my finger in that whole industry and profession so I can better help the whole, not just financial planners, but the country understand, you know, what all goes together in health and finance.
- [05:20]
B
What do you find that people don't understand the most?
- [05:25]
C
I think the biggest problem is that people don't understand the logistics of when you get sick and just how much time and energy and money it takes. So helping people think through the logistics of when are they going to need to Move to safer living situation when they age, when are they going to need to enlist the help of their family or hire health care givers? How do you hire health care givers? So all these little nuances that people don't think about in advance, you end up making reactive decisions that are very expensive. Whereas if you've done some education and thought about this up front, you can greatly reduce both the angst and the cost when you actually get ill.
- [06:09]
B
When we look at the top concerns of pre retirees and retirees, healthcare costs and outliving savings are just at the top of the list. And really the two of those things go hand in hand. And some new research out of Boston College, the Center for Retirement Research at Boston College, shows that these fears are pretty well founded. That after you subtract the cost of Medicare and your premiums and co pays and uncovered services, the typical retiree has only 71% of their Social Security left and 88% of their total income left. In other words, these health care costs are taking up a really big chunk. When you look at health care expenditures, is it big events that derail things or is it the smaller cumulative costs over time?
- [07:08]
C
Gosh, it's really both. The challenge is everybody is going to experience it differently. If you have ongoing chronic disease, then it is over time that it ends up adding up. And especially if you're not becoming an engaged patient and understanding what's driving your cost and what you can do from your end, both to talk to your doctors and, you know, figure out how the healthcare economic system works, then that really eats into everything. And then once you get a serious illness or if you have been healthy and then all of a sudden have an acute illness, it's like when you're so sick that you don't even know how to deal with the healthcare system, not having advocates and not having people in place that can help you can just cause financial disasters for families.
- [07:58]
B
Let's talk about how do we prepare for these things in advance and let's focus specifically on women. According to research from Limra and other sources as well, women expect to live longer, but few are financially prepared to actually live longer and therefore they're more exposed to health care costs. So long term care costs, especially as I think of women who outlive their spouses, take care of the spouse, then nobody is left to take care of them. How do you advise women in particular to prepare?
- [08:34]
C
First off is everybody needs to think well in advance about what type of care they're going to receive, where they're going to receive their care. And I'm talking specifically about long term care. So custodial care, assisted living and skilled nursing care. And so with what we do is start when people are actually in their 50s and 60s and say what's your ideal long term care situation? And most people would love to age in place, but they're not realistic or don't understand the change, challenges and cost of aging in place. Once you become seriously ill, once you need home health care more than six hours a day, that's generally about the same cost as an assisted living facility. If you need care more than say 12 hours a day, that's about the cost of a skilled nursing facility. So it's important to understand do I have the money to afford continuing long term care at home or you know, is there that break even point that I should go ahead and move? And especially when people get serious illness where they need round the clock care that's extremely expensive and especially when people have dementia. And so this is where women come into play. Women live longer so they have a higher risk of dementia just by their longevity. And they say often to their family, never move me to a nursing home. Well, what happens when you no longer know who you are or if you're threatening the caregivers or accusing everybody of stealing? That's where it's no longer safe to you or the people taking care of you to continue to stay at home. So making sure you have those conversations with the family and that people who are going to be looking out for you when you get older of saying what's enough and when is it okay to move me? So that's a big first step towards good long term care.
- [10:20]
B
Those are such important conversations that I think people often don't have. And those breakdowns, can you just repeat those numbers again? For six hours of care is about the equivalent of the cost of assisted living. That's for one person. And 12 hours for skilled nursing, I think those are helpful benchmarks for people to know. Because I gotta say, I had that conversation with my own mom who said I never want you to move me. If you need to, I'll give you money and you can add onto your house and I'll move. There was her solution. And I said, okay, I think that's what you as an adult child say. But really these discussions need to be more nuanced about. If we end up going down this road, then maybe we do have to consider it, right?
- [11:14]
C
Absolutely. And the sad thing is people are well meaning and it just breaks my heart when I see nice people. You can become very different when you have dementia and you say, oh, I'll never threaten anybody or accuse people of doing doing things. But that happens just so frequently when you know you're living in fear and you know that your brain isn't working right, but you want to think that it is, bad things happen. So being realistic about the future is so important.
- [11:44]
B
I want to just mention that Limra, the sponsor of this episode, put together a healthcare and aging game plan worksheet. We're going to link to it in the show notes. But if you're thinking that you could use some help outlining your healthcare priorities and decisions and expenses in retirement and prepping for these conversations that Carolyn and I are talking about, this is a valuable resource for you to check out. As I said in the intro, for many people it is the health shocks, not things like travel or hobbies, that undo retirement plans. Putting on your doctor's hat for a sec, what are some early warning signs or lifestyle factors that you encourage your clients to take seriously in order to protect their future finances?
- [12:34]
C
Well, the first thing you know, you have to just to think first, am I a healthy person or do I have chronic illness? If you have serious chronic illness, like diabetes you're not taking care of or heart disease, then your chance for dementia is lower because you're not going to live as long. But your chance for higher healthcare costs in the short term are more significant. And so for those people, they definitely need to think through how am I utilizing healthcare? What could I be doing to better take care of myself, to reduce healthcare costs? And if people are not taking care of their health, we're all human. There's some people that just say, I don't care anymore. If I die at 72, I'm tired of living how I am, then you need to make sure you have good advance directives that clearly spell that out so that your family doesn't throw you in the nursing home once you've had that massive stroke and keep you alive forever. And I always tell people, if you have unhealthy habits when you have that stroke and they put and you have a feeding tube and they put you in the nursing home, you're not going to be able to drink gin anymore and they're not going to put gin in your feeding tube. So now you're in a backdoor healthy lifestyle and you could end up in that nursing home in that sad state for a very long time. And that's where advance directives are important. There was a study in 2010 that showed that people that did not have good advance directives spent tens of thousands of dollars more in that last year life than people who had good, clear advance directives.
- [14:10]
B
How often do you revisit those documents to make sure that you have kept them up to date and that they are ones that doctors and financial institutions will actually listen to?
- [14:21]
C
You know, that's super important. And so you want to make sure you use a good legal advance directive. And the one I really like is prepare for your care. It's a free nonprofit site put on by, I think, University of Southern California that it's legal in all 50 states. And the thing I like about it is it makes you document what's important to you about quality of life. Because if your family knows what's important to you about quality, it makes it easier for them to make healthcare decisions based on whether it's going to bring that quality of life back. With our clients, we actually review estate documents and the advance directives every year and we don't make our clients do it. We basically have a synopsis for them. Here's what they say. Is everybody that's involved, all the important people that are supposed to be taking care of you still willing and able to do that? And if not, or if your thoughts about how you want your end of life to go change, then it's time to update those documents. You do not need an attorney to update advance directives as opposed to like powers of attorney or will. So it's you can change them all the time.
- [15:27]
B
Good to know. We're going to take a very quick break. When we launched Hermoney, I remember thinking, what if no one listens? What if this doesn't work? Starting something new, whether it's a podcast, a side hustle or a product you've been dreaming about, always comes with doubt. But having the right partner makes all the difference. Shopify is the commerce platform behind millions of businesses around around the world and 10% of all E commerce in the United States. From brands just getting started to household names like Thrive Cosmetics and Allbirds, it gives you everything you need in one place. Inventory, payments, analytics, no juggling multiple platforms. You can build a beautiful online store with ready to use templates. It's time to turn those what ifs into with Shopify today. Sign up for your $1 per month trial today at shopify.comhermoney go to shopify.comhermoney that's shopify.comhermoney the year is moving fast and somehow there is still no extra time to cook. These are the weeks when I'm focused on work workouts and trying to eat well and I just don't want dinner to become another project. That's where Factor has been so helpful. I recently tried the Ginger Teriyaki salmon and the Thai Roasted Vegetable Green curry and what I love is that they're fully prepared, dietitian, designated and genuinely satisfying. There are 100 rotating meals and every week including high protein, calorie, smart, Mediterranean and more. I use this and you should too. Head to FactorMeals.com HerMoney50OFF and use code HERMONEY50OFF to get 50% off and free breakfast for a year. Eat like a pro this month with Factor New subscribers only. Varies by plan. One free breakfast item per box for one year while subscription is active. We are back. Let's talk about Medicare for a sec. What are the biggest misconceptions that people have about what it actually covers and what it doesn't cover and how do you fill those gaps?
- [17:59]
C
Well, the biggest, biggest misconception is people think Medicare pays for long term care. It does not pay for long term care when you have an acute event and if you end up in a skilled nursing home, it will pay part of the first hundred days of a skilled nursing home. But there are lots of hoops you have to jump through and not always easy to get Medicare or for the institutions to want to keep you through that period. That Medicare does actually pay for skilled nursing care. So that's the important thing. The other important thing about Medicare is the difference between traditional Medicare and Medicare Advantage. And I stress this all the time. Medicare Advantage is basically the private insurance companies taking care of your care and it looks cheap when you're healthy and it is cheap when you're healthy. But soon as you have a serious illness you're going to have higher pre authorizations and more out of pocket costs than you would with traditional Medicare. And the challenge is in most states, there's four states where this is not true. But in most states if you want to go back on traditional Medicare, you can't do that because you have to go through underwriting to get back on a Medigap plan. So I caution people, don't be penny wise and pound foolish and you know, go ahead and pay that extra to keep traditional medic because it is going to help you better down the road when you have serious illnesses.
- [19:23]
B
When it comes to that long term care gap, the nursing home coverage and the part that Medicare does not cover beyond the first Hundred days or part of it. What's your suggestion for how people think about paying for that? And do you think that guaranteed income sources like annuities have a role in that sort of a plan?
- [19:50]
C
Well, I think the first thing people need to do is look at what their potential cost for long term care is. And this is where if you are unhealthy, your typical long term care need is going to be two to three years. And if you have good advance directives that you know your family are going to follow, then it's more likely you're going to fit into that statistic. And so you know, what's that cost of the two to three year time frame and do you have enough to self insure? To me the home is a long term care asset because if you end up needing to move into a facility, you know, you could sell the home, you ideally have savings and then that brings to your point of your guaranteed income streams. And Social Security is the most important of course, because it's truly guaranteed. And you know, I encourage people who are healthy to claim as late as possible so that they have a big Social Security. And for some people, if you don't have the resources on your own and you want to make sure you don't outlive your income, immediate fixed annuities are a great way to have guaranteed income that would help pay for long term care.
- [20:55]
B
Do you use them at all in your plans with your clients?
- [20:59]
C
So for the most part we do not use a lot of annuities. And the reason why is we take people through that long term care planning process and most of our clients do have the resources that they don't need guaranteed fixed income. They would prefer to control the outcome of those assets as opposed to putting them in an annuity. But to me, the people who are best served by immediate fixed annuities are the people who they're not sure if the numbers come out pretty tight that they might outlive their money, then having some money in guaranteed fixed income is to me could be a lifesaver for those people. The other part I want to talk about, we talked about the people with the average long term care need. But if you are healthy and you do have a higher risk of dementia because you're going to live a long time, that's where your average long term care need could be five years or more. And about a quarter of people with dementia need care longer than five years. And so you've got to make sure you have the resources. And this is where annuities to me, would fit in better. And again, immediate fixed annuities that are going to pay out for your lifetime, they'll guarantee that you're not going to run out of money.
- [22:11]
B
It's an interesting piece of research, body of research that we're starting to see about cognitive decline and about how it impacts people's financial abilities. I know that the research from Limra shows that women are more concerned about the future prospect of cognitive decline on their financial decisions than men are. To me, this makes sense because women live longer. But when we think about these periods where we might start being unable to manage our money by ourselves, how do we stay protected and supported?
- [22:56]
C
So thank you for asking this question, because cognitive decline actually begins in our 50s and people don't realize that. And the risk of dementia doubles every five years after age 60. But more people have what's called mild cognitive impairment. That just makes it difficult to manage your finances. It makes it easier to be taken advantage of. Elderly, of course, are higher risk of fraud and abuse. But in reality, the biggest risk to an elder's finances is actually themselves. And there are studies that have shown that there's more bills unpaid and bankruptcies and poor credit that occur three to five years before the cognitive decline is actually identified. And so one thing that we do with clients in their late 50s, early 60s is create what's called a financial caretaking plan where we lay out for them. If you have an issue, here's what we're going to do. One, we have a trusted contact and we've already met their trusted contact to make sure if we're worried, we can have a conversation with their people that are going to watch out for them. Of course, we never do that without telling the client first that we're going to do that, also helping them simplify their finances over life. You accumulate all these 401ks and IRAs, and it's important to get it down to like one IRA, one Roth, one taxable account, one or two checking accounts, no more than that. Because the more simple you keep it, the less likely it is you're going to mess up something. The last thing I want to say, I'm putting a plug in for the CFP board. I serve on the CFP Board Resource Commission, and we have for the last year worked on a resource for financial advisors on how to work with clients to prepare for potential cognitive decline. And hopefully we get that resource guide out later this year.
- [24:47]
B
That's great. When you get that resource guide out, where will we be able to find it? And access it.
- [24:53]
C
Yep. It'll be on the CFP Board's website. And of course the CFP board, anytime they do something, they're very good about announcing it. And we'll have educational webinars and things like that to help people understand what we're saying and what they need to be doing.
- [25:07]
B
You know, one of the things that I've been wondering, and I'm wondering it both about my doctor and my financial advisor, like many people, I've chosen people to work with who are about my age. So they're aging with me. And I, I worry. If I'm worrying about my own cognitive decline, do I have to worry about the same thing in the professionals that I've chosen to work with? How do you suggest that people start recruiting a bench of potentially younger people that can start to sub in as needed?
- [25:44]
C
Oh, you're singing to my heart here. So it's on our agenda at the resource commission for the CFP Board is helping advisors prepare for their own potential cognitive decline. I feel that people should at least agree to undergo testing if there's a concern. I wish they do that in politicians too. Right. But you should be asking your financial, financial planners and your doctors, you know, kind of what's your succession plan? With doctors it's fairly easy because they're not doing an ongoing taking care of your money. You can eventually just switch to somebody younger in the practice with financial advisors. You want to ask them what are you doing to build out your bench? Or if they're not doing that, make sure that you've identified younger advisors that you can switch to once you're concerned that your financial advisors is starting to have problems. You know, the problem with both medicine and finance and law and politics is people can do it and do it very well until their 70s or 80s if they take good care of themselves. This is why I'm not into hard policies on age that people should quit. But I think that people should be able to subject themselves to testing so that there's no question that they're totally capable of continuing in their profession.
- [26:57]
B
Health care cost inflation has been an issue over the last decade or so. It's expected to remain high. When we look at the projected long term inflation rate, it's 5.8%. And that's based on a 65 year old couple retiring this year with average health costs. This is data from a firm called HealthView Services. Social Security COLAs aren't expected to keep up with that. They're projected to rise by only about half that much. If you are looking at women in their 40s and their 50s who are still in the planning phase, what steps do we need to take now in order to mitigate the fact that healthcare is likely to cost us more in the future?
- [27:47]
C
Well, see, I take issue with these statistics because, one, you can't predict the future. Part of my training originally is complex adaptive system science, which is a fancy way of saying we don't know what we don't know. And if you go back and look 20 years ago at what they were projecting for healthcare costs and things like that, it's been very variable. And if healthcare costs continue to rise higher than inflation, general inflation, then at some point it's gonna take more and more of our GDP. Like right now, I think GDP, healthcare GDP is about 19% of GDP. And I did a study once on, okay, if healthcare inflated at 7%, it would consume 50% of GDP in 25 years. That's not sustainable. Something has to give. And so in this country, our healthcare system is way more expensive than any other country. So I hate to make people worry about these unmitigated healthcare inflation statistics when the system's gonna fall apart at some point and we're gonna have to either have universal healthcare, universal primary care, something to reduce the cost. So you help people plan, but I help them plan for it just like any other expense.
- [29:03]
B
A fair point. So as we take a step back and help people plan for the expenses that are likely to come writ large, if you could leave our listeners with a couple of suggestions for designing a retirement that will keep them healthy in both a financial sense and a physical sense, what would that be?
- [29:30]
C
So, first off, become an engaged patient. So you need to understand why your doctor does what they do and question them about it and make sure it's right for you. So much of medicine is now cookie cutter because doctors aren't given the time to do real health care. And so you have to take control of that. So that's the number one thing as far as the healthcare costs and helping mitigate healthcare costs. Two, don't always think that more is better. We overuse medicine in this country. So be realistic about what they're offering and whether those things that they're offering are really the benefit is worth the cost to you, both financially and from a time perspective and from a worry perspective. So that's on the healthcare front. On the regular personal finance side, the most important thing is understand your spending. People are so worried about how much they've saved or how much they're making on their investments when the most important equation on a successful retirement is controlling your spending. And so we make clients break their spending down into the needs versus wants. What is it that you need to absolutely be okay? And do you have the resources to meet those needs in the future? And then what are your wants? That's the money above and beyond. And when the world is doing great, you can spend more money on those wants. When the world is contracting, let's say we're having a recession, maybe those are the things that you're willing to cut back. So learning to understand your spending and then being flexible with adjusting your spending as the economy adjusts.
- [31:09]
B
Amazing. Thank you so much Dr. Dr. Carolyn McClanahan. I appreciate you being here and thank you for the conversation. If people want to learn more about you and your work, where should I send them?
- [31:22]
C
Well, so my company is lifeplanningpartners.com that's easy. And then I have my personal website is Carolyn McClanahan.com. that's pretty easy too.
- [31:30]
B
And if you're looking for more resources to help plan for retirement, you can also visit Limra's website at Limerick and where you'll find tips and tools and research and more, all aimed at helping you step confidently into your next chapter. Also, don't forget to check out the healthcare and aging game plan worksheet that I mentioned to help you better prepare for health related expenses in retirement. Once again, we'll link to that in the show notes. Thank you so much Carol Jean.
- [32:04]
C
Thank you so much for having me. It's always a pleasure.
- [32:07]
B
Have a great day everybody. And before we go, if you love today's episode, please take a moment to leave us a five star review on Apple Podcast. Your feedback means the world to me, but it also helps other women find the show. And if you're ready to grow your investing skills and make smarter decisions with your money, come join Investing Investing Fix, our twice monthly Women Only investing club. Expert stock pickers bring ideas to the table and together we help build a portfolio. Since launching four years ago, we've built a strong track record and more importantly, a community of women who are learning and winning together. Tap the link in the show notes to check out Investing Fix today. Your first two classes are always free. Her Money is produced by Hayley Pascalides and our music is provided by Video Helper. Thanks for listening and we'll talk soon.
- [33:03]
A
Hey, I'm Seth Schachner. Check out my new show, Breaking down the Biz. Every week I sit down with people who actually make movies music and media happen. Executives from Sony, Universal, Apple, NBC. Together we cut through industry jargon and hype to show you how the business is built, what's key to making everything come together, and why it matters to you. From itunes impact on the music industry to the advent of AI from the Taylor Swift ticket sales fiasco to Bad Bunny's meteoric rise, we break down the stories, the numbers and the negotiations that shape the industry. I've been in the trenches of the entertainment industry for several decades, with leadership roles at companies like Sony, Paramount and Jive Records. My guests and I are going to provide the same thoughtful, concise insights that I'm trusted to bring on TV networks like CNN and NBC surrounding the industry and its culture. Defining Moments we'll touch on the business of music, filmmaking and streaming and the emerging technology of our time. If you've ever wondered what really happens behind the scenes of the entertainment business, this is a bite sized insider guide. Subscribe now on your favorite platform, podcast platform or watch us on YouTube so you never miss a beat. Let's make sense of this industry together.