The Biggest Threat to American Retirement Savings

Good morning,

Although I'm English and therefore perhaps won't understand fully the American health care system, I had a great discussion the other day with an American about the Medicare system and the potential threats there are to the savings of those leading into retirement.


The threat I felt was the most prevalent to the wealth of the majority of the retired was that of elderly care costs, which ironically was something that wasn't touched on for even a moment in any of the courses I've attended with asset managers.

The even bigger irony though is that your financial advisor can spend as much time as they like focussed on the creation and maximisation of wealth, only to have it eroded with the return on equity levels they've dreamed of delivering for their customers.


The reason that I feel elderly care costs are such a potential wealth time bomb in the USA is because currently there is no health insurance that covers elderly care costs. According to Bernard Krooks (the USA's nationally recognised expert in elder and special needs law), the biggest misconception that most Americans have is that Medicare or the government will take care of them as they age, which is simply not the case in regards to chronic illnesses like Dementia, Parkinson's Disease, etc.

This combined with the average cost of elderly care exceeding $100,000 and even exceeding $300,000-400,000 in metropolitan areas, means that even high levels of retirement wealth have the potential to be brought down to soberingly low levels by elderly care costs.

It's not even as if this is a danger to only a few Americans, as it's estimated that 70% of the retired will acquire some form of chronic disease.


I should point out now that (as far as I am aware) Medicare will still cover some of the costs of acute illnesses under something called "skilled nursing care", which would be rehabilitation costs from a heart attack or stroke, for example.


Now, this isn't to say that wealth accumulation isn't important (in my line of work it's incredibly important), but both advisors and clients always need to ensure that the more unpopular discussion points like elderly care costs are discussed, along with other important issues like rights of attorney over the wealth and care of individuals with chronic diseases.

Rights of attorney are especially important to discuss early on with your advisor, because obviously they can't be discussed once a chronic illness has really set in. The Terri Schiavo case should be seen as a warning for us all.


I suppose the best way to sum up this short diatribe would be with a quote from J.M. Barrie's Peter Pan:


"I suppose it's like the ticking crocodile, isn't it? Time is chasing after all of us."


The Masked AIM Trader