Nursing care is often not considered when planning for retirement.
“As we get older…” That’s a phrase many of us in advanced age brackets quickly learn to loath as doctors and other health professionals use it to explain why this, that and the other doesn’t work like it once did.
It can also be a reminder of another reality many farmers and their spouses will face: Finding the money to pay for the long-term care they might need after they reach retirement age or encounter health difficulties they can’t deal with by themselves.
With nursing home costs reaching as much as $100,000 a year farm families can quickly run through their savings. But not all farm families will be affected the same way when it comes to long-term care, according to Robert Moore, attorney and research specialist with the Agriculture and Resource Law Program at the Ohio State University.
Before Moore joined Ohio State, he was in private practice for 18 years, working primarily with farmers on estate planning in Ohio, as he explained in a presentation for a National Agricultural Law Center webinar earlier this year.
“When I would talk about long-term care with clients, it would be in the context of a nursing home because that was long-term care to me,” he said. “But that’s not necessarily the case as long-term care can be provided at home.
“It was a topic that I always wanted to do more research on and learn more about it,” he said. “But, if you’ve ever been in private law practice, the next billable hour rules your life. The National Agricultural Library at USDA and the National Ag Law Center have been great partners who have helped us do the kind of research needed for this presentation.”
Elder care
While most of us can’t do much about getting older, some farm families may be able to rely on community services such as home health care, transportation providers, Meals on Wheels, etc., rather than having to enter an assisted living facility.
“When we think about long-term care we need to think about it in a bigger context than an assisted living facility,” Moore said.
Long-term care costs can range from $60,000 a year for a category called homemaker services where someone would come to the home 44 hours per week to more than $100,000 a year for a patient in a private nursing home room.
“There is an annual survey done by Genworth Financial Inc., which seems to be the gold standard in the industry,” he said. “You can Google it and look at it for your state. Ohio is a little lower than the national average and some states are quite a bit higher. Rural areas also seem to be somewhat lower.”
So, who’s going to need long-term care services? The Administration for Community Living, a federal agency, says someone who is 65 years old today will have a 69% chance of needing some type of long-term care services. Of those 69% women will need an average of 3.7 years in long-term care services and men 2.2 years.
“This is another statistic that I had kind of gotten wrong,” he noted. “As I was working with clients, I would often use the statistic that the average nursing home stay was 2.2 years, and, again, long-term care includes things other than nursing homes. That’s true for men, but it’s 3.7 years for women because they tend to live longer than men.
“The third point you need to keep in mind is that about 20% of the elderly will need long-term care services for longer than five years. And this is the group that needs more aggressive planning.”
Cost of care
Of the average of three years of long-term care that 69% of men and women what does that consist of? Two of the three years will be at-home care with one year of unpaid care by spouses or other family members and the second year will be paid care.
“Keep in mind this at home paid care will be at the $59,000 to $60,000 range,” he said. “Only one year is in a facility, which is usually a nursing home and that could cost $90,000 to $100,000 for a year.
“As I was looking at this research, I was pleasantly surprised that not all long-term care is in a nursing home and some of the long-term care that’s at home is unpaid. On the other hand, when we talk about that 69% chance, 31% will never have any long-term care costs, and we all hope we’re in that category;”
For those who are in the 69% category the average cost works out to about $150,000 for one year of paid in-home care and one year of nursing home care. “I think a lot of farms can absorb $150,000 of long-term care expenses without having to sell farm assets, particularly land.
“What we worry about is this 20% that will require long-term care for longer than five years,” he said. “If we assume one of the five years is no-cost-at-home care, the remaining four years or so could cost $250,000 to $450,000 to $500,000. Many farms cannot absorb $500,000. Some can, but I would say the majority cannot. So, this outlier scenario is a risk to our farming operations.”
The Census of Agriculture says the average farm has about $200,000 of non-real estate farm equity so the average operation could pay $150,000 for the expenses in that average of the 69% group.
“It’s when we get into this outlier scenario that problems arise,” he noted. “We all know someone that’s been in a nursing home for a long time, and 10 years in a nursing home, according to these figures, could cost $900,000 to $1 million. My research has shown the average long-term care case does not jeopardize most farms – the outlier scenario does.”
Preparation
If you think you might be destined to be in the latter, how can you prepare?
Long-term care insurance. “Statistics show well short of half of individuals have long-term care insurance,” Moore said. “It is expensive and not everyone can qualify for the insurance because of pre-existing conditions. But it can be a factor in your planning.”
After-tax income. “You have to use after-tax income in your planning because the taxes come out first,” he noted. “But most people will have some income in their retirement – IRAs, 401ks, land rent, Social Security benefits. These should be factored into the planning.”
Savings/Financial Resources. Most farmers have savings that can be drawn on.
Non-real estate farm assets. “My experience is that after those assets run out, we will probably sell machinery, livestock, crops,” he noted.
Real estate. “The last asset that’s going to be sold to pay for long term care is almost always real estate,” he said. “As you all know, it’s the land that matters above all else.”
Medicare and Medicaid. Medicare does not pay for long-term facility stays. Medicaid does, but, as they say, it’s complicated. Farmers may need help in navigating the rules, particularly those governing improper transfers of assets.
The important thing is that farmers visit with their attorneys, accountants or financial planning specialists and perform a risk assessment to determine how they can best prepare for the family’s long-term care needs.
“For some farmers that may be a wait-and-see approach to determine whether they will need the more expensive forms of care,” he said. “For others, they may need to be thinking of which assets they are prepared to sell if their long-term care costs may fall in the more expensive, extended stays.
“I can tell you from experience some law firms have ‘cookie-cutter’ long-term care plans that don’t always work for every farm. That’s why I want to emphasize this assessment needs to be done on a case-by-case-basis. Farmers have little control over the long-term care they may need, but they do have options for how to plan for those costs.”
