Q. Because some of us will have substantial retirement savings when we retire, should divorcing a medically ill spouse be part of retirement planning?
I'm not busting my butt now just to live in poverty because my lazy spouse doesn't want to take care of his health. He's not lazy, but for argument's sake, let's say he is.
What's the scoop on this?
A. This is a first: A tongue-in-cheek note on Medicaid with a serious twist.
I have a very simple perspective on Medicaid: The program is funded with taxpayer money that is supposed to go toward helping people who don't have much income or assets.
That includes everyone, from the poor to the average middle-class family that has modest savings wiped out by the high cost of aging. Medicaid isn't designed to be there for those skilled at transferring assets and manipulating their wealth.
That said, here is the basic idea behind a Medicaid divorce. The spouse that is going into the nursing home leaves all assets to the partner under the terms of the divorce decree. That way the healthier partner doesn't have to spend down assets so that the ill spouse can qualify for Medicaid. Sad to say, in some cases it probably is the right thing to do.
Still, I don't think a "Medicaid divorce" is a good retirement strategy, especially if you have kids. Medicaid is on to the tactic and is starting to challenge such arrangements when it looks like finances, not marital discord, is behind the breakup. Even more important, there are better alternatives - including getting your husband to the gym.
The alternative is to take financial planning seriously. Build up retirement savings, own your home, avoid credit card debt, invest in your education and networks. And as you get older you can look into products specifically designed for creating a steady stream of income in your elder years, such as a reverse mortgage and an immediate annuity.
An article by Minneapolis-based White Oaks Wealth Advisors Inc. concerning the implications of increased longevity put it well: "Your financial plan should be built around you and your spouse as a couple, with assets designed to last through the surviving spouse's life span." In other words, assuming that you want to stay together, build your financial plan around your marriage, not a divorce.
Here's another way of looking at it: Medicaid rules are incredibly complex. There is no way around it. Yet in essence the program is designed for the healthy partner to defray the cost of care for the ailing spouse. So, if you have kids, tell them that. You've raised them. You've educated them. You've taught them values. You sent them out into the world to make their own way with love and care. What they may not get from you is a financial inheritance. The money you've accumulated over the years is going toward your care. I'll bet they're fine with that. There even may come a day when they have to pony up - and that's OK, too.
Q. Are we crazy, taking on a new mortgage in retirement? I turn 65 this year and will retire. My wife is also 65, a retired teacher. We own good lake property with an old cabin that we would like to take down and replace with a new cabin for $400,000.
The cabin has been in our family for 50 years and we use it almost every weekend in the summer and on summer vacations. We have three grown children who also use the cabin. A new cabin will allow us to use it in the winter. The cabin and our main residence are one hour apart.
Our primary residence is paid for, and we have no debt.
A. You're definitely not crazy. What a wonderful retirement. You're going to get a new cabin that you'll enjoy, as well as your children and their kids.
If it were me, I would build the cabin and take out a mortgage. I don't see that there would be any problem with you taking out a mortgage.
However, I would still play with the financial figures. For space reasons I took out your numbers, but if I read the information right, the bottom line is that the monthly mortgage, upkeep and insurance will absorb about a third of your monthly income.