John, Doug, and Ben were all neighbors in a typical working-class neighborhood in Philadelphia, Pennsylvania. They had all grown up together, best friends since childhood.
John had always been taught to be careful with his money., saving for the proverbial rainy day. If she didn’t have enough money to pay for something in cash, she got by without it. His vacations, if any, consisted of visiting friends in other states, sleeping in their guest rooms. She married early, and both he and his wife, Ethel, shared his frugal philosophy. Sharing a single tea bag was typical of how they saved money. Over the years, they managed to amass a significant financial cushion, but by no means huge. His house was finally paid off, and by delaying his first Social Security bill until age 70, John was able to continue his working years and increase his monthly Social Security checks.
Doug, on the other hand, lived it at every opportunity., thinking you never know when your number might be called, so why bother saving? Her vacations included gambling sprees in Las Vegas, luxurious resorts in Hawaii and long ski trips to Vail. His wife, Madge, also shared her philosophy, and she was never chided for running up her credit card bill with numerous purchases of clothing and jewelry that she simply “had” to have. To pay for all their travel and shopping, Doug and Madge refinanced their house several times, always trying to get more cash out of their deals each time. By retiring early, Doug gave up the opportunity to spend a little more in his bank account, but at this point in his life he had finally begun to slow down, and such fast living had taken its toll.
Ben was luckier than his friends John and Doug, inheriting a sizeable fortune at the age of 28. He worked for a local publisher, but never had to worry too much about where his next dollar was coming from. Ben was always a big eater, often having a huge steak late at night, a second dinner, really. Unfortunately, Ben’s health began to decline when he was in his early 60s and he had to undergo a quintuple bypass at age 68. Lucky for him, Medicare fully covered the $100,000 cost, so he didn’t even have to touch his family’s wealth.
DougHis physical health was good, but as time went on he became increasingly forgetful. Eventually, he was diagnosed with Alzheimer’s disease and settled in a nearby nursing home that specialized in Alzheimer’s patients. The cost of $220 per day was covered entirely by Medicaid, the federal program that pays for long-term care for the indigent. Eventually, Madge had to sell the house to move into assisted living, and what little equity he had built up was used to pay off credit card debt.
What about John? Through his prudence and frugality, he had managed to amass over $300,000, not bad for a guy from the inner city. Plus, after 30 years, he had finally paid off her house, so he and Ethel owned it free and clean. They hoped and hoped one day to pass it on to his three beautiful children, as a legacy.
Unfortunately, John suffered a fall at age 70, and his health went downhill from that point on. He had to move out of his house to a nearby nursing home, where Ethel could visit him frequently. The monthly cost of the nursing home was in excess of $7,500 per month. Due to John’s accumulated assets, he was unable to qualify for Medicaid and had to pay privately. His wife could barely survive on the money left at the end of the month after paying all the expenses. Her constant worry about finances and John’s condition took its toll, and she died with John still in the nursing home.
After about four years of nursing home bills, John’s life savings had been completely depleted and he finally qualified for Medicaid. Title to the house had passed to John on Ethel’s death by operation of law, since they owned it in common. The house was an exempt asset and did not have to be sold to pay for John’s care. However, after his death three years later, estate recovery — the federally mandated program to recoup Medicaid expenses after someone’s death — forced him to sell his home to pay the state back, and their children have nothing.
Ben, the rich friend, managed to go on living for many years after his heart bypass. Lucky for him that the government never considered his wealth when paying for his operation!
Doug he managed to squander all the money he ever had, and the government voluntarily paid for his nursing home care. After all, he was broke — what else can you do?
Finally, John also died penniless., leaving his children nothing, after a lifetime of conservative and frugal living. Why had she bothered herself? He and his friend Doug ended up in the same situation, in the end!
A senior citizen attorney could have helped John preserve his life savings. and also protected his house. Unfortunately, this was an area where John’s caution and frugality worked against him (he hated paying lawyers what he considered outrageously excessive fees) and his children ended up with nothing.