In my book MONEYWISE, I equate wealth to freedom. Freedom to do what you want to do (within the laws of the land), and freedom to make active decisions. This weekend a more mature series of thoughts became clear to me. My good wife, Ruth, had surgery on her left hand and wrist, temporarily reducing her ability to dress herself, prepare meals and drive. She is a very dynamic person who is highly independent by nature. She will be partially constrained for a period of up to eight weeks and will be dependent on her sisters, various friends, some of our office staff and her klutz of a husband. Her life over the next several weeks however, will be much easier than most others that have limited support available to them. Nevertheless, she will involuntarily give up some of her prized independence for dependence on others.
Whether we like it or not we are all aging, some fighting it along the way. What is clear by observation is that all of us will be giving up some independence over time. As an investment animal, the need for significant resources to pay for dependence is becoming graphically clear. The kind of temporary, or more frightening, permanent help with life’s functions and some remaining pleasures, will be expensive in both monetary and perhaps family terms. Those with limited means may become dependent on various government transfer payments to senior citizen aid programs. However, these will be limited by budgets, the availability of trained and compassionate home health care aides, and the baby boom population echo. Bottom line, the public funds will be inadequate to meet the personal needs of those without any resources. But it is the larger middle class who will be in the worst shape. They don’t have the resources to independently fund all of their needs and will have too many resources to fully qualify for forms of government aid without disposing of most of their tangible assets.
Well, smart guy investment animal, what are you going to do about it? My book, MONEYWISE, does start to answer the problem. In the book, I advocate the drawing up of a personal balance sheet that recognizes the reserve, or if you prefer the debt, for one’s own retirement. Hopefully the debt includes looking after one’s spouse or significant other. After my experience this weekend, as well as the observations of others, a commercially purchased or self-funded long-term care medical plan is likely to be insufficient to cover all of the needs of incapacitated people. I am not to the point of identifying the need for round-the-clock nursing, however, I recognize the need for a daily visitor to minister to the non-medical needs. Depending on the length of the visit, from one or more hours to a full day’s tour of duty, today’s cost would be well into five figures and perhaps into six figures, multiplied by the number of remaining years. Most people have not set aside money for this need in addition to their long term medical needs. Each person, perhaps aided by their trusted lawyer, accountant, and/or investment adviser or other elder care expert, should determine the amount of capital needed to be assigned to the retirement reserve.
The investment of the retirement reserve puts the investor in a very uncomfortable position. We are led to believe that the higher the potential return from investing the likelier the risk of permanent loss of capital. By adding this uncertainty to the uncertainties of quality of life (as well as length of life), leads to difficult decisions for each of us. Despite the difficulty in making these decisions, we have no choice. Not making a choice is no choice, and losses the benefits of compound interest rates to grow capital.
The realization of the need to add to our own retirement capital base is going to force us to invest more and to spend less. On a worldwide basis, retirement capital is way below the level needed to produce the retirement spending that we may feel is essential. The problem won’t go away and just gets bigger every day. This recognition is why I believe that more and more money will go into the investment channels on a secular basis around the world. Thus, I am long term bullish on security prices.
As these thoughts are being written on Mother’s Day in the US, we should start to help our Mothers and the Mothers of our children and grandchildren.
p.s. Ruth is getting better if for no other reason than self defense.