by Archie M. Richards, Jr., CFP^®
July 16, 2001

Kevin N. Tucker, CFP^®, of Topeka, Kansas, writes: "I read your recent article suggesting that people qualify for Medicaid by making gifts to reduce their assets. You should point out to your readers that they are thereby shifting responsibility from themselves to taxpayers. Many people find this morally reprehensible. When I explain this to my financial planning clients, they usually say something like, "Oh, I guess I didn't think about it that way before." We then look at other ways of planning for long term needs.

The more people take responsibility for themselves, the freer they are from government force. When governmental services are taken over by the private sector, the costs generally fall by half and the quality doubles. Showing people how to solve their own problems helps reverse the belief that government owes us and that government will solve our problems. It won't."

Robert writes that his wife, 53 years old, is 85 percent paralyzed from multiple sclerosis. Robert, 63, is required to be on the road six days a week. They've had a live-in helper for five years. "If something happens to the help," he says, "I will have to choose between early retirement or a nursing home for my wife."

Their net worth is $275,000. Having no children, they feel no need to preserve their assets beyond their lifetimes. Robert says, "I dread the thought of living in poverty in my old age."

I'm sorry about your wife's illness, Robert. This is a time for both of you to relive your most joyful memories. It is a time to express your fears about what's on the other side of the great divide. It is a time to express anger, resentment, and envy about your respective prospects, even though neither one of you is at fault. It's the perfect time to watch Abbott and Costello and to read Dr. Suess together.

It is right for you to mourn the possibility of parting from your wife and for your wife to mourn her loss of control and premature loss of life. It is right for you both to weep. It is right to discuss and feel comfortable about what you yourself may do as the survivor.

This may be the most enriching time of your lives.

If you're like many other Americans of your age, and perhaps a little older, your parents were deeply affected by the Great Depression, when despair ruled the land. I'm only guessing, Robert, but some of the despair your parents felt about being poor may have been internalized by you.

Despair impairs good judgment. It creates an enclave of emotions that make it difficult to face reality. A person feeling despair finds it hard to do the best he can and to accept what happens with composure. Hidden emotions about poverty make the adjustment to bad luck far more difficult.

None of these emotions are easy to confront. If difficulties arise, seek assistance from a minister or a mental health professional. I certainly would.

Now for the finances. Don't invest for income; go for growth. Use broad, no-load index funds. Diversify to several asset classes, including domestic, foreign, and REITs stocks. Place no more than 20 percent in bonds, preferably in an IRA, to defer the tax. Hold no cash. When the market falls, don't sell.

If your live-in assistant departs, pay what you must to hire another. Continue working, if you can, for seven more years. You could support yourself and your wife and pay all income taxes. Regular withdrawals from capital would pay the live-in assistant.

Since 1946, stocks have returned more than 12 percent a year. During the next ten years, I expect this rate to be exceeded. The chances are that the capital would continue growing, despite the withdrawals.

At age 70, become your wife's live-in assistant. Continued withdrawals should still enable your capital to increase or at least to diminish slowly. Eventually, you might purchase an annuity that provides income you cannot outlive.

Financially, the picture is far from bleak. And during the next ten years or so, I expect living costs to fall and a cure for MS to be found. All the best to you both.