This was changed in Nova Scotia about 10 years ago when it was as you describe. Take this scenario: Mom and Dad own a house jointly (and in Canada without any deduction for interest most folks do own. Joint ownership simplifies the death of one -- the other owns without further probate).

Dad goes into a nursing home. A means test then determines how much Mom pays for Dad, bearing in mind that the expenses of living in the home must be covered (the fee can't starve Mom in the cold and dark). When Dad dies, Mom can sell the house -- it's hers. When she goes to a nursing home, she pays out of those funds. When she dies, her will says where the residue goes. If she runs out of money, the Province picks up the tab.

The only alternative is this: at least three years before commitment to geriatric care, you give away your money to your kids -- you can't do it after that to escape paying or the kids will have to pony up. I knew an old rather well-off guy (now deceased) who gave his 5 kids huge cash Christmas and Birthday presents every year and signed over his home to them jointly years before he was likely to need care. The deal was that if he went broke before he died or needed geriatric care, the kids would pony up his living expenses between them (which, as it happens, they did). When he went into a nursing home, however, he was broke, so the kids were off the hook -- the Province paid.

I'm not an expert, so this is approximate.

In the U.S. there is medicaid for those poor folks who are not able to take care of themselves. This is the safety net similar to social security. However, medicaid requires that you wipe out your wealth before you are eligible. Thus transfer of assets to children is a practice here in the U.S. as well. It needs to be done at least 5 years before you need long term care. If the government detects that you have done this knowing that you will need long term care, they can sue you for the money that is required to take care of you.

I think it is somewhat of an oxymoron because you work and save your entire life so that you can enjoy it in your retirement years but then the policy and tax laws are designed such that you have to give it away to be able to take care of yourself if something goes wrong. But with proper planning, it doesn't have to be that way.

The best thing to do is to keep your debt to income ratio below 28% so that you can manage financial risks. The biggest risks in my mind are as follows:

Debt: this needs no explanation. Reduce it at all cost!!!
Lawsuit: A lawsuit has no maximum and thus can financially wipe you out. Get umbrella coverage to protect you in case you are sued. The big suits are death and dismemberment.
disability: Make sure you have enough coverage because if you lose your ability to work, you lose your ability to generate future wealth. Most of the time employers will give you 60% or so coverage, you should get supplemental insurance so that after taxes, you have at least 75% of your income. Also investigate long term insurance, it's expensive but well worth it in case you need it.
death: This is only important in the sense that if you have to take care of others. Remember, kids need to go to college, mortgage and so forth needs to get paid, etc... Get life insurance so that these things are covered in the event that you die.

So you must manage the risks and make sure that something doesn't financially wipe you out! In order to manage these risk, it cost $$$ and you can't do this with a bunch of debt or a high debt to income ratio. This is basically my financial philosophy.

A good one too. Not sure where the 28% comes from, but since I retired, I've never let it go over 10%. When I was consulting, years ago, I asked a financial advisor whether I needed malpractice insurance (as an Engineer). His advice was great: if it's cheap, you don't need it, but if it's expensive, you've got to have it! For Engineers it's cheap, so I never bought it.

28% comes from my own experience in funding these things adequately and having a cash flow after I get paid. I guess this number will change depending on what you are bringing in each month. Of course, it also assumes that you are able to provide for the basis necessities of life such as food, clothing, etc... and it assumes that you are still working.

Sounds like you are really thrifty from what I can gather. Was it >10% when you were working and taking care of other things such as kids, mortgage, and other things?

With a debt/income <10%, you should be in a good financial position. This sounds like a good number to strive for in retirement although I have to admit, I haven't really thought about what this number should be after one stops working.

Sure it was higher -- at several points in my life; getting a doctorate from MIT with a wife and two kids, first house --> house poor for a while, two kids in college simultaneously years later, buying a 28-foot ocean racing sailboat I lusted after but really couldn't afford, cam shaft self-destructing --> unanticipated new car -- but generally, having been raised through WWII and the years after, I've always saved to pay enough up front on purchases that the payments thereafter were well within my means and I had several months of living expenses in the bank. I'm fiscally conservative, in other words. Avoid limbs to get out on.

Not too different than US... 5 year lookback on houses and assets, spousal impoverishment rule keeps wife with roof and food and such. I think the spouse that did not go into the nursing home can live their until their death and then the state recoups their expenditures.

Would only add don't get caught without good health care insurance... half of all bankruptcies are related to health care costs. Rules for state (Medicaid) picking up your health care are as stringent as going into a nursing home. You can get Medicare if you become disabled, but not for two years... long enough to bankrupt you.

I carry a $1 million umbrella policy. Figure if they can sue for $1m they can sue for $10m, but at least the first $1m will pay for a team of good attorneys.

There is no such thing as perfect security... but you gotta try.

Nova, thanks for the insight. Currently, the best thing thing to come across in the U.S. is refinancing home mortgages at 5.3% or so. Anyone who qualifies for this should refinance NOW to help increase cash flow and reduce debt. From what I can read, these rates will be low for a while so it provides tremendous incentive for people to change their behavior and qualify for these low rates.

Not only incentive, Ron; absolutely the best move you can make assuming it nets out to a good deal (i.e. there aren't heavy penalty clauses for closing out), and given the times, changing spending habits (i.e., buying only what you can afford with a buffer) is good advice these days and for some time to come.

Because I'm financially and fiscally cautious, I've carried a credit card charge forward only a few times in my life and then by design (for example, I had to go to South Africa on business one time, but took my wife, stayed 2 weeks, rode the Blue Train from Cape Town to Pretoria, went on a 3-day safari with private guide through Kruger Park, and came home owing a ton, but my wife and I decided: "Once in a lifetime". We did roughly the same thing when I had to go to an international conference is Turkey -- stayed 16 days, and again when I had to go to Coventry, UK; stayed 10 days).

And, strongly consider a 15 or 20 year mortgage if the income can cover that without a problem (not really that much more). I would suggest having a mortgage free home upon retirement is a worthy goal and now is the perfect time to plan for that.

Most mortgages allow for a percentage overpayment (mine was 15% of the monthly payment in any month plus 15% of the residual debt one time in a year). I took a 20-year mortgage on the home I'm in (having put 60% down from the sale of my previous home) but then several pay raises made it possible to exercise the overpayment clause so I paid it off in 14 years. Now, 6 years into retirement, I'm really glad I did that because other than property taxes and occasional improvements, my house is not an expense.

What makes you think anyone working for a living can plan for that? If UAW workers take pay cuts, so will the rest of us not long after, and that does't include the cost of all of the bail outs. So much for any savings on mortgage payments.

Having worked for a living since I was 14, and having lived through quite a few economic inflations and recessions, I can testify that it's possible. The key of course, is to live within your means. For me, that meant driving cars until they were at least 8 - 10 years old, living with old-model stereo components that still worked, watching a curved screen CRT TV long after flat screened LCD models were available, repairing broken vacuum cleaners and other appliances instead of tossing them, upgrading computers with new drives, new CPUs, etc. instead of replacing them every few years -- you get the picture. I didn't believe that I had to have the latest and greatest of every new thing.

All well and good, but many of those things are not viable now. Most products are designed to cost more to fix than replace, and your premise is that we're going through an economic cycle instead of a seismic shift. Cycles aren't linear, but the flow of wealth sure seems to be.

Sure, if you let someone else fix them. I had an Electrolux 20 years ago that sucked up a nail which punctured the bag and trashed the suction fan's rotor. Standard repair? Replace the fan impeller, housing and motor (which appeared to be an integral part, but, in fact, the fan housing was press fitted onto the motor bell). I found a tedious but non-destructive way to remove the housing and rotor, found a shop that would order me a new rotor, replaced mine, remounted the housing, put it all back together and used it for years more. Total cost 15% of the cost of a new one and about 20% of the cost quoted for the repair.

Friends chided me with "How much is your time worth?", but I was very pleased with myself -- after all, it was done in my spare time.

I've rather save and invest the extra amount so that in 15 or 20 years I can pay it off anyway! Why would you want a more stringent requirement on your money? If you fall on hard times, you will not be able to get out of the agreement very easily. You will even find it difficult to get an equity line of credit even though you have more than enough equity in your home. I don't like the idea of my cash flow dollars being tied up in a house, particularly if I may need that money right away. In this day and age, your money needs flexibility, not rigidity! Set up the 30 year fix and if you want to pay extra, then do it on your own terms, not theirs.

That's why you are probably <10% debt/income. Nice planning. From the Blue train, it sounds like you are living the good life.:)

This statement lacks continuity and I don't really understand how a UAW worker's pay cut affects my ability to pay my mortgage. I believe you can plan and you should plan. That doesn't mean you will succeed. However, lack of a plan means that you will most likely NOT achieve your goals and you will fail because of it. Even if I lose my job, I can fall back on my investments to help me out. Yes, even with a 40% loss in my portfolio, I can still manage in rough times and I believe things will get better eventually.

UAW paycut -> Big 3 Supplier employee pay cuts -> employees of vendors to suppliers pay cuts -> retail pay cuts -> spreads across country. Business falls off even more, further cutting into your investments while also jeapardising your job.

Certainly agree one should not jeopardize their finances with a mortgage payment they could have trouble with. That said, a shorter term mortgage removes the temptation to spend that extra cash on a Bermuda cruise or new SUV. Some plans, like entering retirement with the house paid for, are mandatory if one wants to retire on the planned date.

I refinanced on a 15 year mortgage to have the home paid for at age 65. Decided to retire at 60, paid off the remaining balance and retired debt free. Would I have had the discipline to have made the extra payments? Probably, but who knows. Would I have invested the difference in the stock market? Probably.

Some investments are more important than others. In any case, it is definitely worth considering.

This picture rather sums up our recent discussion of the auto industry, don't you think?

Fantastically well!