Wednesday, March 30, 2005

One More Risk of Private Accounts

Social Security is the basic element of almost every American working person's retirement. It is what keeps most retirees out of abject poverty even when every other plan fails. Social Security cannot be taken away from you. In contrast, IRA's, 401(k)'s, 403(b)'s , and the various other types of retirement accounts are not as secure. CBS News reports on the danger.

In 20 states you don't get to keep your own 401(k) or IRA if your spouse becomes ill and needs Medicaid. The state will take your retirement funds. Of course, you can always divorce the spouse to protect your retirement funds. Your choice, then, is to surrender your retirement or give up your family.

This is what CBS News reported that Colorado state Medicaid director Vivianne Chamont said regarding the Walker's case:

"So maybe he needs to go back to work," says state Medicaid director Vivianne Chaumont. "Maybe he needs to make some adjustment to his life plan."

That may sound cold, but Chaumont says the Medicaid system, which was set up for the needy, is being overwhelmed.

"It is getting to be more and more a program for middle class, and as expenses go up, even higher than that," she says. "So let's recognize that, let's recognize it and build a program in a way that takes care of that in an honest fashion."

For spouses like Ken Walker, whose retirement funds have been gutted, she is sorry.

"It doesn't work for a lot of people," she says. "I think that's true. I think that's sad."

But several courts have said Medicaid officials can dip into healthy spouses' retirement savings, so expect more states to adopt laws like Colorado's.

(Underlining above is mine.)

When I checked with a local bankruptcy attorney, I found that the retirement accounts are excluded from assets considered if you go personally bankrupt. So far, at least. But these accounts are not always protected from other government requirements such as Medicaid.

Vivianne Chamont said it. Private retirement accounts don't work for a lot of people.


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