Q. I intend to retire in 2002 at the age of 62. Our house is paid for and is worth $200,000. We will be free of consumer debt when I retire except for a home equity loan of $18,000. My husband is 70 and has been retired for 5 years. Both of us will be receiving annuity pensions and Social Security. We presently have $375,000 in IRA and 403b funds.

I am interested in health-care cost protection in the future, yet feel the long term health-care industry is in turmoil. Would it be too risky if I were to open a Wilshire 5000 taxable no-load fund costing about $2,000 to open and invest $100 per month by direct deposit?

---J.M., by e-mail


A. Whatever you do, it will be a gamble although it may not seem that way from advertisements you are receiving. In the last two weeks, for instance, one advertisement (John Hancock Life Insurance) told me that 48.6 percent of people 65 and older "may spend time in a nursing home." Another (GE Capital Assurance) said "43 percent of Americans over 65 will spend some time in a nursing home."

I believe these advertisements are a misuse of statistics.

Many, many older Americans spend "some time" in a nursing home when they are recovering from a major illness. Of those spending time in a nursing home; many will be there for three months or less. Often, Medicare sends seniors to a nursing home for rehabilitation--- and Medicare pays the bill for up to 100 days. Your financial exposure begins when Medicare no longer pays the bill and you are looking at daily expenses in excess of $100 a day.  

The real issue isn't how many people spend "some time" in a nursing home--- it is what are the odds that you will take up long-term residence?

So let's take a look at some real numbers. In 1977 some 23.5 million people in the United States were 65 and over. Only 1.3 million of them were nursing home residents--- that's 5.5 percent. By 1995 the 65 and over population had risen to 33.5 million and only 1.5 million of them were nursing home residents. That's only 4.6 percent.

In other words, the need for nursing home care for elderly people, as a whole, has actually declined.

Among those 65-74 only1.3 percent were nursing home residents. The figure rises to 5.3 percent for those 75-84. Then it zooms to 15.3 percent for those 85 or over, the so-called "old-old."   If you visit a nursing home you will find that women outnumber men by about 3 to1. In 1995 only 342,700 of the 13.7 million men 65 and over were in nursing homes while about one million of the 19.8 million women 65 and over were in nursing homes.

This happens because women outlive men. A 65-year old man, for instance, has only a 39 percent chance of living to age 85, when the odds of needing to live in a nursing home rise substantially. A 65-year old woman has a 56 percent chance living to age 85.

Bottom line: while the financial risks are very real, having these expenses is not inevitable. Many men and many women manage to live out their lives without the expense and experience of skilled nursing.

What to do about the risks?

I like your idea of a separate investment account. Assuming a growth rate of 10 percent a year it would grow to nearly $50,000 by the time your husband is 85 and $124,000 by the time you are 85. Either sum would be a great nest egg for major health expenses.

  Another option would be to make an agreement with your husband. If one of you needs to live in a nursing home, you will sell your house and use the proceeds to pay for nursing home expenses for the infirm spouse. The same fund will pay for replacement shelter for the spouse who is still capable of living on his own.   Flexibility can be as important as insurance.