Recent research has shown the anxiety of running out of money during retirement is a major concern for those close to retirement or already retired. 41% of CPA financial planners say running out of money is their clients’ top concern about retirement—including those clients who have a high net worth, according to a survey conducted recently by the American Institute of Certified Public Accountants (AICPA).
The costs of future Long-Term Care is a big factor as many people have not put an advance plan into place. Part of the reason for this is the lack of personal awareness of the issue. Few adults have taken any action toward planning for the financial costs and burdens of aging. These long-term care expenses will have a tremendous impact on a person’s savings. Only 1 in 5 adults have made any planning for long-term care according to a new survey from Genworth Financial a major insurance company who specializes in Long-Term Care Insurance products. Half of the survey’s respondents said they plan to take personal financial responsibility for their own care as they age.
“The elderly are living longer than their projected longevity and, as a result, are running out of money,” said Susan Tillery, CPA/PFS, chair of the AICPA’s PFS Credential Committee as quoted in the Journal of Accountancy (www.journalofaccountancy.com).
“The fear of running out of money in retirement has always been present. However, we are at a demographic crossroads where the Baby Boomers, who hold the largest amount of retirement assets, are supporting both their parents and their children. This has amplified the fear,” she said.
52% of those surveyed baby boomers in the Genworth study thought they will require long-term care services down the road. Millennials, on the other hand, were more realistic: 64% of this group, born between the 1980s and late ‘90s or early 2000s, said they could see themselves needing long-term care at some point in their lifetime. While this might be more realistic the fact is 70% of people who reach the age of 65 will need long-term care services at some point in their lives, according to the United States Department of Health and Human Services. Other studies also show high risk with advances in medical science increasing longevity this increasing the need for people to need help with normal activities of daily living or even supervision due to memory loss like Alzheimer’s.
The Genworth research indicates Generation X was the most fearful about paying for long-term care, but also the most likely not to have taken any action towards paying for it in the future. Often the parents of Generation X and Late-Boomers have already gone through or receiving long-term care. Perhaps this fear has paralyzed many people from taking any action.
“Most of my clients today are in their early 50’s to early 60’s,” said Brent Donarski, a Long-Term Care Specialist who has been helping consumers since 1988. He says many people he speaks with have had an experience of a parent needing long-term care. This experience has exposed the financial costs and emotional impact that a Long-Term care event can have on parent’s assets. They also have experienced the pressure of either being a caregiver or managing caregiving for their parent.
“People often share with me what it means being a son, daughter, or in-law, and having the responsibility to their own family, career, and dealing with a parent who needs care and attention. They share with me they don’t want to place this burden on their own family,” Donarski said.
To many people wait until their good health begins to change. This creates a wake-up call, but generally this is not the best time to start planning.
“When people start investigating long-term care insurance, after they have experienced a health event or health change it's often too late or makes planning options much more expensive. The best time to plan is when you are younger and healthier, since you have more options and they are very affordable. This has to be part of a complete retirement plan before you retire,” he explained.
Millennials were also the most likely not to expect the government to cover the cost of their long-term care. Two out of three adults said they expected U.S. government programs to cover the costs of their long-term care services, even if this isn’t the situation in reality. 45% of the respondents confused Medicare for Medicaid, or admitted they didn’t know the difference between the two, the survey said.
Health insurance will pay only for a short period of skilled long-term care services, generally things like rehabilitation. Medicare (and Medicare Supplements), which is health insurance for those 65 and older will only pay for 100 days of skilled long-term care services. Most long-term care is custodial in nature. This is defined as help with ADL’s (activities of daily living) or supervision due to memory loss.
Medicaid, is the government medical welfare program. This program will only pay for long-term care services if you are poor.
Long-Term Care Insurance will pay for these services. While more people are purchasing these plans in their late 40’s or 50’s before they retire many people are either unaware the product exists or fail to understand the need for the product. This is a plan for financial stress and emotional impact on family.
“Long-Term Care Insurance is really easy to understand. The challenge is, many insurance agents and financial advisors, don’t fully understand all the product offerings or the underwriting process. People I speak with find it easy to understand and more affordable than they originally thought,” Donarski said.
The American Association for Long-Term Care Insurance (AALTCI), a national consumer advocacy and education group, recommends working with a specialist when researching and shopping for LTC Insurance. There are ways to find very affordable coverage and take advantage of discounts and cost savings features.
“Consumers are not aware of ways to save on long-term care insurance and regrettably many agents do not share an opportunity worth considering,” shares Jesse Slome, director of the AALTCI.
“Too many inexperienced insurance agents today take an ‘off the shelf’ approach to recommending a long-term care insurance policy,” Slome notes. “Today, a consumer will really benefit by working with a specialist who has knowledge of all the major insurers, their provisions and requirements — the small print that few take the time to learn.”