The most dangerous issue in retirement is one that is often overlooked or not given serious consideration: How will retirees pay for long-term care without destroying a lifetime of accumulated assets?
Over 70 million people will be over the age of 65 by 2030. That is nearly one of every five Americans. Long-term care will be a serious expense for everyone over age 65; it will be the most dangerous financial issue facing all Americans.
The U.S. Department of Health and Human Services forecasts that 70 percent of people who reach age 65 will require some type of long-term care and that care will last for an average of three years. At an average cost of $8,000 per month, or at least $100,000 per year, that works out to $300,000 needed to pay for long-term care.
If you apply only 3 percent inflation to those numbers, then the problem becomes enormous. We would need $16,000 per month, at least $200,000 per year, or an average of $600,000 per recipient by 2038.
Home care is equally expensive. Current costs range between $100,000 and $150,000 per year. Most people with Alzheimer’s are cared for at home. One third of Alzheimer’s cases last as long as five years. Family members are estimated to provide several billion dollars of non-paid care every year.
But those are merely the financial costs. For people who cannot afford help, the physical and emotional toll can be devastating. I have seen many cases where the caregiver gets so worn down that they pass away before the recipient of the care.
I know this seems like an enormous problem—and it is. But with proper planning and the correct use of leverage, these issues are not insurmountable. We can care for all of these people without bankrupting ourselves and our country if we start planning now. Planning is where our value lies. Please consider the following thoughts:
First, long-term care coverage is expensive and has experienced many rate increases in the industry’s search to price this coverage correctly. Many people worry that they will pay these expensive premiums for 20 years and then not use the coverage, and they would prefer to take their chances. To alleviate those fears, you could apply for a basic long-term care policy that pays some but not all of their long-term care costs. Do not put inflation protection on the plan, which will help to keep the premium reasonable and minimize future rate increases. Then, ask the client to reallocate funds from money markets, CDs and even other annuities into leveraged products like combo annuity/long-term care and combo life insurance/long-term care policies.
These leveraged products can provide 2 to 3 times the single premium in long-term care benefits. They will earn money market or CD returns and higher if interest rates increase. These combo products can be inflation protection for the basic policy, and they will answer the “what if I don’t use it?” question.
Second, agents and planners always think that the cost of coverage is the biggest deterrent to action. But I believe it is actually because our prospects and clients misunderstand what is provided by the coverage they already have. Many Americans do not plan for long-term care because they incorrectly think they have coverage under their insurance. Many Americans misunderstand Medicare and Medicaid. We must have discussions with our clients where we explain what is and is not covered by these programs.
Remember that this is a short article and there are many planning strategies. Our industry can help deal with this problem. We must let the American people know.