Boomers are overconfident about their ability to withstand long term care events in retirement, according to new research from Lincoln Financial Group.
Lincoln Retirement Institute, a research arm of Lincoln Financial, Philadelphia, found 59% of boomers think other people should prepare for the possibility of needing long term care by purchasing insurance. Yet many are not using insurance as part of their own preparations.
Although 85% agreed it would be prudent to buy LTCI for themselves or their loved ones, 46% had no plans to do so.
When asked what they are doing to prepare themselves for potential LTC needs in the future, respondents cited such uncertain precautions as maintaining a healthy lifestyle (54%), investing to get the highest possible return (40%) and saving additional money to cover LTC (39%).
As a further sign of their overconfidence, more than 40% estimated the average 65-year-old has a 60% chance of needing LTC for 3 months or more at some time, but only 30% said they themselves run the same risk.
Boomers listed their top 3 financial planning goals as having enough saved or invested to last as long as they live (98% of respondents listed this as important), being able to afford adequate health care (97%) and making sure they don’t rely on family for financial help (96%).
More than 80% of the boomers surveyed said they know that LTC costs could reduce their retirement income and assets significantly. Furthermore, 66% said the cost of LTC could force them to sell their home. Yet 73% plan to use their savings or investments rather than insurance to cover these costs.
Among those surveyed, 80% think others would use Medicare, Medicaid and the equity in their home to fund LTC costs, while 92% assumed others would use savings or investments to pay these costs.
When asked how they would pay for LTC for themselves, however, 49% said they would use Medicare, and 45% said they would use health insurance. Boomers apparently don’t realize the limits these sources have for covering LTC costs, Lincoln Financial points out.
About 25% said they plan to use Medicaid to help with these expenses–some perhaps not realizing they’d practically have to exhaust their assets to do so, Lincoln Financial noted.
“The survey discovered boomers have a learning curve when it comes to understanding the scope of coverage Medicare and Medicaid provide for long term care needs,” said Bobby Greenberg, director of the Lincoln Retirement Institute.
When asked to assess their retirement planning efforts, 6 in 10 said they have calculated how much money they would need for retirement, and two-thirds reported they had developed financial plans, although just a little more than half said their plan was actually written.
In addition, 62% said they had considered home care costs and 58% had considered nursing-home expenses as they developed their retirement plans.
Yet 65% thought if they ever needed LTC, the costs ultimately could force them to sell their homes.
Although 33% said they had talked to family members about what would happen as they aged, 57% expected family to be involved in managing their nursing care should they need it.
Among those who said they had completed a financial plan, 95% had made plans for income for life, while 91% had included a standard of living for a surviving spouse in their planning.
Lincoln Financial also asked advisors to evaluate boomers’ LTC planning and found about two-thirds believe home equity and Medicaid are common methods of paying for LTC. About half thought boomers would turn to Medicare.
Advisors estimated that 67% of their clients had less than $500,000 in savings and investments. Lincoln calculates that this would cover home care costs for one person for less than 3 years.
When meeting with clients, 85% of advisors said they discussed day-to-day health care costs and 80% talked about costs of nursing care. In addition, 88% of advisors said they expect their clients’ needs for LTC will rise over the next 10 years.