Like medical care, assisted living, in-home help and other forms of long-term care could become increasingly difficult for retiring baby boomers to afford. A recent study by Genworth USA revealed that the annual cost increases of most long-term services are far outpacing inflation: 2.32 percent for home health aides, 4.55 percent for assisted living facilities and 3.30 percent for nursing home rooms from 2012 to 2013. While most Boomers won’t need to consider such services for a decade or more, these trends may eventually make long-term care far less affordable than it has been for generations past.
Long-term services are becoming more costly because they require many of the same skills and professionals as hospital-based care. “I think it tends to follow general medical inflation trends, depending on the type of professional utilized, the locations and the overall requirements,” said Larry Moskat, managing member of Retirement Income and Inheritance Advisors. “I do think long-term care costs will continue to go up and generally track the care industry and medical industry type of numbers.”
Low interest rates and a still-shaky economy are making it even tougher for boomers to effectively plan for long-term care. “There’s no doubt that the increases in costs are outstripping the kind of return you’ll normally see in a retirement portfolio,” said Brad Mueller, director of risk management at Hewins Financial Advisors. Even if the growth of long-term care costs slows down, meager portfolios and overreliance on Social Security will make it more difficult for retirees to plan for old age.
Aside from rapidly rising costs, boomers’ differences from prior generations may impact their long-term care prospects, as well. They’re living longer, physically healthier lives than their parents and grandparents, yet they’re still subject to mental impairments that necessitate years or even decades of assistive services. “The longevity statistics should be unsettling for retirees,” said Mueller. “People should be planning around life expectancies of 95 or even 100.” Unfortunately, most boomers are not looking that far ahead.
Spending habits have also changed, and not for the better. “I’m observing that our baby boomer clients are spending as much in retirement as they did before retirement,” said Mueller. “I just see more spending on lifestyle than in the past, and my concern is that doesn’t leave much left over for long-term care needs.” Ironically, boomers who are enjoying long-lasting health and vitality as seniors might actually need to downgrade their lifestyles in preparation for lengthy retirements.
Public programs and private employers aren’t providing much in the way of long-term care insurance, but that may soon change. “I expect the trend to continue to add options for employers, and as more boomers mature into senior level positions within corporations, we’re going to remember the experiences we had with our parents and grandparents,” said Moskat.
The long-term care insurance market is also shifting away from the “use it or lose it” model that has made so many boomers wary of taking any preventive measures at all. “There’s been a very clear evolutionary shift over the last 10 years in how long-term care is being delivered,” Moskat said. “I don’t even offer the medical-style chassis anymore. The future of long-term care is asset-based care.” Unlike most medical insurance plans, newer long-term care packages allow clients to draw upon the accounts into which they’ve paid their premiums, or to apply those funds to death benefits if they never need or want long-term care, he said.
Still, the best bet for current and soon-to-be retirees is to save and leverage as many assets as possible. Moskat said that any of his clients still believe that they’ll never need long-term care, that Medicare will cover long-term care costs or even that they’ll move in with their adult children if push comes to shove. These options rarely pan out, however, especially for retirees with Alzheimer’s and other diseases that require around-the-clock care.
“To me, the most important is to have a plan, and to examine in today’s dollars what it will look like if one or both spouses needs care,” Mueller said. Long-term care insurance may be improving, but long-term saving and planning is still the only way for clients to ensure that they’ll get the care they need in old age.