The New Finance Of Longevity

One Conversation Can Make All the Difference

Planning for the realities, and misconceptions, of long-term care

by Bill Nash
Mr. Nash is senior vice president and head of MoneyGuard Sales for Lincoln Financial Distributors.
Lincoln Financial Distributors, Inc., a broker-dealer, is the wholesale distribution organization of Lincoln Financial Group. Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates.

The phone rings and it’s your client’s son – his aging father’s health has taken a turn for the worst, and the family is now faced with the possibility of having to make rushed, emotional and potentially expensive long-term care decisions. The son is asking you what plan his father put in place to prepare for a long-term care need…

Did they plan for how to pay for the care that’s now needed, or will they need to use assets such as personal savings or retirement income? This type of call is becoming a regular conversation. Consider, would you feel confident in your response if you received this call?

Ninety two percent of advisors report having clients who have needed long-term care services. Those services are often attached to some significant costs that can impact every phase of the wealth lifecycle – from asset accumulation to retirement spending to passing wealth to the next generation.

Yet, according to a recent survey, only 5% of people polled have consulted with a financial professional about long-term care. Unfortunately, many do not plan accordingly and often the realities of long-term care are misunderstood. While it can be a challenging and emotional topic to think about and discuss, tackling it head-on and before care is needed can make a big difference in the care your client receives, the impact on their loved ones and their family’s financial security.
Here are three common misconceptions and how to dispel them through meaningful conversation:

Misconception 1 – “It won’t happen to me”

Clients often think ‘it won’t happen to me,’ and for those who do think it may happen, they tend to downplay their personal risk. About a third of Americans surveyed think they will need long-term care, while they are much more likely to believe their spouse (40%) or a parent (50%) will need long-term care.

With the ‘it won’t happen to me’ mentality so prevalent, it’s not surprising that 63% of people surveyed say they do not have any type of long-term care plan – written or informal. For those who do plan, many often wait until their 60s to begin the conversation and purchase a long-term care funding solution, even though planning earlier when presumably a person is healthier increases the likelihood of being approved for an underwritten long-term care policy, and potentially makes the policy more affordable with greater care benefits and options.

This widespread lack of planning creates opportunities for financial advisors to bring an often overlooked but critical component to their client’s retirement plan and be a settling voice in an otherwise unsettling time. The good news is that 60% of people surveyed have discussed long-term care with their spouse, children, parents or friends. However, these conversations would greatly benefit from the expertise of a financial professional who can help guide key elements of the plan, such as:

  • Preferences for how and where care is received
  • The role of family in caregiving and decision making
  • The potential cost of care services and how they would be paid for
  • How long-term care funding solutions may fit into the plan

Having a plan to protect what’s important for your client’s retirement can give your client and their family (and you) the assurance of knowing they’re prepared for the journey ahead.

Misconception 2 – “That’s what my savings are for”

If families must use retirement savings to cover these costs, the consequences typically are most severe for the surviving spouse but can also present a substantial hardship for their extended family...

Failure to adequately plan for long-term care costs can create financial hardship during retirement. Many Americans significantly underestimate long-term care costs, assuming the average annual cost of a private room in a nursing home is approximately $54,000 — roughly half the true cost ($105,485).

These staggering costs can significantly impact a couple’s retirement savings. If families must use retirement savings to cover these costs, the consequences typically are most severe for the surviving spouse but can also present a substantial hardship for their extended family.

As a hypothetical example, consider an upper-middle-income husband and father in Florida retiring at age 65 with a $1 million nest egg who plans to supplement his retirement income by drawing down his assets at $35,000 annually. At this rate, he and his wife will have enough assets to live well beyond 99 years old, factoring in assumptions of 5 percent annual growth on the asset, and a 3 percent rate of inflation. The situation changes when he faces an uninsured long-term care need. Today, the cost for a private room in a Florida nursing home averages nearly $120,000 annually. Assuming a 3% increase in costs from today, a three year nursing home stay in Florida at age 81 will deplete their nest egg by age 91. If he needs five years of long-term care support, which 20% of 65-year-olds today are predicted to need, his assets will be depleted by the time he reaches age 85.

Even for those who can afford to self-insure, 9 of 10 advisors agree that long-term care coverage may provide valuable tax advantages. No matter the situation it is important to help your clients consider long-term care planning as part of their retirement and income planning strategy.

Misconception 3 – “There are not a lot of options when it comes to funding”

Despite an expanding private insurance market, there is relatively low familiarity of any of the options among consumers. Most people believe they will pay for care through Medicare, health insurance, Medicaid or personal savings and/or assets. However, Medicare and health insurance only cover very limited and specific types of long-term care, and Medicaid is only available to those meeting income and eligibility requirements. As far as self-funding, only a third of consumers feel confident of having the financial resources to pay for long-term care.

Fortunately, there are many different types of funding solutions available that may help mitigate the cost of care events – lifetime annuities with long-term care riders, life insurance with accelerated benefit riders, life/LTC hybrid products, and traditional long-term care, among others. Yet with the low level of familiarity of available options, it’s not surprising that 57% of those surveyed believe a long-term care solution is only beneficial if you use it. Even though, hybrid solutions, which are life insurance or annuity products with long-term care riders, can meet multiple client needs.

You can bring expertise to the conversation and help your clients and their families plan for aspects they may not have considered or truly understood, such as the potential costs of long-term care and their impact on retirement plans, what’s not covered by Medicare and Medicaid, or private insurance options. With understanding of these types of topics, your clients and their families can develop thorough plans that can help them and their loved ones age with dignity, independence and financial security.

The Time to Plan is Now

94% of advisors agree that people wait too long before discussing plans and options. Now’s the time to have the long-term care conversation and help your clients create a long-term care plan that helps them maintain their independence, alleviate stress on their loved ones, and protects their retirement savings and assets. Don’t wait for “the call” – help them start planning today.