How to help your clients plan for one of their greatest risks: Long Term Care
by Dan VetoMr. Veto is the founder and managing partner of Retirement Spark!, a San Francisdco based financial advisory firm. Visit www.retirementspark.com
The U.S. Department of Health & Human Services estimates that Americans of retirement age will incur an average of $138,000 in long-term care costs over the course of their lifetime. Yet according to the U.S. Government Accountability Office (GAO), the median amount of retirement savings of households aged 65 – 74 averages $148,000. This means that many pre-retirees are overwhelmingly unprepared to pay for long-term care costs and is cause for concern. As advisors, we have become experts at helping protect our clients from the risks of premature death, disability, investment portfolio concentration, inflation, overpayment of taxes, longevity and many other risks. However, too many advisors fail to address the substantial risk of their clients needing long-term care.
Whether due to injury, chronic illness or a decline in physical or cognitive function, long-term care is an important retirement risk to address with each of your retirement-focused clients. Too often, the likelihood of needing care and the cost of that care are underestimated. April is Financial Literacy Month, the perfect time to help your clients better understand the financial risks associated with not addressing long-term care needs and help them bring into focus a plan for their future long-term care.
To help your clients develop a plan for long-term care, it’s important that they understand the basic facts. Estimates from the U.S. Department of Health & Human Services show that half (52%) of Americans age 65 today will develop a disability serious enough to require long-term care services and support sometime in the future. Long-term care support services can be delivered by a spouse, an adult child or a paid home healthcare provider. Care is most often delivered in a personal residence, in an assisted living facility or a nursing home.
The Knowledge Gap: Who’ll Pay For Long Term Care?
A March 2019 study from the Bankers Life Center for a Secure Retirement found a significant knowledge gap among middle-income Boomers when it comes to who will pay for their long-term care services. For instance, among those surveyed, more than half (56%) of Boomers mistakenly believe that Medicare will pay for their ongoing long-term care. Ongoing long-term care is not covered by Medicare nor is it covered by most major medical health insurance plans. Medicaid may pay these costs for Americans who have almost no assets, but this is not likely to be the route for your clients. Indeed, clients must have their own plan for how they want to receive and fund any future long-term care services they may require.
It is important to start planning for long-term care well before the need for care becomes critical. Waiting until a loved one has a stroke should not be the trigger to put together a plan. Not only are emotions running high, but options previously available may no longer be viable.
“Unfortunately, according to the Bankers Life Center for a Secure Retirement, just 18% of Boomers report that planning for their care in retirement is a high priority,” said Scott Goldberg, president of Bankers Life. “As more and more Boomers begin to retire, there is a growing urgency to educate Boomers on the need to prepare specifically for retirement care.”
Many of your retirement planning clients will likely respond to your prompting and guidance. It’s important to advise them that there are strategies and options available for nearly any income and asset level, age, family situation and risk tolerance. It is not practical to plan for the infinite number of future possibilities, however, you may find it useful to begin the conversation by building a workable plan that addresses just two scenarios – one if the need for care is expected for just a few months and a second in the event that the need for care is expected to last for one or more years. You may find the straightforward discussion guide above to be a useful resource.
If the client is married or in a committed relationship, run the two scenarios for the “first spouse/partner” requiring care and then again for the “surviving spouse/partner” requiring care. Discuss how the expectations and resources change with each scenario. What steps need to be taken to achieve the plan? Having a conversation around these key variables in these different scenarios can help your client articulate their expectations for their long-term care needs.
Finally, once your clients gain a better understanding of long-term care and have a plan in place, it’s important for you to help your clients share their plan with loved ones, particularly with family members who may act as caregivers in the future. Among those surveyed by the Bankers Life Center for a Secure Retirement, 47% of middle-income Boomers have not discussed how they want to receive care in retirement.
Retirement care and its high costs can take an emotional and financial toll on their loved ones, according to Goldberg. It’s important that your clients and their loved ones agree about retirement care decisions and are aware of any unspoken expectations.”
Caregiving: Difficult, but satisfying
Caregiving is an experience that can be both difficult and satisfying. In addition to helping a loved one complete daily tasks such as eating or bathing, over time, caregivers may also assume managerial household duties for a loved one such as paying their bills, completing their grocery shopping, and more. Fortunately, the Center for a Secure Retirement study found that among middle-income Boomers, 92% are willing to make some lifestyle changes in order to provide care to a loved one, such as reducing their spending, traveling less and moving to a new home.
But while it may be easy for a loved one to provide care in the short-term, your clients and their loved ones also need to consider long-term ramifications and develop a team approach, if possible. Knowing which of your client’s loved ones are best suited to provide different elements of care, will help your clients stress less about the future and reduce familial caregiving friction. As a matter of fact, the Bankers Life Center for a Secure Retirement study has found that among middle-income Boomers who have a retirement care plan, 88% reported a positive impact from that plan, such as worrying less about the future or feeling more free to enjoy their retirement.
Ask yourself, how many of your clients have a thoughtful plan in place for their long-term care needs? If you have clients that don’t yet have a plan for the care they may need in retirement, work with them to address this important, but often ignored retirement risk. While your clients may be focused on being as healthy and financially prepared as possible so that they can enjoy a fulfilling retirement, they also need to be prepared for the possibility that their health may decline, forcing them to rely on long-term care. It’s never too late to meet with your clients to help them plan for and secure their financial future.◊