Volume 7, Issue 3
The Wealth Advisor
Life Expectancy and Health Care Planning
The aging, healthcare and special needs conversation is vitally important to you and your family.
Except for government employees and Social Security, retirement plans that pay benefits until death are pretty much a thing of the past. Plus, people today are living longer. Yet retirees’ need for income that is sustainable and that they will not outlive is unchanged. Adding to the problem, the cost of health care continues to rise more rapidly than inflation and is now one of retirement’s biggest expenses.
Increases in longevity and starting families later means that many people who are nearing retirement age today also have responsibilities to their parents and their children. In addition, two major bear markets and historically low interest rates have taken a toll on many people’s retirement savings.
For all these reasons, many people today are understandably concerned about how they will make it through their retirement years.
In this issue of The Wealth Advisor, we will look at how demographics and economics are creating a longevity risk for retirees, why longevity risk is more often primarily a woman’s issue, and the generational issues.
Demographics, Economics and the Longevity Risk
The Baby Boomers
The Increase in Life Expectancy
The Increase in Health Care Costs
It’s More Often a Woman’s Issue
Planning Tip: Your health care expense budget in retirement may have to be larger than you think. Harris Interactive surveyed baby boomers and found they estimated long-term care costs at $78,923 per year. In contrast, Nationwide Financial Services projects that the annual cost of nursing home care in 2030, the year the last boomers are expected to retire, will reach $265,000.[iii]
The Increase in Family Care: The Sandwich Generation
One out of four families has a care-giving challenge. Forty-five million Americans provide care for one or more family members or friends. The average number of hours dedicated to caregiving is 35.4 hours a week. That is almost equivalent to a full-time job and is mostly unpaid. Caregiving is mostly a woman’s issue – 75% of non-professional caregivers are women.
Today you may be the caregiver. Tomorrow you may be receiving the care. Two-thirds of those over 65 will eventually need long-term care at home or in a nursing home, adult day care, or assisted living support.
Planning Tip: Contrary to popular belief, Medicare does not cover long-term care or assisted living costs. Also, 40% of those receiving long-term care are under 65, so this is not just a problem of aging. People of all ages need to think about long-term care long before retirement.
Life Transitions: Starting the Family Care Conversation
Consider using the CARE model:
Start Planning with Where You Are
Survival Resources: This is money that is needed to make ends meet.
Your financial advisor can help you project how much of a retirement nest egg will be needed as Survival Resources. Next, a retirement fund for “What If” Resources needs to be set aside. Whatever is left over can be used as Freedom, Gift and Dream Resources or to fund a legacy.
Planning Tip: Asset allocations may need to be shifted to help compensate as much as possible for today’s lower fixed income yields.
The Family Care Solutions Teams
Advisor Expert Resource Team: Consider putting together an Expert Resource Team of advisors to help with upcoming family transitions. Advisors might include attorneys with expertise in estate planning, family law and elder law, including veterans, Social Security and other government benefits (e.g., Medicaid) planning; insurance experts who are familiar with life, health, disability and Medicare supplement options; CPA; banker; trust officer; financial planner/advisor.
Many people have incomplete or outdated estate planning and health care documents. Regular review of these documents by an experienced attorney is essential to having a plan that will work when it is needed. Life insurance has also been affected by the bear markets and low interest rates. All of your policies should be reviewed by a life insurance expert. Also, beneficiary designations should also be reviewed and updated if needed.
Medical Expert Resource Team: Start with an Internal Medicine or Family Practice Doctor and include any specialists you may see (heart, cancer, gynecology, urology). Consider including a nutritionist (helpful to make sure an elderly person is eating well) and an allergist (some allergies can be fatal).
Later, as your needs change, you may need other teams, such as:
Caregiving Expert Resource Team: Members of this team could include a geriatric care manager; nurse advocate; nursing home ombudsman; visiting nurses; hospice and palliative care; home help services; day care facilities; health coach, personal trainer; and transportation services provider (to get to a gym or doctor appointment).
Life Transitions Expert Resource Team: Aging-in-place specialists, certified home remodeling specialist (most people want to stay in their homes); grief counselor; expert on working with widows; behavioral specialists; funeral director; spiritual advisors.
[iii] “Long-term care to cost more than baby boomers thought” June 28, 2013. The Columbus Dispatch. Society of Financial Services ProfessionalsTM News Brief http://www.dispatch.com/content/stories/business/2013/06/24/long-term-care-to-cost-more-than-baby-boomers-thought.html
TEST YOUR KNOWLEDGE
1. The aging, healthcare and special needs conversation is vitally important
2. Many people who are nearing retirement also have responsibilities to their
3. Two recent bear markets and historically low interest rates have taken a toll
4. The cost of health care continues to rise more rapidly than inflation and
5. The primary wild cards in retirement planning are future health care costs and
6. Because of the typical age difference between spouses, longer longevity for
7. One out of ten families has a care-giving challenge and one in ten has an
8. Most caregivers are women, and the average caregiver devotes more than
9. Many people are surprised to learn that Medicare does not cover long-term
10. Taking the time now to plan and put resources in place can help prepare your
Answers: All of the above are true.
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