Long Term Care Newsletter March 2014

THE REAL DEAL: Unfunded Retiree Health Care Costs To paraphrase the famous car-selling slogan “This isn’t your father’s retirement.” In the good old days, savings would throw off a nice retirement income.  Now, thanks to low interest rates, it’s doing nothing of the sort. It wasn’t unheard of for a ‘Greatest Generation’ retiree to have lifetime health care provided in retirement – for themselves and their spouses – by their former employer.  That deal has all but disappeared for modern retirees. Instead, many baby boomers have chosen to work well into retirement – sometimes to be able to maintain their standard of living.  They may be financially helping out their unemployed or underemployed adult children, or maybe even raising their grandchildren.  For them, retirement at what was in the past a normal retirement age is not their reality. The old retirement boogey man of inflation who erodes purchasing power has been replaced by something potentially much scarier: future unknown care costs, as explained in the two items below.  That’s the real deal that keeps retirees up at night. UNFUNDED RETIREMENT ITEM #1 According to a January 2014 Wall Street Journal article “The High Cost of Health Care in Retirement,”  a couple with Medicare (including Parts B and D), and Medigap insurance, would need an additional $151,000 for a fighting chance to cover health care costs in retirement.  That’s with the assumption of median drug expenses.  Even with this money available, and the assumption of median drug expenses, there is a 50% chance the couple would run out of the $151,000.  And if this couple found themselves in the 90th percentile of drug spending?  They would need an additional $69,000 to have a 50% shot of being OK.  Not exactly warm and fuzzy, eh? The Employee Benefit Research Institute (the source cited in the Journal article) maintains that, in order for a couple who experiences drug expenditures in the 90th percentile to have a 90% degree of confidence they could afford health care in retirement, would require $360,000. But wait, it gets worse.  Potentially much worse.  Read on.  UNFUNDED RETIREMENT ITEM #2 The scenarios above don’t take into account the very real likelihood that long term care will be needed during retirement years.  The risk of needing long term care is significant.  The National Clearinghouse for Long-Term Care Information reports “Almost 70% of people turning age 65 will need long-term care at some point in their lives.” The cost of long term care is high: about $19/hour for home-based care and $2,500/month for an assisted living facility, and $6,200/month for a nursing home (all prices national medians).  How long does care last?  Depends.  Four months for some.  Ten years plus for others. The only insurance designed to cover the cost of long term care is long term care insurance, and the vast majority of people age 50+ do not have a policy. So while many financial reporters and financial advisors still concentrate on the traditional topics of asset allocation, accumulation, and estate planning perhaps it’s time to instead get real about unfunded health...