8 minute read
Help clients understand rising long-term care costs
Inflation is rife, and there is no better time to talk about LTC.
By Ken Latus
With inflation in the headlines from Wall Street to Main Street, clients who think this is only a current challenge should be forgiven. Let’s face it — today’s discussions center on near-term fixes to the issues right in front of us, whether it is new legislation or individuals and families thinking about how to manage the rising day-to-day costs of gas and groceries.
As every advisor knows, addressing inflation has always been a necessary fixture of any long-term financial security plan. This is especially true when it comes to helping clients plan for long-term care in retirement.
While the current environment challenges household budgets across the country, it is also a unique window in which advisors can proactively talk to clients about the consequences of inflation for their retirement savings decades from now and help them put a plan in place to manage long-term care risk.
Unlike day-to-day expenses, longterm care planning is not an area where individuals and families can easily make cuts or trade-offs to offset inflation. Any decision regarding caregiving is not just financial but also has practical, physical and emotional aspects — which highlights the importance of helping clients plan today so they may have more care choices, regardless of tomorrow’s markets or the economy of the future.
Costs keep going up
Many of us will need to rely on assistance with daily activities as we age. It might be help with simple tasks such as walking, bathing and dressing, or more dedicated care in situations where there is a chronic condition such as dementia or Parkinson’s disease.
The simple fact is the cost of this type of care is rising consistently. Even if the current inflation we are seeing across the economy at large is contained, the costs of long-term care are likely to continue rising. According to Northwestern Mutual’s Cost of Care Calculator, the average cost of a home health aide today is $27 per hour, and it is projected to rise to $49 per hour by 2042.
The leading driver of this cost is growing demand. By 2030, all baby boomers will be at least 65 years old, and according to the U.S. Census Bureau, older adults are projected to outnumber children under age 18 for the first time in U.S. history by 2034. To date, caregiving for the elderly has been largely provided by informal networks of younger family members and friends. Demographic trends suggest this cannot continue at the same level.
Growing demand for care, coupled with the shrinking safety net of informal caregivers, is putting even more pressure on the already tight labor market for professional caregivers. This is pushing up wages and, in turn, the cost of care.
For many people, finding cost-effective care may become extremely challenging. This reality must be acknowledged as
early as possible in an individual’s financial life to maximize the time to plan and save accordingly. The time for clients to understand this reality is right now.
Encourage clients to talk to their loved ones
In a world of increasing costs, caregiver shortages and increased demand for services, it is essential that clients talk to their loved ones about their expectations for their own care and how costs will be covered.
According to Northwestern Mutual’s 2019 CARE study, 36% of Americans ages 18 and older are currently or have been caregivers, and two in five of them did not know in advance they would step into a caregiving role. This can put a lot of stress on everyone — the individual needing care and the loved ones providing it.
When clients explain their preferences and expectations clearly, it helps shape what is needed practically and financially and avoids unexpected burdens. Areas to help them consider include:
» Do they want to age at home, or would they consider selling the home and moving? If so, where, and what are the comparative costs?
» If they have children, is there an expectation that the children will step in to help with care? If so, has this been discussed explicitly? Adult children are not always
in a position to leave their careers or split time between caring for younger children and an aging parent.
» Would they be comfortable with a professional caregiver coming into the home, or would they prefer to be in an assisted living facility? Both scenarios have different financial considerations.
What does care cost?
Skilled Nursing Homes — Daily Average
» Semiprivate room............................................................$276 » Private room.....................................................................$315
Home Health Care — Hour/Visit Averages
» Home health aide (hourly)..............................................$27 » Licensed nurse (per visit)................................................$128 » Registered nurse (per visit) ............................................$145
Assisted Living Facilities — Monthly Averages
» Studio apartment ............................................................$4,300 » One-bedroom apartment ...............................................$4,826 » Two-bedroom apartment ...............................................$5,084
Source: Northwestern Mutual
Protect the nest egg
In this inflationary environment, it is also essential to help clients protect their plans and savings. Too many people work hard to save and build up their retirement nest egg,
only to see it be repurposed to pay for the high cost of home health care or assisted living services for which they had not planned. Our 2021 Planning & Progress Study found that only a third of adults have plans for their own long-term care needs. These conversations are never easy. No one wants to think about failing health or losing their independence. Still, these honest conversations are essential to ensuring the correct framework and contingencies are in place to reduce stress and financial burden down the road.
Fortunately, there are many options to help people manage their long-term care risk. The long-term care insurance marketplace has evolved over the past decade to meet a wide variety of needs with products that are more flexible, can provide benefits whether or not care is needed, and offer a range of options to ensure benefits are aligned with the higher costs of care in the future.
Use the current environment to jumpstart conversations with clients now. A retirement plan isn’t safe unless longterm care planning is part of it. The sooner clients start planning for it, the more options and flexibility they will have as they age.
Ken Latus is vice president of risk products, Northwestern Mutual. Ken may be contacted at ken.latus@innfeedback.com.
Gen Z takes a diverse view of finances
Where does Gen Z get their financial information?
Generation Z, the youngest generation in the workforce, is the most ethnically diverse generation in the U.S., and their approach to their finances is diverse as well. Bank of America took a deep dive into this generation’s views on money and discovered ways in which race, ethnicity and gender may influence their financial goals and challenges.
Black Gen Z is paving the way toward financial independence, embracing a hustle culture in order to achieve their goals. They are more likely to consider taking on a second job (35% vs. 25%) and prioritize starting or growing a business (15% vs. 5%), compared to non-Black Gen Z.
Hispanic Gen Z is driven by family considerations when evaluating their finances. They state a hope to pass down wealth to the next generation (36% vs. 27%) and a desire to succeed financially to make their parents proud (36% vs. 23%) as key motivators at higher rates than non-Hispanic Gen Z.
Gen Z women display financial literacy gaps and a lack of investing relative to men, according to the survey. They report feeling less equipped than men to save for retirement and to invest, and fewer Gen Z women have begun or are considering individual investments or retirement savings vehicles, such as a 401(k) plan.
64% from Facebook 58% from YouTube 38% from Instagram 26% from Twitter Source: Bank of America
Debt is a problem for most workers
Debt is weighing down workers. That’s according to the 2022 Workplace
Wellness Survey published by the Employee Benefit Research Institute and Greenwald Research, which found that 80% of workers describe their debt level as a problem — a 15 percentage point increase since 2021 (65%).
In unpacking the debt problem, the survey found 78% describe their household’s level of credit card debt as a problem. In addition, more than half describe their medical or health-related (57%) and student loan (51%) debt as problems. Health emergencies (47%) are the biggest contributor to medical debt, while funding their own education (64%) is the top source of student loan debt that is considered problematic.
‘Super savers’ stay the course despite inflation
Despite market volatility, high inflation and the threat of a recession, retirement “super savers” continue to make savings a top priority, according to a study by Principal Financial Group.
The study found that more than half
(59%) of survey respondents said they plan to save more than $20,000
toward retirement in 2022, which is up from 51% in 2021. This is largely attributed to the majority of the segment described as “super savers” (82%) feeling confi-
dent they are in good shape to endure
a recession and the sacrifices they are willing to make to their daily expenses to maximize their retirement contributions, the survey said.
In most cases, super savers focused on long-term financial sacrifices, not shortterm cuts. Their top sacrifices included:
• Driving older vehicles (44%).
• Not traveling as much as desired (38%).
• DIY house projects and chores (36%).
• Owning a modest home (35%).
Inflation forces retirees to spend more than they can afford
Inflation is scrambling retirees’ nest eggs as they spend much more or a little more than they can afford in 2022 (17% in 2020 vs. 27% in 2022). That’s the latest from the Employee Benefit Research Institute’s 2022 Spending in Retirement Survey.
The survey found Black and Hispanic retirees, as well as those in the lower annual household income brackets and poor self-reported health status, also indicated that their spending is higher than they can afford. Approximately half
of retirees say they spend less than $2,000
each month, while 1 in 3 spend between $2,000 and $3,999 each month. Sixteen percent spend between $4,000 and $6,999, with only 3% spending $7,000 or more each month.
Someone save us!
34% of millennials said they are falling behind in retirement saving.
SOURCE: Goldman Sachs
