Much has changed in the past two decades when it comes to long-term-care op-tions and how to fund them. Baby boomers and subsequent generations will need to plan for long-term care in a different way than their parents in light of factors such as longer life spans, the uncertain future of entitlement benefits and rapidly rising medical costs.
Your clients have choices when it comes to planning for long-term care that include earmarking savings for long-term medical expenses, relying on entitlement benefits or depending on their families.
Long-term-care insurance is another option for aging clients to consider because insurance products have evolved along with current trends and care options. Unlike many policies in the past that directly paid a nursing facility, many current policies pay the benefit to the insured. In fact, half of benefits paid by private insurers for long-term care are not for skilled nursing care, but rather for care in the home or assisted-living care.
Most long-term-care policies will pay whether the recipient is at home, under lower-level custodial care such as in an assisted-living facility or in a nursing home receiving skilled care.
When the topic of long-term care arises with your clients, they may assume the “it won't happen to me” attitude, yet about 70% of people over 65 will need some type of long-term assistance during retirement.
Increased longevity and medical advances have created more demand for long-term care and this need is even more profound for female clients: about two-thirds of Americans over 85 are women, and almost half of this group has some form of cognitive impairment.
It's difficult to predict what kind of long-term-care needs your clients may have — and often those needs are difficult to discuss. One way to begin the conversation is to discuss how the parents of your boomer-aged clients aged and what kind of care they received. Here are several differences between how their parents may have approached long-term care and how they might think of it.
Government: Parents of baby boomers were the first to experience extended longevity and arguably among the first to have access to formal long-term nursing-care facilities. But for the silent generation, the question of whether entitlements would really be there was not often asked. Retiring boomers are causing a well-publicized strain on government entitlement programs and it's no surprise that current benefits probably won't cover most medical services a person with long-term-care needs will require.
Most retirees wouldn't choose to rely on these types of benefits or plan to live in government-operated facilities if they need long-term care, but based on what we know about the average American's retirement savings gap, most also won't have enough savings to fund an extended long-term-care stay. This is where insurance comes in.
Insurance: An entire industry has been created around retiring baby boomers and insurance providers have also evolved and relied on innovation to fit the needs of this aging population.
Most long-term-care policies pay a benefit up to the daily or monthly maximum. The amount can be paid to the insured, who can then pay the care provider, or the insured can arrange for the care provider to bill the insurance company directly.
Advanced benefit riders are fairly inexpensive additions to a life insurance policy that allow the death benefit (often up to 90%) to be paid in advance of death if the funds are needed for long-term care. Whatever amount is advanced to the insured is simply deducted from the death benefit when that person dies.
Family: An option for most retirees with long-term-care needs is relying on family for support — as their parents may have. However the emotional, physical and financial stress on family members caring for a dependent family member can be immense. While your clients may choose to rely on family for physical or financial support down the road, it's important that they know the associated costs of doing so. Have a conversation with your clients about whether they want or need to rely on family as they age and prompt them to inform their families of their plans and wishes. You may also discuss insurance or bookmarking a pool of assets to supplement the support they receive from family members.
Craig Brimhall is vice president of retirement wealth strategies at Ameriprise Financial Inc.