Silver Tsunami: Boomers Could Face Long-Term Care Crisis

Several years ago Ameriprise Financial aired a commercial starring Dennis Hopper that targeted its financial planning services at Baby Boomers.

Hopper, one of cinema’s most enduring rebels, stood on a beach dressed in black with dark sunglasses. He talked about how Boomers weren’t going to be slowing down as they grew older, and weren’t going to sit around playing Bingo. Instead Boomers would redefine retirement.

We all hope that as we age we will be able to remain active and free-spirited, but life isn’t a commercial: In January it was revealed that Hopper, 73, has terminal, late-stage pancreatic cancer.

This is the part of retirement, and growing old, that most would prefer to ignore. And that could be a problem.

Although Hopper is older than even the oldest boomer, his current state serves as a lesson we should all heed: If we don’t plan for it now, we could be paying dearly for it later.

A new study by the Center for Retirement Research at Boston College points to a potential crisis as Americans struggle to meet health care costs. In over 300,000 simulations conducted by the Center for Retirement Research, the average lifetime health care expenditure for a typical married couple at the age of 65 is $197,000. This figure covers insurance premiums, out-of-pocket costs, and home health costs. But when nursing home costs are included in the equation, that amount jumps to $260,000, with a 5% risk of exceeding $570,000.

In their research, co-authors Anthony Webb, an associate director for research at the Center for Retirement Research, and Natalia Zhivan, a consultant for the center, said that “even at the peak of the stock market in 2007, less than 15% of households approaching retirement had accumulated that much in total financial assets, much less financial assets available for health care costs.” And yet, about a third of individuals turning 65 this year will need at least three months of nursing home care, 24% will need more than a year, and 9% more than five years, according to research from the Congressional Budget Office.

“Certainly the biggest takeaway here is that people need to realize in the context of their retirement plans that if they’re accumulating wealth now there’s the potential for uninsured health care costs after retirement, including nursing home care, that could be significantly higher than they had expected to save,” said Malcolm Cheung, a vice president of long-term care product and risk management at Prudential Insurance, which underwrote the study.

He said that one of the few financial instruments that can help insulate a person against the potential risk of facing nursing home costs is some form of long-term care insurance.

“I think it would just be very, very difficult given all of the competing demands on everybody’s discretionary income for the average boomer who is currently 40 or 50 years old to accumulate by age 65, $600,000 just for that potential risk,” he said.

Fewer than 10% of American adults have any sort of long-term care insurance. One of the reasons, other than the complexity of the product and perhaps the price, Cheung said, is a sense of denial. People who are younger, especially, either don’t recognize the risk or don’t feel like addressing it and taking care of it at this point because it is a problem that remains far in the future.

“But like a lot of things you put off, sometimes you never get back to it,” Cheung said.

Although it is possible for 65-year-olds to buy long-term care insurance, he said that Boomers can run it to difficulties if they wait too long. The main problem is that older individuals may not be able to pass the underwriting process. It is easier to qualify for coverage at a younger age because a person remains relatively healthy. The premium will also likely be cheaper, Cheung said.

Because the study by the Center for Retirement Research concluded that nursing home care is the main risk involved in potential health care costs, Boomers must consider whether they are in danger of incurring such expenses later in life, and if so, how they will be able to manage after having their assets substantially depleted. If they do not have the savings set aside to cover these costs, they may have to consider purchasing long-term care insurance.

“Many are barely prepared for ordinary living expenses [during retirement], much less extraordinary expenses,” Cheung said.

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