Americans underestimating LTC cost risk to retirement, study finds

While the more than half of Americans surveyed worry about inflation and the economy as key factors threatening their retirement, half of the financial advisors surveyed believe that consumers should be more focused on how long-term care (LTC) costs could impact their retirement.

In a research study by Lincoln Financial Group, nearly six in 10 (59%) consumers said that they believe inflation is the biggest threat to their retirement savings, while just over half (51%) think it’s the economy. But half of the financial advisors surveyed (50%) said that consumers should be more focused on how the need for long-term care (LTC) could impact their retirement savings.

This disconnect is one of many topics worth discussing with clients, the survey said. Planning and investing in a long-term-care solution can prepare consumers for the impacts of an unexpected health event.

“With a record-setting wave of Americans reaching retirement age next year, the time is now – more than ever – for consumers to factor long-term care into their retirement plans,” said Mike Hamilton, vice president, MoneyGuard business management at Lincoln Financial Group. “A long-term-care solution can help cover expenses and add a layer of financial security to your retirement savings.”

According to the survey, LTC refers to a range of services and support designed to meet a consumer’s health or personal care needs, especially relating to Activities of Daily Living (ADL) like bathing, dressing, or eating, the survey explained. This can come in the form of expenses for in-home care, assisted living facilities, nursing homes or other services.

Average monthly costs top $4,000

Currently, the national average for home care or assisted living tops $4,000 a month; the average cost of care reaches nearly $9,000 a month when considering skilled nursing homes. So, without proper planning, an LTC event can take a significant financial toll on consumers, including a toll on their retirement savings.

Why Americans should focus on how long-term care costs could impact their retirement savings
With such a major financial impact that LTC can have, consumers should be more focused on how LTC could impact their retirement savings.

According to Jared Nepa, senior vice president, Life & MoneyGuard Distribution at Lincoln Financial Group, the Department of Health and Human Services expects that 56% of Americans turning 65 today will need LTC, and the soaring costs of long-term care could outstrip the retirement savings of some older adults.

“Consumers work too hard to have their retirement savings fail them by neglecting to incorporate long-term care expenses into their planning. The time is now to start having these important conversations.,” Nepa said.

These sentiments were echoed by Tom Riekse, managing partner of LTCI Partners, LLC. Labor shortages, inflation and an aging population mean that long-term care costs are increasing at a rate much higher than the rate of inflation, he said.  A good private nursing home will easily cost over $10,000 per month.  Many think that Medicare will pay for those costs but are surprised to find out that it does not.

However, the primary issue is the fact that families don’t talk about the topic, Riekse said.  According to a recent Kaiser Family Foundation survey, fewer than half of adults have had a serious conversation with their loved ones about their future aging needs.  “Until there is a serious conversation with family, there can’t be serious planning that takes place. The same survey found that adults 50 and over are very anxious about affording long-term care in retirement – talking is an important first step!” he said.

Riekse said that agents need to ask their clients if they have had any discussions of future care needs.  “They can encourage that by sending out LTC Insurance Awareness Month materials to clients, available from brokerage general agencies 2023 LTC Awareness Month or directly from insurance carriers.  They can conduct educational webinars that don’t focus on products but instead on the problem with planning.  A follow-up to the educational presentation could be discussion options for paying for care,” he said.

Nepa added that to drive awareness, financial professionals should be proactive and start the conversation about LTC planning with their clients. According to Lincoln’s recent research, nearly all financial professionals agree they should talk about long-term care plans with their clients, and two-thirds say the pandemic increased their awareness of long-term care as a risk to retirement savings. “Now is the time to bring long-term care planning into conversations with clients. Not only will it strengthen relationships with those clients, but it’s also an opportunity to engage their family members and reach the next generation of clients,” Nepa added.

Selling LTCI

The importance of LTC planning isn’t lost on consumers. According to the Lincoln Financial research, Americans overwhelmingly agree (96%) that it is important to plan for LTC; however, only 19% of them have actually started planning for it.  And among those who do plan for LTC, quite a few of them do not own LTCI, a product that will help them pay for their LTC costs.

So, what does it take to sell more LTCI? According to Nepa, nine out of 10 Americans believe financial professionals should talk about LTC plans with their clients, and four out of five expect it. So, clients want to have these conversations; it's time for financial professionals to meet them where they are. “Long-term care can be a challenging, emotional topic,” he added. “Agents should encourage these conversations and help clients make the best possible decisions for themselves and their families.”

To sell LTCI to more Americans, Riekse said that there are many types of LTCI available now – traditional policies, hybrid life + LTC plans, annuity/LTC combinations, and offerings through employers. “We’ve found that a great first step before talking about any types of LTC products is to see if LTCI is even a possibility,” he said. “An online health screen can be completed by a client to see what types of policies are options. After narrowing down these options based on the health of the client, discussions on what type of care and the cost of that care can then be explored.”

The last step is to look at options for funding an LTC policy and then consider premiums that can fit into the consumer’s budget, Riekse added.

To learn more about the benefits of LTC planning, readers can visit Lincoln’s “Learn the basics” resource. And for a deeper look at consumer and advisor sentiments relating to long-term care, they can view the Lincoln Financial Group 2023 LTC Marketing and Thought Leadership Research, Finding’s from Survey of Advisors and Consumers.

Versta Research, a third-party research firm, was commissioned by Lincoln Financial Group to design and conduct two surveys, one among producing financial professionals and one among consumers. The goal was to explore current long-term care attitudes, experiences, and planning. Lincoln MoneyGuard® solutions are universal life and variable universal life insurance policies with riders that accelerate the specified amount of death benefit to pay for covered long-term care expenses.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

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