Could voluntary benefits ease the retirement/LTC crisis?

Plenty has been written about the care crisis in our country — and with good reason. Thanks to advances in modern medicine, people are living longer than ever before. At the same time, the costs of the care people may need as they age and the access to that care are becoming more restrictive than ever. 

One factor that doesn’t get as much attention in that conversation is the fact that retirement savings aren’t coming close to covering those golden years, and most people are woefully unprepared for the increasingly expensive costs of long-term care. AARP summed it up best when it said, “Only a modest percentage of Americans have the wealth needed to afford whatever long-term care needs emerge in their later years.” 

Although it’s certainly fair to say that one of the challenges of the care crisis is that many Americans aren’t thinking about their need for care, the same can’t be said for retirement. People are thinking about their retirement. And if they’re thinking about retirement, they should be thinking about care. Let’s look at a few numbers to start to show why.

According to a recent Forbes article, the average American’s retirement savings total $255,200. And according to Bankrate, the average monthly Social Security check for a retiree is $1,693.

Those numbers alone probably point to an unsustainable plan for retirement. How long can a retiree stretch those benefits? For many, the answer is “not long enough.” A recent survey from Retirable found that 63% of respondents don’t believe they have saved enough to get themselves through retirement. Many are changing their plans for retirement or looking at a second job to make up the difference. That’s probably not the ideal retirement many envision for themselves.

But it’s when you start to look at the numbers for the costs and likelihood of long-term care that things get really challenging. According to the Genworth Cost of Care Survey, seven out of 10 people over age 65 will require long-term care, and the average national cost of an in-home health aide is $5,148 per month. What’s more, the average monthly cost of an assisted living facility is $4,500, and the cost of a private room in a nursing facility is more than $9,000 per month!

Now, I wasn’t a math major in college, but my head is spinning just trying to reconcile this data! Let’s look a little more closely at the numbers. Consider your average American who’s retiring with that average savings we referenced previously ($255,200). Let’s say she retires at age 65 and requires long-term care starting at age 70. If she lived in an assisted living facility, she would run out of money by age 78. Lived at home with an in-home health aide? Runs out by age 76. Nursing home? Runs out by age 73. 

What’s extra scary about these scenarios? We’re not even factoring in the costs of living, let alone travel and other activities a retiree may want to enjoy. If anything, this paints a rosier picture than the truth! Again, statistics say 70% of our age 65-plus population will need long-term care at some point. Many will face bigger challenges than this — smaller retirement savings, higher costs of care and, again, we’re not even factoring in their costs of living. 

When you do factor in those additional costs, it starts to look downright gloomy. I like to think about retirement as taking people to about age 77, the average life expectancy for an American. For anyone who lives beyond this age or must use their savings for long-term care, there’s clearly a problem. On top of that, advancements in medicine will increase our life spans. That’s a great thing, but it could also mean a need to stretch our retirement savings further or account for even greater stints in long-term care.

How can voluntary benefits help employees?

For starters, voluntary enrollment season is the perfect time to engage with employer clients and their workers to educate them about a number of tools that, if offered, could positively impact their retirement — and, inevitably, their future care. 

For some, that might mean helping employees get smarter about participating in the company 401(k). For others, it could mean educating employees on care planning programs. Yet other employees could benefit by getting smarter about general financial wellness. 

Voluntary enrollment paired with appropriate educational resources isn’t just a chance to sign employees up for benefits — it’s also the perfect opportunity to educate employees on the wide variety of products that can help them protect their retirement and ensure they’re set up well from a care standpoint.

There’s no silver bullet for this difficult situation. However, in addition to the enrollment process, voluntary benefits themselves can be a part of the solution for employees in a couple of important ways. The most obvious is through products that address the costs of care directly. Stand-alone long-term care insurance policies are harder to find and expensive, although they are still available. Recently, the market has been trending toward hybrid products that offer life insurance protection with care benefits that help cover the costs of care and protect retirement savings. New products on the market are even paying benefits to family members who provide care to a policyholder — a trend that’s understandable given the costs. 

On top of the more direct protection of long-term care coverage, there’s still a need for financial protection from medical costs. Illnesses and accidents happen in retirement, and those can put a retiree’s finances at risk. This means that other voluntary products such as accident, hospital indemnity or critical illness insurance have a role to play in retirement planning. 

The care crisis is also a retirement crisis — and we should treat it as such. In fact, framing it in that way may be a more effective tactic, as retirement is top of mind with most employees. 

Whether employees and employers see it as a “care crisis” or a “retirement crisis,” there’s a need to act. It’s possible that by framing it through the lens of retirement, we may be able to help raise awareness for employees and employers about this critical topic.

Zach Iovino is a regional sales director at Trustmark Voluntary Benefits, covering West Virginia as well as parts of Pennsylvania and New York. He may be contacted at [email protected].