Don’t shy away from the LTCi conversation

By Larry Nisenson

Google “retirement planning” and you will be overwhelmed.

There’s so much content - some good, some useless, some misleading - that most people will be exhausted before they even start.

Yet dig a level deeper and you’ll discover there's one key component that’s missing from most retirement planning advice: the role of long-term care insurance.

It’s essential that retirement planning include LTCi in all three traditional phases of retirement planning: accumulation, income and estate planning/wealth transfer. These phases are influenced by what must be a careful calibration of an individual’s future needs - which are shaped by factors such as inflation, market conditions or shifting priorities.

Although these assumptions are well-established and most advisors use robust strategies to help clients navigate the process, the Achilles heel is the impact of a LTC event on a client’s portfolio.

Consider the statistics.

There are roughly 7 million LTCi policies in force today and more than 65 million U.S. residents are over the age of 65. That gap is astounding. According to Morningstar, 70% of these consumers will need LTC services and 48% will need some sort of paid LTC service in their lifetime.

It’s clear that most consumers have not planned for this cost, and many advisors shy away from the difficult conversation. People are reluctant to discuss aging but must prepare for what is coming. Avoiding the conversation puts retirement savings at risk and can have a dramatic impact on the lives of the client as well as their families.

Adding to this issue is the troubled history for the LTCi product. Legacy products were mispriced by carriers that underestimated rising health-care costs and other pricing factors. This forced many carriers to seek large premium increases or reduced benefit options for policyholders. The abandonment of carriers has forced millions to confront a difficult economic reality, should they be unable to remain at home. According to Genworth’s Cost of Care study, a private room in a nursing home costs more than $108,000 per year nationally. Alternatively, the hourly rate for an at-home caregiver is $27 per hour.

With the average long-term care claim lasting more than two and a half years, it’s not hard to see the portfolio impact. Let’s look at the math.

The average consumer has saved $141,000 for their retirement and is likely going to live in retirement for 18 years, according to Vanguard. How will those economics cover a long-term care event?

With inflation and health care costs rising and retirement accounts impacted due to market volatility, the number of people who can self-pay is declining.

In truth, advisors who don’t discuss LTC planning with clients run the risk of angry clients when their retirement accounts are depleted, leaving them scrambling to cover expenses.

Given this reality, what LTCi covers is often misunderstood. LTCi covers the non-medical costs associated with aging-related declines. These needs are centered around the six activities of daily living which include eating, bathing, toileting, dressing, continence and transferring.

LTCi policies kick in when policyholders need help with two of these six activities, or they have severe cognitive impairment. Consumers who had the foresight to purchase coverage can be reimbursed for expenses incurred for care at nursing homes, assisted living facilities or at home, where most consumers prefer to stay. To plan for these unpredictable costs, incorporating LTCi into retirement planning early will deliver enough coverage at a reasonable price, and protect retirement savings. LTCi also allows a financial advisor to maintain a long-term investment strategy, knowing that these costs are covered by insurance.

There are other strategies available for funding care-related insurance policies. Employer benefits is one place to look - those policies are often less expensive than an individual policy. Financial advisors also can recommend funding strategies to pay annual premium costs that could be less disruptive to a portfolio or consider combination products that marry LTC needs with either life insurance or an annuity. Such products allow consumers to cover their potential care costs while simultaneously solving other portfolio needs.

New products offer built-in wellness programs. Instead of simply having policyholders wait for age-related problems to develop, these programs help people get ahead of them, with personalized, science-based interventions that help them live independently for as long as possible. These products combine retirement planning, insurance and wellness into a single offering that covers all three concerns mentioned previously.

Is there one perfect solution to the LTC dilemma? Of course not. What is clear is that the gap between overall need and those with coverage continues to grow and must be solved. Addressing successful aging through both insurance coverage and wellness programs allows consumers to help narrow their own personal needs gap and age on their own terms.

Larry Nisenson is chief growth officer at Assured Allies. He may be contacted at [email protected].