The idea of a retirement spent puttering around the house and the golf course has become an outdated notion. Today’s retirement is about being engaged in meaningful activities, staying fit, having a solid command of financial resources and even continuing to generate income. Also important? Making the best use of entitlements, being prepared for but keeping the need for long-term care at bay, and living a well-balance lifestyle.
Retirement today is about helping your clients stop doing what they have to do and start doing what they want to do.
Getting to this point requires creating a balance between financial planning, health and long-term care security, and lifestyle enrichment. Helping your clients bring these three elements together so that they can retire in a way that reflects today's needs. In this column, we will be talking every month about the strategies and tools it takes to create a well-balanced retirement.
The United States is facing a retirement crisis unlike anything seen before in our nation’s history.
We will provide you with information you can use in your practice to discuss with clients to help them address their concerns and achieve their goals -- no matter what stage of retirement planning or living they find themselves. Every column will provide the reader with a relevant topic, information they can use, and practical tools that will both help their clients and grow their business.
Areas we will be covering in the Retire Like a Genius column include:
Insurance and Annuity strategies to help families secure their futures
Financial Planning and Investment strategies to help families accumulate and prolong financial resources
Maximizing entitlement programs to help families get the most out of Social Security, Medicare and Medicaid
Health Insurance to help families cover the expensive costs of care
Estate Planning, Wills and Trusts to help families avoid unneeded problems after a loved one passes
Long-Term Care insurance to help families avoid the financial consequences of declining health of a loved one
Alternative Long-Term Care funding solutions to help families address an immediate need to pay for care
Lifestyle issues to help people address their physical and mental health and secure their ability to happily age in place for as long as possible
So, let’s get started by defining the playing field we are all working on – which is particularly relevant in today’s disrupted economic environment.
The United States is facing a retirement crisis unlike anything seen before in our nation’s history. The bad news is that based on the math it’s clear there is a major deficit between what Americans need for a secure retirement and what they are saving. Complicating matters is the fact that statistically people’s perceptions about aging, retirement, and the eventual need for expensive long-term care services are opposite of reality.
U.S. has an aging population with a declining life expectancy and limited financial safety nets
People are underestimating the costs of retirement and not adequately preparing
People are carrying too much debt and burdens into retirement
Social Security is not enough to live on
So, what do the statistics tell us about the realities?
Population and Longevity
The U.S. is an aging population that has been experiencing a decline in longevity. Over the last two years average life expectancy has declined from 78.9 years to 76.6 years placing the U.S. as much as five years behind many other comparable western nations. According to the U.S. Census Bureau, a male who is 65-year-old today has a 35% chance of living to 90, while for a female the chances increase to 46%. By 2030, 73 million Americans will be age 65 or older. That’s 21% of the population. Today, 55 million Americans, or 16.9% of the population, are age 65 or older.
2. Underfunded for Retirement
The percentage of income saved it would take to replace 70% of pre-retirement income levels doubles from age 35 to almost impossible levels when delayed to age 45. Making matters worse is that almost half (46%) of people during peak earning and savings years are dipping into retirement accounts at exactly the time they need to be adding to them. While 72% of workers have access to a workplace retirement plan, only 56% are enrolled, according to TD Ameritrade and Center for Retirement Research Boston College.
3. Pressure on Retirement Savings
Low savings rates compounded by family pressures to help support generations ahead or behind those during peak earning years has created a distressed “Sandwich Generation” facing imperiled future retirement prospects. According to a Merrill Lynch and Age Wave/GoBankingRates study, 30% of people aged 55 or older have less than $50,000 saved. About 33% have nothing saved for retirement. Other savings pressures include parents continuing to support adult children.
4. Continuing to work beyond retirement age
Although an active and purposeful retirement that can also produce income makes for a longer, healthier and more fulfilling life, many people are being facing a retirement with no choice but to continue working to survive. Social Security was never meant to be the majority of a person’s income in retirement, but at least 50% of people collecting rely on it for the majority or even entirety of their retirement income. An increasing number of people plan to work past the age of 70, whether full- or part-time, according to SSA/AAG studies.
5. Debt in retirement
Debt has become a growing element in retirement unlike the past. Seniors are now carrying more debt into their later years than ever before which has a substantial draining effect on their savings and income as they pay interest and continue to carry and service these liabilities. Many more Americans are carrying a mortgage into retirement. In addition to housing costs, school loans and medical bills also are adding debt in retirement. According to the Federal Reserve Bank of New York, total debt for Americans 70 and over increased 543% from 1999 through 2019; this was the largest percentage increase for any age group. According to Experian data, the average student loan balance among consumers in their 70s was $28,757 in Q2 2019 – up from an average of $27,371 in Q2 2018.
6. Impact of health and long-term care costs
The ticking timebomb for the majority of retirements is the lurking specter of failing health and the expensive costs of long-term care. According to U.S. Department of Health and Human Services data, it is estimated that:
Someone turning age 65 today has almost a 70% chance of needing some type of long-term care services and supports in their remaining years
Women need care longer (3.7 years) than men (2.2 years)
20% of today's 65-year-olds percent will need long-term care for longer than 5 years
Average couple retiring in 2019 at 65 can expect to spend $285,000 on medical costs in retirement, according to Fidelity.
7. Who pays for care?
Long-term care is a very expensive proposition, and too few people adequately plan for or can handle these costs once they arrive. Coverage from Medicaid and Medicare is not guaranteed and limited in its scope. Much of the burden falls on family care givers and costs being covered out-of-pocket. According to a 2021 Genworth study, the monthly median costs for home health services was approximately $5,000, while it was about $4,500 for an assisted living facility. Monthly median costs for nursing home care ranged from $7908 (semi-private room) to $9,034 (private room). LTCi paid for about 4% of such privately paid expenses. Medicaid paid for about 35% of care costs, while Medicare paid about 25%. About 7% of adults over 50 (7.5 million) have LTCi.
8. Who is planning for the costs of care?
There is a major disconnect between what people believe for their own futures in retirement and the realities of long-term care. People say they would seek long-term care insurance if they experienced a health crisis but have done little to no planning. They believe they will be able to handle long-term care in their future if needed, but don’t think is will ever happen to them. According to the AARP’s Long-Term Care Readiness Survey, roughly half (46%) incorrectly believe Medicare covers care in a nursing home or care in the home from a home health aide. Also, studies have shown that a majority believe they will be able to afford and access the care they want when they need it, and many of those survey don’t believe they will need care in the future.
Political leaders fully understand the seriousness of the growing retirement and long-term care crisis. A number of legislative initiatives have been introduced on Capitol Hill designed to help people better plan for and live in retirement.
SECURE Act Setting Every Community Up for Retirement Enhancement (SECURE) Act R. 2954 currently passed in the House of Representatives.
Provide more incentives and opportunities for Americans to better prepare for retirement
Mandatory automatic enrollment provision for new retirement plans
Increased tax credits for small business owners to offer retirement plans to employees
Social Security Act R. 5723 currently referred to the House Ways and Means Committee’s Subcommittee on Health.
Increase the minimum monthly benefit for low-income retirees
Revise how the cost-of-living-adjustment formula is calculated to reflect the realities of the cost of living for seniors
Well-Being Insurance for Seniors to be at Home (WISH) Act R. 4289 currently referred to the Subcommittee on Social Security.
Help more people access long-term care insurance coverage
Create a new federal long-term care insurance trust fund through a payroll tax of 0.3% on both workers and employers
Americans Giving Care to Elders (AGE) Act 234 currently referred to the Senate Finance Committee.
Provide financial relief for family members acting as caregivers
Create a tax credit for the loss of income and out-of-pocket costs for people providing care for an aging relative
Senior Health Planning Account (SHPA) ActR. 5137 currently referred to House Ways and Means Committee.
Allow seniors who need funds for health and long-term care expenses to use tax-free proceeds from selling their life insurance policy through a life settlement
Funds placed in an HSA style account (Senior Health Planning Account) dedicated to covering qualified health and long-term care related expenses tax-free
Agents and advisors are in a unique position to be problem solvers for people trying to plan or live in retirement. Understanding the lack of awareness that cuts across the generations about their financial futures in retirement is the key to becoming a true resource for clients. Through the efforts of agents and advisors there are many opportunities to help people better plan for a more secure retirement. Understanding the realities of where most people are when it comes to planning for the future will help advisors give better advice and guide people to the right solutions to meet their unique needs.
Join us every month as we continue to talk about what you need to know to help people Retire Like a Genius!
Chris Orestis, CSA President of Retirement Genius, is a nationally recognized financial, health/LTC, and retirement issues expert. He has over 25 years’ experience in the insurance and long-term care industries and is credited with pioneering the Long-Term Care Life Settlement over a decade ago. Known as a political insider and senior issues advocate, Orestis is a former Washington, D.C. lobbyist who has worked in both the White House and for the Senate Majority Leader on Capitol Hill. In 2007 he founded Life Care Funding, in 2017 he founded the LifeCare Xchange, and in 2020 he founded Retirement Genius. He is author of the books Help on the Way and A Survival Guide to Aging-- with a third book Retire Like a Genius to be published in 2022. He has appeared in The New York Times, The Wall Street Journal, CNBC, and many other leading media outlets.