We Are Not Prepared for Long-Term Care
Unless Americans begin to take their long-term care needs more seriously well before retirement, they, and our country, are looking at a scary financial future. That’s the conclusion of Forbes Magazine contributor, Howard Gleckman, in a recent article posted at Forbes.com*
Defining the problem
In a new study, the Employee Benefit Research Institute (EBRI) laid out just how unprepared many Americans are for even a healthy retirement, to say nothing of one that includes significant acute medical problems and long-term care needs.
EBRI found that nearly half (44 percent) of early and late Baby Boomers – and Gen X-ers – are likely to fall short of meeting their basic financial needs in retirement, including their nursing home or home health needs. Thanks to increased enrollment in 401(k)-type plans, there are improvements from the last time EBRI did this study a decade ago, but it shows just how serious this problem is.
Overall, the Boomers and Gen-Xers will need $4.3 trillion more to meet basic retirement needs than they are likely to have, according to EBRI’s Retirement Security Projection Model. The model simulates various life paths and figures the chances of retirees having enough money for the rest of their lives.
Not surprisingly, like many other studies of its kind, EBRI finds that low income people are most likely to fall short. And the most at-risk are single women. For instance, among married early Boomers, each individual would need to add about $22,000 to their savings at age 65 to fill their expected financial deficit in retirement. But single women are likely to fall nearly $105,000 short.
The Challenge
Gleckman asks, “How can we provide good quality care for those millions of people who can’t afford private [long-term care] insurance, are medically ineligible for it, or just plain won’t buy it? We shouldn’t kid ourselves: that is most people.”
EBRI figures that single men need to put aside an extra $32,000 at age 65 to support typical long-term care needs, while single women need to put away nearly $47,000.
Other studies come up with somewhat different estimates, but they all tell the same story. A very large number of us are woefully unprepared for retirement, including the likely need for some long-term care.
The Solution
Private LTC insurance is an appropriate tool for some consumers, but it is not a realistic alternative for many others. Extra savings might be best for some; however, study after study has shown that the return on one’s extra savings for future LTC costs would have to be 12% or more, year over year, in order to realistically be helpful.
The first step is for people to shake themselves out of the state of denial and fear in which they currently have allowed themselves to settle. Since that’s not likely to happen and since government has not shown any capacity for being able to handle this problem, Boomers and Gen-xers are likely to bear a heavy emotional, psychological and financial burden in taking care of one another for lack of choices and funds to share the weight of that burden.
Howard Gleckman is author of the book “Caring for Our Parents” and resident fellow at The Urban Institute, where he is affiliated with the Tax Policy Center and the Program on Retirement Policy. He also writes a tax and budget policy blog, TaxVox, which you may read at Forbes.com or at http://taxvox.taxpolicycenter.org/ Before joining Urban, he was a senior correspondent in the Washington bureau of Business Week.
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