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26 Jan. 2015 | Comments (0)

Recent research from the Society of Actuaries reminds us that retirement planning without considering long-term care is likely to get the individuals planning into trouble. The Society of Actuaries newly released monograph: Managing the Impact of Long-Term Care Needs and Expense on Retirement Security Monograph provides various views on how retirement security and long-term care intertwine and offers ideas for the future of the long-term care system. The system is in a state of flux, creating challenges for employers, employees and policymakers.  Employers need to decide whether they will help employees cope with these challenges and whether they will join the policy debate. This article deals with the challenges for employees and how employers might help.

The following are some of the major findings from the monograph that affect employees and retirees:

Many people will need support as they age. It is most often limited, but for some people it will be a very large amount and/or support will needed over a very long time. About 20 percent of the people reaching age 65 will need some support for five years or more. Employers can help employees by including these needs in planning tools, worklife programs, and retirement education offered.

People without LTC insurance need greater assets in order to pay for a major LTC event should one occur unless they qualify for Medicaid. People who use their personal assets to pay for care are not subject to the requirements and restrictions in insurance policies.  In contrast, insurance is a good way to finance defined situations for a price. This is an issue for planning systems. The monograph paper The Impact of Long?Term Care Costs on Retirement Wealth Needs by Vickie Bajtelsmit and Anna Rappaport, points out that in the base case modeling, a family at the 75th percentile nearing retirement would need about $550,000 to be 50% sure of being able to be secure in retirement but about $1,000,000 to be 95% sure of able to be secure in retirement. 

The difference of $450,000 is largely due to the effect of shocks, and long-term care is one of the major contributors. Insurance coverage markedly reduces this difference. The 75% percentile family has $105,000 of annual income and $250,000 in non-housing wealth. The paper describes the model and the assumptions used in detail.

The family plays a major role in supporting those who need care. For many families, offering support is loving and important, but it can come with a large and often hidden cost that impacts the workplace. Business incurs a cost (which may often be hidden) when employees are involved in caregiving in lost productivity and increased health care expenses.

The monograph paper, The 65 Plus Age Wave and the Caregiving Conundrum: The Often Forgotten Piece of the Long?Term Care Puzzle by Sandra Timmermann, points out that the economic value of family caregiving is $450 billion annually, and that the lost lifetime wealth for caregivers who drop out of the workforce, considering the impact on Social Security, wages and savings is $303,800. For those who reduce their work and do not drop out, there is a smaller impact, but it still potentially considerable. 

Caregiving is a form of intergenerational transfer in some families. For caregiving family members, caregiving over a long time may mean giving up a job, or moving to part-time employment, and/or giving up a great deal of personal time which impacts their health. Some caregivers also spend considerable out-of-pocket dollars. The consequences of caregiving on the future retirement security of the caregiver are usually not considered. For business, there are issues related to supporting the caregiver so they can remain healthy and productive, and also to including these issues in worklife programs, educational materials and planning systems.

In couples, the healthier member is likely to help the other member of the couple who needs help. LTC for the first member of the couple who needs help can be costly and can drain assets that would be available for the second member of the couple. Adequate survivor benefits including life insurance and retirement savings are important to reduce the risk that LTC for the first to die will leave the survivor destitute. LTC insurance can also help protect the survivor. Employers need to decide what survivor benefits to provide and whether to encourage or offer LTC insurance. 

LTC insurance is an important option to make funds available to buy market services when needed. This is particularly important for middle-class households. It is better to buy early when costs are lower and insurability is usually not an issue. The match between what people need and insurance is imperfect, and insurance is not always the best solution. This is an area where employers can help in several ways: by encouraging purchase of insurance, with payroll deduction and by getting a better deal for employees.

A healthy lifestyle and other preventative measures are important to help to reduce the chance of needing LTC and the potential intensity of the care needed. However, this offers no guarantee that LTC will not be needed and needed for a long time. The same efforts that support wellness generally will help reduce LTC costs.

In the current landscape, it is clear that these issues are complex and there are no simple solutions. Employers will bear costs resulting from long-term care needs whether they offer education and/or supportive services or not.

Please tune in next week when I will post a follow up blog which includes a discussion of some of the policy and community issues related to long-term care.

The Society of Actuaries newly released monograph: Managing the Impact of Long?Term Care Needs and Expense on Retirement Security Monograph is a collection of papers in response to a call for papers issued by the SOA’s Committee on Post Retirement Needs and Risks in partnership with the Society of Actuaries Long-Term Care Section to explore the impact of long-term care needs and expense on retirement security from a variety of aspects. The papers cover topics such as the impact on retirement savings needed to have a good expectation of success in retirement, the impact on family and caregivers, issues in the insurance markets, and ideas for changing long-term care insurance and the long-term care system.

The papers help expand thinking on how long-term care events impact families as well as approaches to mitigating the impact of these events and related issues.

 All of the papers can be downloaded. The monograph starts with an overview chapter and this is followed by a document compiling the 12 abstracts for the papers.

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  • About the Author: Anna M. Rappaport

    Anna M. Rappaport

    Anna Rappaport is an internationally recognized expert on the impact of change on retirement systems and workforce issues. Following a 28-year career with Mercer Human Resource Consulting, Rappaport h…

    Full Bio | More from Anna M. Rappaport

     

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