Icon Tax Group: Baby Boomer – Cost of Long Term Care

michael-lodge

by Michael Lodge

As a baby boomer myself I am always talking to clients when we meet about long term care issues.  Bryce Sanders, President of Perceptive Business Solutions Inc wrote a great article on the subject and I would like to share with you.  Us baby boomers, we have to stick together.  For tax issues contact our office at:  877.778.1770

Baby boomers have had a good run. Born between 1946 and 1965, they were center stage for some of the best wealth-creating times in our economy. They benefited from the bull market in stocks; high interest rates in the 1980s, which some locked in with long-term bonds; and the rise in real estate. Add in a booming job market along with defined benefit pension plans. They were in the right place at the right time.

What’s the Real Problem?
As they age, your 50- to 70-year-old baby boomer clients are feeling their mortality. It starts when they turn 50 and those AARP mailings arrive. At age 55, McDonald’s classes them as a senior, able to get benefits like coffee at cheaper prices. Then their group insurance, which they purchased through an association, starts dropping the amount of their death benefit, with a corresponding reduction in premiums. They are afraid of getting older. Worse yet, they are afraid of getting older and having a health problem that eats up their assets.

This has knock-on effects. They feel their children won’t step up to the plate and look after them. Forget the nursing home option, too. They are scared.

The Wrong Answer
Faced with statistics showing the average couple will spend $220,000 on healthcare costs between age 65 and passing away, they wonder how they can get by cheaper. They find ways to comfort themselves, rationalizing “insurance will take care of that.” It might, but you need to buy it first, and it’s better to buy when you are younger and healthy.

They think moving in with their children is a viable option. (Do you wonder what the kids worry about at night?) They rationalize one spouse will look after the other. But what if they both get sick?

Complacency is another issue. They have $5 million in cash and securities. They can weather the storm. If two New Yorkers got seriously ill and a skilled nursing facility was required, this could cost between $102 and $255,000 per person annually. That $5 million gets depleted quickly when you factor in other expenses in their lives.

What’s the Risk of Not Addressing the Situation?
Is this your concern? Are you their advisor for most financial matters, or do you simply prepare their taxes? Let’s assume they rely on you for serious advice. Ignoring the issue might open the door for someone to sell them an expensive insurance policy that may not cover their needs. Meanwhile, the greedy next generation hovers in the background. They offer advice to the parents. If the estate gets depleted, they howl, “Why weren’t we told about long-term care insurance?” They look around for someone to sue.

Is There a Right Solution?
It’s best to have these conversations sooner rather than later. Start by acknowledging their strengths. They take care of themselves. They work out. Their doctor gave them a clean bill of health. We are living longer today than ever before. How old were their parents and grandparents when they died? Yes, there are grim questions.

They may ask, “What are you getting at?” Someday they may need medical care that isn’t paid for by a government plan. It makes sense to explore your options while they are healthy. The government has resources explaining how long-term care insurance works and answers basic questions. This should be a reasonably impartial source.

They should probably look into three areas:

  1. What’s available in long-term care insurance? What does it cover? Where are the gaps?
  2. What do they carry in health insurance now? Get some professional advice.
  3. How can their investment portfolio provide liquidity in case of emergency?