Todays U.S. Senior Citizen Couple Needs $85,000 To
Insure Long-Term Care Costs
50-year old Baby Boomer earning $50,000, providing
four years of long-term care to a family member, could lose more than
$140,000 in wages, retirement plans, and social security
June
27, 2008 A U.S. couple that is 65 years old in 2008 will need $85,000
to insure against the expense of long-term care in the future, according
to a new estimate by Fidelity Investments.
In just 10 years, approximately 50 million
Americans will be over the age of 65. More than half of these
individuals will require at least one year of long-term care, and 20
percent will require more than five years of care before they die,
according to the 2008 Cost of Care Study (April 2008) by Genworth
Financial (See sidebar for link to story).
With the average cost of a one-year stay in a
private room in a nursing home estimated at more than $76,000 , not
preparing for these potential costs can result in personal and financial
burdens for family members.
Between 75 and 80 percent of all long-term care
given in the United States is provided by a family member. New Fidelity
research finds that currently there are 29 million Americans providing
informal long-term care to family members, and spending an average 34
hours per week providing this care5, nearly equivalent to a full work
week.
"With the cost of certain long-term care services
rising by as much as 7% per year for the last 5 years, retirees who
don't factor these future potential costs into their overall retirement
plan, may be surprised by the financial impact on themselves or their
family members," said Joan Bloom, senior vice president, Fidelity
Investments Life Insurance Company.
To illustrate the potential financial burden,
Fidelity estimates that a 50-year old Baby Boomer, who is earning
$50,000 annually, and ends-up providing a total of four years of
long-term care to a family member, could lose more than $140,000 in
wages, retirement plans, and social security over his or her lifetime.
"Having helped more than 100,000 caregiving
families, we have found that in addition to the financial impact, these
caregivers also experience great emotional and physical tolls," said
Kathleen Kelly, executive director of Family Caregiver Alliance.
Editors Notes:
Estimated cost for today couple
The estimate by Fidelity of the cost for
todays couple to insure for long-term care is based on a joint
long term care insurance policy issued by Genworth Financial
Insurance Company on a 65 year-old couple in moderately good
health.
The figure represents the present value
of 17 annual premium payments of $6,710. The policy would
provide reimbursement benefits of at least $624,000 for long
term care costs incurred by the couple. A guaranteed 5% simple
inflation protection feature is included. Life expectancy is
assumed to be 17 years for males and 20 years for females. No
claims are assumed prior to the first death. The ability to
obtain coverage depends on an individual's health status and
family history.
Boomer care costs
The estimate for cost of a 50-year old
Boomer represents the aggregate opportunity cost for a
hypothetical (age 50) family caregiver against compensation in
current dollars of $50,000, retirement plan contributions,
pre-tax net gain potential on invested retirement assets, and
social security retirement benefit estimates during the periods
when the individual is a) directly engaged in providing care to
a hypothetical age 80+ family member, b) fully returned to work
after 4 years of managing caregiving, and c) retired.
Key methodology assumptions are
a) the workplace adjustment equals 20% of lesser earned
income potential during active caregiving with secondary
opportunity costs associated with a missed promotion
opportunity,
b) employer matching of 100% of the employee's elective
salary deferral up to 5% of eligible compensation,
c) a 'Balanced' asset allocation mix for retirement assets
both pre-retirement and post-retirement, and d) a Social
Security benefit growth of 2.8% ( SSA Trustee's alternate II )
after factoring in lesser earned income crediting during the 4
years of caregiving and the subsequent 11 years when the
caregivers retirement commences at age 67.
"For example, often those providing long-term care
to a family member develop health issues of their own, and more than
half report suffering from depression. Saving for and insuring against
long-term care costs, and exploring community resources and
organizations that may offer free or low-cost services, can help
minimize the family caregiver burden."
Long-term care insurance benefits go beyond asset
protection -- insured individuals may also benefit from increased choice
in the location and quality of care.
And, according to a Fidelity study about retiree
well-being, 36 percent of retirees who describe themselves as happy,
state that having long-term care insurance is a major contributor to
their happiness and peace of mind.
For people who decide that long-term care insurance
is the right way to plan for potential long-term care costs, Fidelity
recommends they look for insurance policies that offer these top six
characteristics:
1. A policy premium that fits comfortably
within a family's financial means
● Investors should carefully forecast their ability to pay the
premiums year after year.
2. Backing by a carrier with a strong track
record of paying claims
● The ability to receive policy benefits depends on the integrity of
the company and its history of financial strength.
3. Comprehensive coverage that covers
in-home as well as facilities-based care
● Families want flexibility in terms of the services they opt for
when facing a long term care challenge.
4. A benefit period of at least 2, but no
more than 4 years, for each person
● Fidelity analyzed data on over 6 million long-term care insurance
policies sold between 1984 and 2004. It found that 75 percent of all
individuals would not have exhausted benefits lasting 2 years. A 4-year
benefit period would have been adequate 90 percent of the time.
5. Five percent guaranteed annual benefit
increase except for buyers older than age 75
● Long-term care services are not immune to price inflation. To guard
against this risk, those under age 75 should consider purchasing a
policy with inflation protection.
6. For joint policies, a "shared coverage"
provision that enables each insured person to tap the other's benefits
if necessary
● This valuable flexibility is usually worth the increased cost.
"While long-term care insurance is the right
solution for many people, it may not be right for everyone," said Bloom.
"Individuals will naturally need to weigh the costs
of insuring against long-term care risks based on their own individual
situation including their health history, income, savings and age. All
Americans should at least understand the potential cost of long-term
care, learn about their choices and develop a plan for how to access
care and cover those costs, if needed."
Sources:
About Fidelity's Long-Term Care Research
Data for Fidelity's Long-Term Care Research was collected between June 3
and June 9, 2008 by Synovate, Inc., an independent research firm. The
study consisted of 2,000 completes with adults 18 years of age or older
in the contiguous U.S.A. The sample consists of individuals selected
from an online panel, and is balanced to be representative of the
general population based upon region, gender, age, and household income
data from the U.S. Census Bureau.
About Fidelity Investments Life Insurance Company
Fidelity Investments Life Insurance Company (FILI) and for NY residents,
Empire Fidelity Investments Life Insurance Companyฎ, NY, NY, develop and
market their own insurance products, in addition to providing access to
those of other well-known insurers. These products are made available to
investors through FILI's internal distribution arm, Fidelity Insurance
Agency, Inc. (FIA). FILI maintains an AA (very strong, 2nd highest)
rating from S&P and an A+ (superior, 2nd highest) rating from A.M.
Best8.
About Fidelity Investments
Fidelity Investments is one of the world's largest providers of
financial services, with custodied assets of more than $3.4 trillion,
including managed assets of more than $1.6 trillion as of May 31, 2008.
Fidelity offers investment management, retirement planning, brokerage,
and human resources and benefits outsourcing services to 24 million
individuals and institutions as well as through 5,500 financial
intermediary firms. The firm is the largest mutual fund company in the
United States, the No. 1 provider of workplace retirement savings plans,
the largest mutual fund supermarket and a leading online brokerage firm.
For more information about Fidelity Investments, visit
www.fidelity.com.
Keep up with the latest news for senior citizens, baby
boomers
June
27, 2008 A U.S. couple that is 65 years old in 2008 will need $85,000
to insure against the expense of long-term care in the future, according
to a new estimate by Fidelity Investments.