LTC Bullet:  Public Misperceptions About Retirement 

Tuesday, March 14, 2006 

Santa Fe, NM-- 

LTC Comment:  Will Rogers said "It's not what we know that gives us trouble.  It's what we know that ain't so."  Here's how that principle applies to retirement, health and LTC planning.  After the ***news.*** 

*** BRAVE NEW WORLD OF LTC.  The Center for Long-Term Care Reform's hour-long conference call on the DRA's revolutionary changes in LTC public policy is a big success.  Feedback has been excellent.  Learn how to translate the Deficit Reduction Act's provisions into more people protected against LTC risk and cost.  To sponsor a call, contact Steve Moses at smoses@centerltc.com or 425-891-3640.  To participate in a call, encourage your company or organization to sponsor a call.  Thanks for your interest. *** 

*** JOIN THE CENTER.  These days long-term care policy is a "work in progress."  To stay abreast of all important developments, join the Center for Long-Term Care Reform, receive our daily publications, and gain access to The Zone, our password-protected area of the public website at www.centerltc.com.  To join, contact Damon at 206-283-7036 or damon@centerltc.com. *** 

*** PUT MORE MONEY WHERE SENIORS' MOUTHS ARE:  LTC experts, especially policy wonks, are apt to think of long-term care financing in the abstract:  public or private; home care or nursing homes; provider- or consumer-driven; etc., etc.  But LTC financing, especially when it is inadequate, has real-world, hard-knock consequences for individuals and their families.  Oral and dental health of nursing home residents is one important area of concern.  Not to put too fine a point on the probe, but dental care for institutionalized LTC patients is not very good.  Low Medicaid reimbursements for nursing home care are obviously part of the problem.  Maybe private dental insurance could make a difference.  But something has to be done.  To explore the whole issue, check out "Improving Dental and Oral Care Services for Nursing Facility Residents," by Linda A. Whitman, PhD and John Whitman, MBA, LNHA of the TRECS (Targeting Revolutionary Elder Care Solutions) Institute at http://www.thetrecsinstitute.org/downloads/DentalCare.pdf. *** 

LTC BULLET:  PUBLIC MISPERCEPTIONS ABOUT RETIREMENT 

LTC Comment:  Following below is a commentary on a report titled "Public Misperceptions About Retirement Security."  That 2005 report was published jointly by the Society of Actuaries, LIMRA and Mathew Greenwald & Associates.  You can find it online at http://www.soa.org/ccm/content/areas-of-practice/special-interest-sections/pension/post-retirement/.  Click on the first .pdf file on the right hand side of the page:  public_misperceptions.pdf.  You may find it helpful to read at least the report's "Executive Summary" before proceeding to the commentary that follows. 

The author of the following commentary is Claude Thau.  Mr. Thau ran a major LTC insurance carrier, served for years as Chairman of the Board of the Center for Long-Term Care Financing, and is currently a Master General Agent who helps LTCi producers nationwide.  He can be reached at 800-999-3026, x2241 or cthau@targetins.com. 

Comments and Interpretations Regarding the Report "Public Misperceptions About Retirement Security"
by
Claude Thau 

1.  Fewer people can rely solely on Social Security and fixed benefit pension plans than in the past, yet only 43% of respondents think they'll need $250,000 or more in savings to have a satisfactory retirement (39% don't have an opinion and 18% think they'd need less than $250,000).  Earning 5% interest on $250,000 of savings would produce $12,500 of pre-tax income/year.  Someone with $50,000 of pre-retirement pre-tax income might get $24,000 from Social Security, producing total pre-tax income of $36,500 if they don't have other sources of income.  Thus, they would be replacing 73% of their pre-retirement pre-tax income, which most experts consider tenuous in terms of maintaining standard of living.   

2.  Many studies ignore, or understate, potential health costs.  If health costs increase 7%/year, a 65-year-old retiree would need over $400,000 to be able to fund their retiree health insurance and Medicare Part B premiums until age 100.  Adding the equivalent of $1500 out-of-pocket costs increases the need to $600,000.  Presuming death at age 90 (a risky gamble) reduces those amounts to $260,000 and $380,000 respectively.  Thus, WITHOUT considering non-health needs, the replacement factors in the previous item are very unreliable estimates of retirement income needs.  Note that this IGNORES LTC costs.   

3.  People expect to earn income longer than may happen, including earning income after retirement.  20% to 30% of retirees retired earlier than they expected for involuntary reasons (their or family members' health; employer changes).  Only 32% of retirees have earned post-retirement income but 68% of pre-retirees expect to do so.   

4.  Retirement longevity is a risk.  Average retirement age is now 62.  Life expectancy at age 65 was reported to be 18 years in 2001.  Even if it does not increase in the future, a 62-year-old retiree would face an AVERAGE life expectancy of 21 years.  Unfortunately, planning for "average" is a big risk, hugely so if a couple assume that neither will live beyond life expectancy (roughly 75% of couples would have at least one partner live beyond life expectancy).   

5.  83% of people age 40+ feel that a Med Supp policy is very important, but only 16% are confident they could afford Med Supp.  No wonder people think they can't afford LTCi!   

6.  People think that it is 50% to 100% more likely that the average person will need LTC than that they will need LTC.  Twice as many people seem to think that they have LTCi than actually do.   

7.  Although retirees and pre-retirees recognize, when asked, that guaranteed lifetime income is important, only 9% chose a lifetime annuity option when they had the right to a lump-sum distribution.  I would add that a flat life income has risks that may not be obvious until later years when inflation and increasing health costs eat away at their standard of living.  We really need increasing life annuities.  Not only has the percentage of employees covered by defined benefit plans tumbled, but the percentage of employees with defined benefit pensions in medium to large companies with increasing annuity options dropped from 41% in 1985 to 4% in 1991.   

8.  Fewer than half of the people making financial decisions have a primary professional advisor and fewer than 25% would typically follow a professional investment advisor's suggestions.  But studies demonstrate that people are not good investors, particularly as they age.   

9.  While people expect to scale down their housing, few do.   

10.  People have been lulled to sleep by recent low inflation rates.  Fewer than 40% consider inflation to be a significant threat to their retirement, even though 80% expect to be unable to maintain the buying power of their savings.  Since 1982, the CPI-E (rate of increase in expenditures of retirees) has EXCEEDED the CPI-U (rate of increase in expenditures of all urban consumers) AND the CPI-W (rate of increase in expenditures of urban wage earners and clerical workers) EVERY YEAR!  Older retirees are more likely to be impoverished than younger retirees.   

11.  People tend to ignore the impact of the death of a spouse.  I experience this when I ask married people where they expect to get LTC.  They expect to get care locally because they presume that their spouse will be alive.  When I ask where they would get care if they were the survivor of the marriage, it is clear that they had not considered that possibility.  Women live to an average age 4 years older than men and, on average, are two years younger than their spouse.  Hence they live, on average, six years longer.  Of course, each couple knows what their age difference is, so they don't need to rely on that two-year average.  Survivors of a marriage are likely to need more income than might be thought because longer-term inflation will have occurred and higher health costs are likely at older ages, yet retirement savings may have declined significantly by the time one spouse dies and income might disappear upon the first death also.