March 04, 2013
Children's Inheritance First to Go When Paying for Long-Term Care Costs
Nationwide Financial Survey Also Shows Most Not Counting On Their Children for Support in Retirement
Columbus, Ohio - Those expecting to leave loved ones an inheritance should not bank on it – especially if they are not planning for long-term care (LTC) costs in retirement. According to a Nationwide Financial survey, about half (48 percent) of those age 50 and over agree that paying for their LTC costs will take away from the money intended for their children as an inheritance, and 43 percent would rather use these funds to cover LTC costs than pass money to their heirs.
“A parent’s legacy to his or her children used to include leaving behind an inheritance,” said John Carter, president of distribution and sales for Nationwide Financial. “However, the escalating costs of health care and lack of proper planning have many Americans hoping just to break even and not be a burden to their children.”
The Harris Interactive poll released today that surveyed 813 Americans age 50 or older with at least $150,000 in income or investible assets revealed that only 21 percent say they have expectations that their children will help them in retirement – including providing physical care and financial support, and letting them live in their homes. Fortunately, nearly four in five (78 percent) Boomers say that they do not expect their children to support them in retirement.
Developing a Plan - Starting Difficult Discussions
While nearly half (45 percent) of respondents have discussed LTC costs with their spouse, only 10 percent have discussed it with their children and only six percent with their parents. Worse yet, less than a quarter (23 percent) of respondents say they have discussed LTC costs with their financial advisor. Respondents indicated that they find it difficult to discuss LTC (35 percent), most noting that the topic is depressing (33 percent).
“Though it’s difficult to start these conversations about seemingly somber topics, families and advisors need to put the difficult conversation in perspective by thinking about the future and how a conversation now can make a situation easier down the road,” said Carter.
Only one in four (24 percent) of respondents say they currently own LTC insurance, however industry figures show that only about 11 percent of people over 55 actually do. Nearly a quarter (23 percent) of respondents are not planning at all for LTC expenses and others say they plan to cover the costs with their 401(k) or retirement savings (22 percent) or their personal savings (21 percent).
Alarmingly, more than three in five of those surveyed (64 percent) say they do not believe that state laws can force children to pay their parents’ unpaid nursing home bills. However, 29 states currently have laws that could make a patient’s children responsible for unpaid LTC bills.
“It is important to start discussing LTC planning as a family and develop a well thought out plan so that parents and children understand where LTC funding will come from and both parties feel secure in the approach,” Carter said. “Proper retirement planning should include some type of LTC insurance protection that can provide funds for someone should they have LTC expenses.”
The most commonly known long-term planning choice is the traditional stand-alone LTC policy. While it is very customizable, some people don’t like the “use it or lose it” nature of these products. There are also some innovative products available – including a LTC rider that can be added to life insurance coverage when purchased.
“With a life insurance/LTC rider combo, the death benefit is available to be accelerated, while living, for LTC expenses,” Carter said. “However, in the event no long-term care is needed, the insured has a death benefit to leave to heirs.”
Estimating the Cost of LTC
Advisors say only 15 percent of their clients have a good understanding of the potential costs of LTC. People living to age 65 have a 70 percent chance of needing some type of LTC in their lifetime.1 The average cost per year for a nursing home is projected to be $265,000 by 2030 – and that is not even for a private room.2
Nationwide Financial launched the Personalized Health Care Assessment program to help advisors estimate their clients’ health care expenses in retirement. The program uses proprietary health risk analysis and up-to-date actuarial cost data such as personal health and lifestyle information, health care costs, actuarial data and medical coverage to provide a meaningful, personalized cost estimate that will help clients plan for medical expenses.
“Instead of guessing, advisors can use this tool to provide a fact-based cost estimate based on their clients’ health risk and lifestyle and build a plan from there,” said Kevin McGarry, director of Nationwide Financial’s retirement income strategies.
Advisors can visit www.nationwidefinancial.com/healthcare to learn more.
The Long-Term Care (LTC) Study was conducted online between Sept. 17 and Sept. 24, 2012. The respondents comprised 813 adults ages 50+ having $150,000 or more in annual household income/investable assets.
Nationwide Mutual Insurance Company, based in Columbus, Ohio, is one of the largest and strongest diversified insurance and financial services organizations in the U.S. and is rated A+ by both A.M. Best and Standard & Poor’s. The company provides customers a full range of insurance and financial services, including auto insurance, motorcycle, boat, homeowners, pet, life insurance, farm, commercial insurance, annuities, mortgages, mutual funds, pensions, long-term savings plans and specialty health services. For more information, visit www.nationwide.com.