This may be remembered as the year advisors found out that even their wealthiest clients were worried about long-term health care costs.
Over half of wealthy Americans with assets ranging from $500,000 to over $10 million say “providing for my health and wellness” is their primary financial concern, according a survey by PNC Financial Services Group.
Their receptiveness presents advisors with an opportunity, because many of these same Americans may have less than they need to take care of themselves should they become ill or disabled. Of the 1,500 people surveyed, 69 percent have not purchased long-term care insurance for themselves or their spouse. That there has been a spread between concern and purchase isn’t an accident.
“When people come to us with health care cost concerns, they’re usually not in good health and they’re older,” says Leslie Beck, a CFP with Compass Wealth Management in Maplewood, N.J. “At that point they really have just a couple of options, either paying out of their own pocket by using accumulated assets or they can rely on family or friends to take care of them.”
Neither strategy works well. If they buy long-term care, then they’ll have to pay much higher premiums than if they were young and fit. Depending on family is not ideal either, and those intent on falling back on their relatives may find out it will be an even bigger problem in the future, Beck points out.
In the past, parents have made it easier for their children to take care of them by transferring their assets to them. This way, assets were protected and the parents qualified for Medicare. They can still do that, but it’s going to take a lot more planning.
A new law requires that anyone who wants to transfer their assets to a different name needs to do so five years prior to their eligibility for federal medical assistance. The current time frame is just three years. “The government is clamping down on the time people have to shift assets to other family members,” Beck says.
Not surprisingly, many of the respondents to the PNC survey are worried that they might never get Medicare. About 42 percent see the potential insolvency of the program as a major threat to their family’s wealth.
Also, as life expectancy increases—now about 77 years, according to the National Center for Health Statistics—the fear of consuming assets for health care rises. One Wachovia advisor says clients in their 50s are the most concerned. “People in their 50s are the most terrified group when it comes to health care costs,” she says. “They are not concerned with tuition payments any longer, they realize they want to retire and they are convinced that Medicare will no longer exist in 15 years when they are ready for it.”
Advisors also note the sudden need for including health care costs into long-term financial plans. “Twenty years ago, I basically didn’t budget for health care costs and it didn’t hurt anyone,” she adds. But for the groups “terrified” of their ability to manage long-term care, she sets aside a large amount of money specifically for unpredictable medical costs. “I tell them, 'Let’s just pluck $100,000 and set it aside for a sudden medical problem.' ”
The children are worried, too. Twenty-five percent of those with living parents say they are worried about their parents’ lack of long-term care insurance.
“Many people focus on financial growth strategies but want to avoid the fact that we will all get older and need some level of medical care in the future,” says Thomas Melcher, chief investment officer of PNC’s wealth management unit.
Still, as the results of the survey suggest, there may be a lot of aging Americans and their children who are open to a new focus, and that focus may be on long-term care insurance.