The good news is that American’s are living longer. The bad news is they’ll have to find a way to pay for it—and quick. With savings rates for the average American depressingly low, simply paying for retirement now is increasing difficult, let alone when longer life spans are factored in.
In roughly two decades, overall global life expectancy has increased from 64 years in 1990 to 70 years in 2011, something the World Health Organization calls “dramatic.” It equates to an average increase of eight hours a day over the last 20 years, according to the organization.
Closer to home, the average life expectancy at birth in the United States for 2016 has risen to 79.56 years, and is soon expected to break the 80-year mark. And remember, 50 percent of the population will live beyond that. Looking back a century reveals just how far it’s come; the University of California-Berkley reports that in 1916, men averaged 49.6 years and women 54.3 years.
Nowhere is this longevity increase and accompanying expense felt more than in long-term care. Genworth Financial’s “Annual Cost of Care Study” finds that nationally, the 2015 median hourly cost for a home health aide hired from an agency is $20 per hour.
The cost to receive care in an assisted living facility is rising at a much faster rate. The median annual cost for care in an assisted living facility is $43,200, with the comparable cost for a private nursing home room at $91,250. In some states that cost is expected to increase five to seven fold in the next two decades.
Without a doubt, it’s worrisome, yet not enough for many Americans. The Motley Fool, citing numbers from the Federal Reserve, notes the median balance of retirement accounts held by workers totals less than $60,000. The median account value for Americans aged 35 to 44 is just $42,700, while the median value for Americans aged 55 to 64 years old is $103,000. It’s enough to fund less than three years of income for the average American. Considering there’s a good possibility retirement will last 20 or even 30 years, the challenge becomes clear.
Most financial advisors that are well-versed in long-term care funding strategies note that it’s only after an individual has had a first-hand experience with the high cost of medicine and other late-in-life issues that the value of planning hits home. For many, seeing a parent or sibling struggle financially is the call-to-action to get their own affairs in order.
“The firm had a client whose parents had multiple sclerosis, cancer and heart issues,” says Robert Cooper, president of Robert Cooper and Associates in Kernersville, North Carolina, a firm that specializes in wealth planning and protection. “Obviously, dealing with the stress had them worried about their own situation, and they wanted to make sure they were covered.”
Cooper, who offers a free retirement income assessment, was able to secure a fixed-indexed annuity with a long-term care rider. The annuity portion offered protection against market downturns while allowing the client to participate in market gains, and the long-term care rider insured against the possible cost of the aforementioned risk of nursing home use and other related issues.
A number of insurance companies now offer long-term care riders in their fixed-indexed annuity contracts, a product development meant to meet the demands of an aging demographic. An added benefit is that some will cover the long-term care risk regardless of previous health issues, with no underwriting or health history questionnaire required.
Research and development into age-related products like these—which have increased in recent years—are only slated to increase even further. It couldn’t come at a better time, and here’s why; the SENS Foundation, an organization dedicated to longevity research, believes the first person to live to age 150 has already been born.