Elder Care: An Investment Goal No One Plans For

When talking with your clients about their specific investment goals, what usually comes up in the discussion? Retirement is an overwhelming favorite, right? How about funding a college education for children or grandchildren? Perhaps starting a small business? Maybe even that dreamed of vacation home? These are all worthy and wonderful aspirations.

“Identifying a client’s goals is at the heart of integrated wealth planning,” my colleague Lauren Foster wrote in her account of the presentation by Jean L. P. Brunel, CFA, at the 68th CFA Institute Annual Conference. “And it is questions about dreams and nightmares that allow advisers to more fully understand what clients hope to accomplish with their wealth.”

To paraphrase Ashvin B. Chhabra, who also believes that advisers should start with investor aspirations in order to develop a successful framework, “investment is more about understanding one’s goals in life and setting strategies to meet them, than it is about ‘beating the market,’ the traditional definition of financial success.”

So again, what are those individual dreams and aspirations that you and your clients plan for?

Is elder care one of them? If not, it should be.

Of course, not every major life event can be anticipated. But elder care is one item that should be given closer scrutiny — and not just elder care for your clients, but also for their parents and loved ones.

As someone who was thrust into the elder care quandary without warning and with little to no knowledge of it, let me tell you what I have since found out the hard way.

First of all, the statistics: The number of seniors aged 85 and over in the United States will triple by 2050. As of 2015, there were already more than 89 million people over the age of 65. These numbers are staggering. They are important, too, because these are the people who will need the most care. These are the ages of my own parents and most parents of my generation.

“The cost of healthcare in America is already over $3 trillion/year, and that doesn’t even include the roughly $450 billion provided by unpaid family members,” according to Wayne Caswell. Study Caswell’s accompanying infographic. Every financial adviser should review it when discussing retirement needs with their respective clients. It is sobering.

“Most disease and health spending is age-related,” Tom Emerick observed. “As we age, we get infirmities ranging from dementia to cancer to vascular disease. Nothing can prevent aging. Period.”

And aging is expensive. Especially in the United States. Barry Ritholtz illustrates the skyrocketing cost of health care spending by age and country in one amazing chart. For more context, in 2015 the national median monthly rate for an assisted living facility in the United States was $3,600, up about 2.9% from 2014. For a semi-private room in a nursing facility, the median daily rate was $220 — $250 for a private room — a roughly 4% increase from 2014. Dementia or memory care is altogether different and more costly, raising the financial stakes considerably.

I can say from personal experience that one month of memory care in a facility in the Washington, DC, area is easily $8,500. This does not include other charges, such as an initial deposit, a “move-in” fee, application fee, daily medication fee, activity fees, and, believe it or not, a daily “continence maintenance” fee. Yes, that was also on the list. When added up, these expenses ratchet up the monthly cost to well over $9,000. How does one afford this, especially on a long-term basis?

Now here is where things get messy: “Most people retiring today don’t have enough in savings to support themselves for more than a few years, let alone enough to pay for assisted living and/or nursing homes when they are elderly and frail,” Emerick observed. “Medicaid nursing home budgets are likewise unsustainable. Don’t count on that. For many people living a year or two longer will simply mean being a burden to your children for another year or two, both financially and emotionally.” Not a particularly encouraging note, is it?

How about Medicare then? Surely that should help, right? Succinctly stated:

“Currently, public programs and private insurance pay for only part of the cost of [long-term care (LTC)]. Medicare is not designed to cover long-term, supportive services. It does provide, however, some limited coverage of LTC through its skilled nursing facility and home health benefits, which focus on short-term, rehabilitative skilled nursing care and therapies. . . . Medicaid pays for LTC, but only for those with limited income and assets. This means individuals must have low income and savings, or must exhaust their financial resources, if they are to qualify for Medicaid coverage.”

So just get LTC insurance then, right? Absolutely — if you or your parents qualify and can afford it. Health is only the first barrier to entry. Often insurance companies require that individuals pass a physical before they are offered LTC coverage. Moreover, many companies will not provide LTC insurance to people with such pre-existing conditions as Alzheimer’s disease, dementia, multiple sclerosis, Parkinson’s disease, or a history of stroke.

Cost is the second factor. The yearly fee is about $1,985 for a typical policy for a 55-year-old man. “And there are plenty of variables in the cost,” John Waggoner observed. “The main one: Age. The older you are, the more likely you are to need long-term care insurance in the near future, and the more expensive the policy.” There are other factors that affect the cost of a long-term care policy too, such as inflation riders, deductibles, daily benefits, etc.

Now that you’re all thoroughly depressed, one final argument to convince you to work this into your planning objectives: The American Association of Retired Persons (AARP) predicts that by 2030 the United States will need between 5.7 and 6.6 million professional caregivers to support the sick and aging. Undoubtedly, unpaid family caregivers will be called upon to help meet that demand.

At present, there are roughly 44 million unpaid elder-care providers in the United States, the US Census Bureau reports, and the majority are women. Working women often find they need to switch to a less demanding job, take time off, or quit work altogether in order to make time for their caregiving responsibilities.

Family caregivers obviously make less money when they curtail their work hours or quit their jobs to care for a loved one. They also lose job security, career mobility, and employment-related benefits, such as health insurance and retirement plans. Moreover, “Those periodic absences also significantly slice into Social Security benefits,” Fidelity reported. “That’s because Social Security is calculated on 35 years of earnings. Skip any of those years and the Social Security Administration will average in zeros for any years less than 35.”

Even small reductions in work hours to provide unpaid care can have long-term consequences for retirement security. Family caregivers aged 50 and older who leave the labor force to care for a parent sacrifice, on average, about $304,000 in pay and benefits during the course of their lives, with estimates ranging from $283,716 for men to $324,044 for women.

The toll on a woman’s career can be enormous. “Caregiving tends to hit most women in their mid-40s,” Liz O’Donnell wrote, “just around the time their earning potential starts to wane and dangerously close to the age when they may not be able to reenter the workforce if they leave.” The job market, it turns out, is not exactly clamoring for women aged 50 and older.

And remember, these are the same women who are expected to live well into their 80s, and outlive (by about two years) the average man. How will they afford their own care later in life if they can’t save for it while caring for someone else?

It’s a tough question. And the only answer is to plan for it now. Work it into your client’s investment goals. Make a point of discussing it with them. The cost of unplanned elder care on a family can be staggering, both emotionally and financially. It’s much better to be prepared.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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