Data & Research November 3, 2015

Affluent Boomers Fear Long-Term Care Could Derail Retirement

But only three in 10 have addressed the issue.
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Nearly two-thirds of affluent Baby Boomers believe long-term care could jeopardize their well-being in retirement, yet only three in 10 have made a plan to address the issue, according to a survey conducted for John Hancock Insurance. More than half (54%) of Boomers without a long-term care plan said they would be interested in speaking with an adviser about it, and approximately four in 10 said they would likely buy long-term care insurance in the future.

“The need for long-term care continues to pose a significant, largely unprotected financial risk for Americans, especially generations nearer to retirement,” says Michael Doughty, president of John Hancock Insurance. “The good news is that there appears to be some appetite for talking to an adviser and closing the coverage gap. By understanding where Boomers currently are in preparing for the future and getting a picture of how they might be approached, we may be able to help them alleviate some of their most significant concerns about retirement.”

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Only half of all Boomers and 44% of pre-retiree Boomers have developed a formal financial or retirement plan. Those with advisers are more than twice as likely to have a formal financial or retirement plan—62% vs. 26%.

The survey also found that Boomers are not very knowledgeable concerning long-term care, with the average respondent answering only seven out of 11 questions about it correctly. What they are least familiar with is the cost and average length of stay in a nursing home, as well as the possibility of needing long-term care at an early age.

NEXT: How experience shapes familiarity

Those who have seen family or friends receive care scored higher on the long-term care quiz. Currently four in 10 Boomers have had a family member or friend need long-term care for three months or more. The recipient is typically a parent or in-law, and, in half of the instances, the respondent acted as the caregiver.

Although two-thirds recognize the fact that they might need long-term care in the future, many are in denial that they ever will. However, the acceptance of this possibility rises when the respondent has seen a family member or friend need to enter a nursing home, or when they have acted as a caregiver themselves.

Two-thirds of Boomers (67%) think it is important that their adviser initiate a conversation about long-term care, and 24% think it is very important.

Asked how they would pay for long-term care, 41% of Boomers said insurance, 27% said out of pocket, 11% said as a rider on a life insurance policy, 8% said they would rely on family members to take care of them, and 7% said they would spend down assets to qualify for a Medicaid-approved facility.

“With the gap in long-term care coverage that exists, and with Baby Boomers being open to getting advice, there appears to be a clear opportunity for financial advisers to help Boomers better understand their long-term care needs,” Doughty says.

John Hancock’s survey mirrors another recent survey, by Lincoln Financial Group, which found that less than 40% of consumers have discussed long-term care with their advisers.

Greenwald & Associates conducted the survey among 1,003 adults between the ages of 50 and 68 in February for John Hancock. Working Boomers were required to have household assets of at least $100,000 and assets of at least $150,000; retired Boomers needed to have assets of at least $500,000.

Data & Research November 3, 2015

Women Are Better 401(k) Savers Than Men

But men’s average account balances are more than 50% larger.
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Vanguard examined women’s and men’s 401(k) savings behavior and found that women are better savers but trail men in outcomes.

Women are 14% more likely than men to participate in their workplace savings plan and save at higher rates; women earning less than $100,000 save 20% more than their male counterparts, and across all income levels, women save at rates that are 7% to 16% higher than men’s.

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In plans that automatically enroll participants, men and women participate at the same rate. This suggests that men benefit from auto features, Vanguard says. However, lower-wage earners see the largest improvements from auto enrollment, and 60% more women fall into the lower-income bands than men.

“Autopilot features are undoubtedly the great equalizer, but we’re not seeing a rapid convergence of men’s and women’s participation and savings rates,” says Jean Young, senior research analyst at the Vanguard Center for Retirement Research. “Women absolutely demonstrate a conscious inclination towards savings and, even with a higher proportion of women earning lower wages, the tailwind of auto enroll has maintained that savings lead.”

The only category in which men outsaved women was in auto enrollment plans, with men deferring at rates 5% higher than women. Vanguard also found that higher-income participants tend to override default features. Vanguard attributed this to the fact that men’s average wages are 25% higher than women’s and their median wages are 33% higher. And despite women’s higher savings rates in non-auto enrollment plans, the fact that men earn so much more than women affects their balances, Vanguard says.

NEXT: Investments held

Vanguard found that contrary to widely held beliefs that women are far more risk-averse than men, men and women tend to invest in the same level of equities. That said, women are less likely to invest in company stock and more likely to gravitate to balanced investment allocations.

As of year-end 2014, 42% of women held a single target-date fund and, on average, held 52% of their account balances in target date funds. In aggregate, 17% more women than men owned a single target-date fund. Women also traded about one-third less frequently than men, with only 7% of female participants trading in 2014.

Over the past five years, men earned an average of 10.9%, compared to 10.6% for women. Nonetheless, men’s average and median account balances are more than 50% higher than women’s.

“With persistent and undue criticism of the 401(k) system, it is important to note that the data reflects current labor market realities, and defined contribution plans are not driving this gender retirement savings gap,” Young says. “More important, however, is the lingering suboptimal savings rates on the part of all participants—regardless of gender.” Young notes that Vanguard recommends saving 12% to 15% of one’s salary each year, including employer contributions.

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