Long-Term Care Most Difficult Risk to Manage

Head of insurance solutions at Lincoln Financial Distributors suggests advisers have as much to gain from education around long-term care planning as clients do. 

A survey of retirement-focused financial advisers finds long-term care easily ranks as the “most difficult” risk clients face. It’s also one of the least-common areas for offering products and solutions.

The survey was conducted by Hanover Research on behalf of Lincoln Financial Group and shows that protecting wealth from potential long-term care expenses is one of the most difficult risks for advisers to manage in a client’s retirement outlook. According to Lincoln, the survey, which polled both consumers and financial advisers, also shows less than 40% of consumers have ever discussed long-term care planning with their advisers.

Even more telling are stats showing fewer than one in 10 advisers have crafted and implemented a formal long-term care solution for their clients—and 73% of clients polled “significantly underestimated” the costs associated with long-term care, which can easily range up to $100,000 per year. 

Andrew Bucklee, head of insurance solutions distribution for Lincoln Financial Distributors, says the body of research Lincoln has produced in recent years “shows the clear need for more education in the marketplace around long-term care planning,” not just for clients but for advisers as well.

“At Lincoln, we really view this as an education issue and an opportunity for advisers and clients to work together on a difficult problem,” Bucklee tells PLANADVISER. “Advisers face an uphill battle when it comes to understanding wealth protection planning in terms of long-term care.”

This is because, like the typical defined contribution (DC) plan consumer, financial advisers in general have been “raised around accumulation,” Bucklee says. “There is less experience in draw-down planning, and most advisers have built their businesses to grow portfolios, not spend them down.”

Today, however, large portions of the advisory client base are approaching and moving into retirement, “so there is a need to learn how to use annuity products and how to efficiently take money out of a tax-qualified retirement plan and tie that into pensions and Social Security,” he explains. “This is something advisers didn’t do very much in past decades because more of the guaranteed income stream was coming from Social Security and the pension that was likelier to be there.”

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Bucklee says part of what makes planning for long-term care difficult is how expensive it can be to hedge the risk through traditional approaches. Even the healthiest retirees are likely to need expensive short- or long-term medical care at some point, he adds, and beyond this, “we have a dynamic where people live longer and become disabled longer and can’t work longer than ever before, so it challenges the status quo. We have to start to create confidence and comfort among clients about securing their own longevity plan.”

He adds that Lincoln is far from the only provider looking to help advisers in this space, but he feels the firm has excelled in terms of providing helpful technology tools and educational pieces for both clients and advisers to familiarize themselves with long-term care planning issues.

“At Lincoln we have prepared some really helpful technology tools and white papers that will help the adviser sit down with their client and walk through all the concurrent variables,” Bucklee says. “That’s what it takes to build a successful plan. The other important point—it is never too early to start planning and investing for this.”

Bucklee says that while everyone should probably take some time to consider it, “not everyone should run out and buy long-term care insurance tomorrow.” Some will find it is not economically feasible, for one thing, while others may be able to rely more on government programs or other sources of support.

“Unless you’ve experienced a long-term care event for yourself or a loved one, you may not realize the impact it can have on your financial security—it can easily be one of the biggest challenges any of us will face in our retirement,” he concludes.

According to Lincoln’s polling, the average cost of a private room in a nursing home can be up to $97,611 a year under current pricing trends. For those who prefer to receive care at home, the national average hourly rate for a home health aide is $21.77, “which can quickly add up to $3,500 per month, or $42,000 a year, for an aide who provides care for only eight hours per day, five days a week. And the costs are significantly greater for skilled home health care: the national average fee for a registered nurse is $79.27 per hour, which may cost nearly $13,000 on a monthly basis, again for only a 40-hour work week.”

More information and Lincoln research is here