The Wake-Up Call Clients Desperately Need

If your conversations about long-term-care costs and risks aren’t candid enough, you may not be getting through to clients.

|

Financial advisors know that a late-life health crisis and even a short stint with long-term care can rob people of their retirement dreams and legacies. Yet new research shows that Americans who have a financial advisor have a weaker grasp of the costs and risks associated with medical care and long-term care than those who don’t work with an advisor.

The Center for Retirement Research (CRR) at Boston College zeroed in on this problem in its recent brief, “Do Older Adults Understand Healthcare Risks, and Do Advisors Help?” Its household survey included individuals age 48 to 78, with at least $100,000 in assets. Its second study surveyed financial advisors.

Statistically, 80% of 65-year-olds will require long-term care during their lifetime, and 40% will need high-intensity care for more than one year, the brief says. These stats are based on the University of Michigan Health and Retirement Survey (HRS), a large, longitudinal study. Many in the high-intensity group have Alzheimer’s or other dementias and often need 24/7 supervision. Low-intensity care is help with meal prep or other tasks for independent living; moderate-intensity care is help with one activity of daily living (ADL), such as eating, bathing or toileting.

But in the CRR study, only 25% of respondents who have a financial advisor said they worry they will need long-term care, compared with 44% of those without an advisor.

A smaller share of advisory clients than nonclients said they worry about long-term-care affordability (31%, vs. 49%). Although some clients may have planned well, others may be overconfident or in denial — especially since 56% of the advisors cited long-term-care affordability as the chief risk to clients’ financial security.

‘Half-a-million Dollar Ballpark Costs’

According to Genworth’s most recently published Cost of Care survey, national annual median costs range from $64,200 for assisted living facilities to $104,000 for a semi-private room in a skilled nursing facility and $116,800 for a private room in a nursing home. The annual median costs for homemaker services (cooking, cleaning, running errands) is $68,600, compared with $75,500 for a home health aide who assists with personal needs, such as bathing, feeding. These two figures are based on a 44-hour work week.

“We expected that people with advisors would be better informed, or at least not worse,” Gal Wettstein, PhD, a co-author of the brief and associate director of health and insurance at the Center for Retirement Research, tells me.

“We don’t have a great explanation,” he says, of this finding. However, “my theory is that people who have advisors are just relying on the advisor, and so they don’t feel the need to gather the information. I guess it underscores the need for advisors to be well informed.”

Wettstein is concerned consumers may be missing the full picture. Although a small percentage of 65-year-olds end up not needing any long-term care (18%), “that same share will need intensive care for more than three years,” he says. “I don’t think people are quite aware of how high those risks are. We’re talking half-a-million-dollar ballpark costs here.”

Major Illnesses Underestimated, Too

And only about one-third of households surveyed said they were worried or very worried about having a major illness — a fraction of the actual risk that households face for hospitalization of 5+ days (68%), injury due to a fall or broken hip (55%) or diagnoses of cancer, lung disease or a stroke (67%). The CRR researchers calculated these figures based on the University of Michigan study and longitudinal data from the RAND Health and Retirement Study.

Why Medicaid Spenddown Generally Isn’t a Sound Plan

In addition, “one of the things that we found jarring about the survey results were how people thought that they would cope with having this kind of expense in late life,” says Wettstein. The majority (60%) said they plan to rely on Medicaid to cover this expense.

“We’re talking about people who have at least $100,000 in financial assets, and most of them had over $200,000 or more,” he says. “I don’t think people understand that Medicaid will require them to impoverish themselves.”

In most states, the asset limit to qualify for Medicaid is $2,000 for an individual or $3,000 for a married couple, although there are exemptions for a spouse’s house and some pension plans, he says.

Medicaid spenddown can be right for some Americans, but far fewer than those who consider it. “In reality, we find that the cumulative likelihood of needing Medicaid, of having Medicaid, reaches 15% or so by age 90,” says Wettstein. Many people die before age 90, but, “more importantly, the majority of care needs are met through informal care, mostly provided by spouses and adult children,” he explains. “Medicaid generally does not cover that kind of care, with some limited exceptions.”

Clients should also be reminded that Medicaid has a five-year lookback period in most states and that not all nursing homes accept it, he says. Another talking point: Facilities that accept Medicaid “can’t kick you out but they can move you to a less private room,” he says, to accommodate lower reimbursements for residents who transition from self-pay to Medicaid.

Moving on to Plan B … or Plan C

With the spenddown to Medicaid less feasible than many anticipate, seniors often find themselves turning to their less-desired contingency plans, the CRR brief notes.

Fewer than one-third of the households surveyed said they would consider tapping into home equity, but 40% end up doing that by age 89. Strategies include taking out a second mortgage, applying for a home equity line of credit (HELOC) or other loans against the home, or downsizing and moving to a less valuable home.

Clients also need to understand that it’s not always easy to tap home equity. “Housing is not very liquid, the process can be long and arduous … and you may get less out of the house than you expect because of all of the transaction costs,” Wettstein says. Reverse mortgages can be hard to access and although HELOCs are a little bit easier, they’re more limited in terms of how much home equity is accessible, he adds. Another option available in some jurisdictions, he notes, is property tax deferrals; participating households pay back all taxes owed, with interest.

Less than one-third of the CRR survey respondents said they’d consider moving in with their children to manage healthcare needs. Still, about a quarter of older households with more than $100,000 in investable assets do move in with their kids by age 89, the brief notes.

What About Annuities and Long-term-care Insurance?

Why aren’t annuities used more to cover these late-life expenses? Although they provide guaranteed income, they aren’t very liquid and “in many cases, you can’t accelerate those payments — although there are some products that do that,” says Wettstein. “And so, if you suddenly need to pay $100,000 to a nursing home, you might find that you don’t have those resources.”

“Whether or not the case for annuitization is strengthened or weakened by these findings, what the findings definitely show is that people need help for these far-off, completely consequential events,” he says. This includes initiating conversations about LTC insurance.

“I don’t think there’s a magic number,” he says, referring to age. Still, the older one is, the more likely they are to develop a condition that might require care in the future – which could result in being denied LTC coverage, he says. “It’s a balancing act.”

Meanwhile, changes in the LTC insurance market (including fewer providers and rising premiums) have made it harder to find a policy, says Wettstein, “and the market itself may be deteriorating in a way that waiting may not serve you very well.”

Open Dialogue

Financial advisor Karen Alfest, CFP, PhD, a principal advisor at Altfest Personal Wealth Management in New York City, frequently speaks with clients about long-term care. Clients often initiate these conversations, especially if they know someone who has long-term care insurance, she says, or “because they have memories of parents who didn’t have it.”

“Long-term care is very, very frightening to a lot of people. They’re very confused and they don’t know what to do,” she says. “We usually start these conversations in their early 50s, just throwing it out there and then seeing if it’s something that interests them.” She also uses the Genworth Cost of Care Survey to show clients how expensive care can be in different locales.

Planning ahead for possible long-term care needs makes sense, especially since many of her clients “don’t want to deprive their [adult] kids of their time, their inheritance,” she says.  “I did have one man who said, ‘Well, I’ll be dead; I don’t care,’ but most people do care very much, and they don’t want the kids to have that burden.”

Altfest emphasizes that long-term care conversations can’t be rushed. “You don’t just say, ‘Why don’t you buy insurance? You say, ‘What’s your lifestyle? What are your goals? What’s your relationship with your family?’” she says. “Things begin to come out, and it gets much easier than you might think to get into that conversation.”

Insurance 101

According to the 2025 American Association of Long-term Care Insurance annual Price-Index Survey, a couple both age 55 who purchase a policy benefit of $165,000 can expect to pay an annual premium of $2,080 combined. That same policy will cost a 65-year-old couple $3,750 combined. And, using the 65-year-olds as an example, they’ll pay a lot more if they want those benefits to grow at 2% yearly ($5,810), 3% ($7,150) or 10% ($9,675).

Of course, how much long-term care insurance people buy is a very personal decision that depends on calculations for their potential cost of care, other resources and risk tolerance. But whether or not clients end up buying long-term-care insurance, Altfest finds they are always interested in learning why she is talking about it.

“Some people say, ‘I’m just wasting my money. I’m never going to need this.’ They’re 50 and they’re not thinking about when they’re 80,” she says. She compares it to why people buy other coverage — for protection and comfort. “You hope the car doesn’t crash, you hope your home isn’t trashed, and you hope you never need somebody to take care of you in your old age.”

If clients are not comfortable with the cost of long-term care but think it’s the right thing for them, then “they have to fit it into their budget, maybe tighten belts in other areas,” says Altfest.

A Word on Self-Insuring

For other clients who think self-insuring is their best option, Altfest tells them, “Why not start an emergency fund now, only for your insurance needs, so at least the first couple of years would be taken care of when you get to that point?” Clients usually put these funds in a money market or bank account — highly liquid, low-risk vehicles quickly accessed in emergencies. “Any one of these things you do, you should shop around,” she tells them.

Additional Considerations

Altfest says client couples often disagree on planning for long-term care. “We present both sides — the pros and cons — and encourage them to talk to each other,” she says. “It’s partly education, and we give them their space.”

Although she doesn’t suggest spending down to qualify for Medicaid, some clients have asked her what they would have to do. “More generally, I’d say the people we know will give some of their assets to their children, especially their home — which could be their most valuable asset — in order to qualify for Medicaid,” she says.

She encourages clients to be mindful of the Medicaid look-back period. States have lengthened this a couple of times since she’s been in practice, and “it could grow again, who knows,” she says. “It’s really good to know what your options are and all these other factors involved,” she says. Her philosophy with clients: “Tell them as much as they want to know.”

Altfest also thinks about rising medical costs, though much of this is currently covered by Medicare. With older clients, you never know “who needs the hip replacement, who needs cancer surgery,” she says. “If they come to you and say, ‘I need spinal surgery,’ you could check that out and ask how they are providing for that. That’s how we’ve always gone about that, rather than scare clients with something they may never face.”

Inheritance Protection

Martin Lowenthal, ChFC, RICP, CLU, a Needham, Mass.-based financial advisor and registered rep with The Bullfinch Group, has spent decades helping business owners, C-suite executives and other clients manage risk. A couple of years ago, a friend called him to discuss an urgent long-term-care issue. The friend’s father had racked up $700,000 in long-term-care expenses, and she hadn’t realized this was a big part of her inheritance.

“She was taken aback that her father never had any protection and the advisor he’d been working with for 20-some-old years had never brought it up or said, ‘Why don’t you look at what your options are?’” says Lowenthal.

His friend’s entire family worked with the same advisor, because her father wanted them to, and the advisor never even brought it up when the father was spending a fortune on long-term-care, says Lowenthal. The advisor also had their money in IRAs and other tax-deferred accounts “so they were kind of locked out of their money,” he says, because all withdrawals were taxable.

Lowenthal began managing his friend’s remaining inheritance, her father’s IRA. He invested it and advised her to buy a whole-life policy with an indemnity LTC rider that’s funded with distributions from that inherited IRA.

“Number 1, she’s turning taxable into tax-free money. Number 2, she’s creating very strong long-term-care protection to protect herself, her family and the kids, because she wants her kids to have some legacy,” says Lowenthal. “At the end of the day, if she doesn’t use it, there’s a big tax-free death benefit. And if she does use it, at least the other assets that she’s got are somewhat protected from the same thing that happened to her dad.”

Conversation Starters

As an advisor, “you just show them what the alternatives are, and most of the times, people haven’t been shown this stuff,” says Lowenthal. Generally, as with his friend who has become a client, “we’re taking money out of one bucket and putting it in another bucket,” he says. “It’s not new money that she has to come up with.”

With prospects and clients, Lowenthal starts by asking them questions and “sometimes you’ve got to be a little bit confrontational,” he says. “Like when people say, ‘I’ll just pull the plug or just wheel myself off the building,’ I look at them and say, ‘No, you won’t, and no, your family won’t do that; that’s not how humans behave. We can either take this seriously and let me help you, or we can brush it under the carpet, but my advice to you is to at least learn what’s available so that at least you’re protected.’ And that usually gets them.”

If people don’t open up when Lowenthal asks them what’s really important to them in retirement, he prompts them: “Have you ever thought about what would happen to your spouse and/or your children, emotionally and financially, if you live a long life and perhaps there’s a need for expensive care? Is that something you’d like to be aware of?” He refers to this as “a co-creation.”

Reality Check

“The vast majority of people do actually care; it’s just hard for them to deal,” say Lowenthal. “Of course, you get pushback. You get some tough questions. But there’s answers for all of it. The bottom line is that longevity is the single biggest risk we all face in retirement. And longevity is a risk multiplier.”

Lowenthal’s style doesn’t work for everyone. “I’m very open up front about my philosophical protection-first approach to planning, which includes long-term-care,” he says. “I tell them, ‘If it’s just rates of return and investment and chasing the market you want to do, I’m probably not your guy.’ I can only help people that are serious about this stuff, that are prepared to engage and learn.”

He hasn’t had clients spend down to Medicaid, but says anyone who plans to needs a referral to a good lawyer to make sure it’s done right. And “absolutely yes, why not use some of your home equity? Because you’ve seen saving for years to pay it down,” he says. However, “home equity is just money. I would have long-term-care first, because the carriers have all kinds of resources to help and guide you through the process” of how and where to get services.

“It gets very complicated, and that’s why a lot of caregivers, in the absence of having protection, get very stressed,” he says. “And they’ve also got their own lives and families to deal with.”

Asset Protection

Cathy Seeber, CFP, a financial life planner with CAPTRUST in Lewes, Del., says some of her clients bought long-term-care insurance “when it was reasonable, with no escalating costs,” she says. If long-term-care is not an option for clients, they can self-insure, she says.

Like Altfest and Lowenthal, Seeber has observed time and time again that a client’s interest and motivation to protecting themselves from a potential long-term-care event “boils down to the experience they witnessed with someone else in their life — for better or worse,” she says.

“I would NEVER spend down assets to qualify for Medicaid,” she adds, “but have suggested many times to set up a [Medicaid] asset protection trust when there is time and a very valuable residence to protect.”

A Medicaid asset protection trust (MAPT) is irrevocable and removes assets from the grantor’s ownership. These trusts are generally not subject to Medicaid eligibility requirements if properly established and funded at least five years before applying for Medicaid, says Seeber. Assets transferred within Medicaid’s five-year lookback period may trigger penalties, delaying eligibility, she says, “so proper setup by a qualified attorney is essential to ensure compliance with state-specific rules. That is the biggest catch.”

Seeber had seen MAPTs used mostly in real estate because, although “it is supposed to be exempt from Medicaid’s asset limits, the program may try to seek reimbursement from the estate,” she says. “The MAPT protects it from such claims, avoids probate, and preserves the property for heirs, in my client’s case.”

More Research Underway

Wettstein tells us he thinks it would be especially helpful for advisors to look at figures 1, 3 and 9-11 from the research brief discussed above. The study, which the Center for Retirement Research developed with Greenwald Research, was funded and done in collaboration with Jackson National Insurance Life Insurance Co. CRR is working on additional research focused on how people cope with healthcare shocks, says Wettstein. 

“The more we research these topics, about late life events, the more we see that people really have big misperceptions about the objective probabilities of various things happening,” says Wettstein. “I think this might be helpful for advisors — in whatever way they think is best for their client — to communicate it, but to also try to correct those misperceptions.”

A big misperception, he says, “is that people don’t appreciate how long they’re likely to live.”

Jerilyn Klein is editorial director of Rethinking65. Read more of her articles here.

Latest News

See all >>

Judge Blocks Trump ‘Fork in Road’ Buyout Program

Even as the program was stayed, more than 60,000 federal employees have already accepted the buyout offer.

Keller to Retire as CFP Board CEO

The board announced today that Kevin R. Keller will retire as CEO, after serving nearly two decades as the organization’s leader.

Citi’s CEO Bucks Return-to-Work Trend

Citigroup CEO Jane Fraser is maintaining a hybrid work policy and believes it could be a competitive advantage.

Musk’s DOGE Agents Access Sensitive Government Personnel Data

The systems include a vast database with birth dates, Social Security numbers, appraisals, home addresses and more on government workers.

FPA’s CEO Dies of Cancer

The FPA’s chief operating officer will serve as interim CEO while the association begins its search for a successor.

Vanguard Announces Its Biggest Expense Ratio Reduction

The cuts across 168 mutual fund and ETF share classes will bring over $350 million in savings for investors.