Boomers Need Help Living in Retirement
More than 50% of Baby Boomers believe health care costs will consume 20% of their income, or less.
But an annual report by the Insured Retirement Institute shows a healthy 66-year-old couple who retired in 2018 would need 48% of their lifetime Social Security benefits to address total lifetime health care and long-term care expenses.
With nearly one-half of Social Security lost to health care, supplemental income or savings would need to be substantial for health care to be 20%, or less, of total income.
Expectation of Health Care and LTC Costs
The number one reason Boomers calculating savings goals do not include health care and LTC costs is that they expect Medicare to cover them – an erroneous assumption on both counts, especially for LTC, for which Medicare provides no coverage.
The second most common answer is simply that they are unsure of the costs involved and/or they don’t know how to calculate them – a powerful value-added service for insurance agents to provide.
Reasons For Not Owning Annuities
The chart above explores why annuity ownership is relatively low despite demonstrable income gaps. About as many boomers say they don’t have enough money to purchase an annuity as say they have no retirement savings, an unfortunate reality.
However, it is more common for boomers to say they simply don’t know anything about annuities than to be biased against them, and this is an opportunity for the insured retirement industry and for financial advisors.
Similarly, some of those who feel they don't think they'll live long enough for an annuity purchase to make sense may be overlooking the possibility that medical advances will result in them living longer than they expect, and that medically underwritten annuities may increase payments to the point where an annuity purchase becomes attractive.
Baby boomers, particularly those who are younger and still working, face an urgent need to save more and create financial plans for retirement.
Most will not have pensions, so it is imperative that they maximize Social Security, create guaranteed lifetime income from their savings, and employ insurance protection and financial management tools to mitigate the risk that health care and long-term care costs will erode their savings and income.
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Hispanic Market of Growing Interest to Insurance Agents
Not only are Hispanics the fastest-growing young demographic in the U.S., but they have the longest life expectancy at birth, facts that might interest insurance agents looking to build their books of business.
Underwriters of life insurance policies might also want to take note as the nation becomes more ethnically and racially diverse and as Hispanics continued to be underrepresented in life insurance coverage.
The data are the latest findings published by the National Center for Health Statistics in “Health, United States 2016.”
“By 2015, just over one-half of the child and adolescent population was non-Hispanic white and one-quarter was Hispanic,” study authors wrote in the 488-page report.
The NCHS is the principal data collection agency of the Centers for Disease Control within the U.S. Department of Health and Human Services.
There were about 321 million people in the U.S. in 2015, compared with 216 million in 1975.
In 2015, nearly a quarter (24.6 percent) of the population ages 0 to 17 years old was Hispanic, an increase from 17.1 percent in 2000, as that age segment grew fastest.
Hispanics ages 18 to 64 years old made up 17.3 percent of the population, an increase from 12.2 percent in 2000, the report found.
Hispanics 65 years and older made up 7.9 percent of the population in 2015, an increase from 5 percent in 2000, the health data found.
By comparison, in 2015 whites made up 51.5 percent of the population age 0 to 17 years old compared with 61.3 percent in 2000.
In 2015 whites 18 to 64 years old made up 61.5 percent of the population, compared with 70 percent in 2000. Whites 65 years and older made up 77.8 percent compared with 83.8 percent in 2000, the data show.
Life Expectancy Highest Among Hispanics
That the nation’s population is moving toward racial and ethnic diversity isn’t exactly new, but the latest mortality data about Hispanics might be.
During 1975-2015, average life expectancy at birth in the U.S. rose from 68.8 years to 76.3 years for men and from 76.6 years to 81.2 years for women.
In 2015, Hispanic men had a life expectancy at birth, on average, of 79.3 years and Hispanic women had an expectancy of 84.3 years.
Non-Hispanic black men, with a life expectancy at birth of 71.8 years and non-Hispanic black women, with a life expectancy of 78.1 years, had the shortest, according to the data.
Life expectancy at birth was 7.5 years longer for Hispanic men than for non-Hispanic black men and 6.2 years longer for Hispanic women than for non-Hispanic black women.
The leading cause of death in 2015 was heart disease, which claimed 23.4 percent of all deaths, the data show.
Heart disease was followed by cancer (22 percent), CLRD, or chronic lower respiratory disease, (5.7 percent), unintentional injuries (5.4 percent), stroke (5.2 percent), Alzheimer’s (4.1 percent), diabetes (2.9 percent), influenza and pneumonia (2.1 percent), nephritis and nephrosis, or kidney disease (1.8 percent), and suicide (1.6 percent).
From 2011 to 2014, diabetes, a condition in which the body is deprived of insulin, affected 12 percent of adults age 20 and older.
From 1988 to 1994, diabetes affected 8.8 percent of adults 20 and older, the data show.
Between 2011 to 2014, the prevalence of diabetes among blacks and Hispanics of Mexican origin was almost twice as high than for non-Hispanic whites, the data found.
5 New Facts About Retirees' Real Health Care Bills
Analysts who want to protect low-income Medicare enrollees against increased out-of-pocket costs have published interesting new data on the high-income enrollees’ out-of-pocket spending.
Cathy Schoen and two other colleagues affiliated with the Commonwealth Fund put the spending estimates, which are based on government survey data, in a review of Medicare enrollees' cost burden, broken down by income and health status.
Younger people and health care policymakers tend to talk as if Medicare is a magic wand that makes patients' health care costs disappear.
Insurance agents and financial advisors know that the opposite is true, and the Commonwealth Fund analysts show how untrue that fantasy was in 2016.
The 56 million enrollees in the data sample spent an average of $3,024 per year on all kinds of acute and long-term care out of pocket in 2016.
Of course, the typical Medicare enrollee who is using the services of a financial professional is likely to have a higher-than-average income. For a financial professional, the most interesting bits in the new paper may be the out-of-pocket spending estimates for Medicare enrollees in the authors' top income category, for people in households that earn more than 400% of the federal poverty level.
Here's a look at what the authors are reporting about those relatively high-income households.
Even the authors' top-income category may not be of much use for professionals working mainly with families with very high post-retirement income.
About 12.5 million of the Medicare retirees in the data sample, or 22% of all Medicare enrollees, had household income over 400% of the federal poverty level in 2016.
In 2016, in most of the United States, 400% of FPL was just $48,240 for a single individual, and $64,960 for a couple.
The people in the analysts' highest-income category spend an average of $3,486 per year each on out-of-pocket health care expenses.
If a husband and wife who together have $64,960 in annual income each spend $3,486 per year on health care bills, that means out-of-pocket spending will eat up about 11% of their income.
The authors of the new paper don't break catastrophic risk down by income level, but they note that Medicare enrollees in the top 5% in terms of out-of-pocket spending probably spent an average of $19,009 out of pocket in 2016.
(Related: Majority of Medicare Advantage Enrollees Switching From Traditional Medicare)
If one spouse in a couple spent $19,009 in 2016, and the other spouse spent $3,486, the couple's total spending would amount to about 35% of the $64,960 in annual income for a couple right at the 400% of the federal poverty level income cutoff.
Because basic Medicare is generous about covering inpatient hospital expenses, inpatient hospital bills make up less than 10% of the out-of-pocket spending burden even for the Medicare enrollees who rank in the top 5% in terms of spending.
About 60% of high-income Medicare enrollees have employer-sponsored retiree health benefits, and those plans often offer especially generous inpatient and outpatient hospital care benefits.
That means the biggest components of out-of-pocket spending for high-income Medicare enrollees tend to be bills for the expensive drugs used to treat conditions such as high blood cholesterol levels, and for hearing care, vision care and dental care.
In 2016, high-income Medicare enrollees spent an average of $564 on dental care, $820 on audiologists and other providers not paid by Medicare, and $913 on prescription drug co-payments and coinsurance bills.
Professionals who help clients with stand-alone long-term care insurance, long-term care hybrids based on annuity or life insurance frameworks, or other long-term care planning strategies know that long-term care costs can dwarf other health care spending drivers.
The new out-of-pocket spending analysis shows that, for the 2016 Medicare enrollees in the top 5% in terms of out-of-pocketing spending, long-term care spending of all kinds accounted for more than $13,400 of the $19,009 in average out-of-pocket spending.
According to a report released by the Insured Retirement Institute (IRI), baby boomer confidence in their financial preparedness for retirement dropped nine percent, from 44 percent in 2011 to 35 percent in 2014. When compared to 2013, only 35 percent of boomers are extremely or very confident that they are doing or did a good job preparing for retirement in 2014.