The market plunge and our recessionary economy are particularly bad news for those among us who need long term custodial care. The safety nets once believed to be so secure -- pension income, Social Security, Medicare, and Medicaid – are no longer as dependable as they once were.
In a way, the decline in our private pensions and social insurance programs was inevitable. Too much has changed since 1935, when Social Security began. Back then, the average life expectancy was 57 -- and you had to be 65 to collect Social Security benefits! Forty people paid into the system for every one who collected. Pension income was commonly, if not universally, available through your employer. If you worked hard and stuck with your employer for many years, your earning potential would grow with the company, and you could retire with a generous income stream for the rest of your life.
Today, the average life expectancy is approximately 84 years for women and about 79 years for men – far beyond the eligibility age for Social Security benefits. That 40-to-one worker/retiree ratio has dwindled to three to one. And the trend is getting even worse.
Did you know that Social Security represents about 40% of retirees’ income in our country? Think about that. If the average income for retirees is $50,000, that means that $20,000 of their income is coming from Social Security. Imagine what people would do without that income. Future generations would have to save an additional $400,000 over their lifetime so that they could draw 5% annual interest to generate $20,000 of income.
At the same time, pensions have become prohibitively expensive to fund and administer, and most employers have either closed their plans to new entrants or eliminated them entirely. Temple University published a groundbreaking study in 2007 that found widespread corporate abandonment of pension plans in favor of the lower-cost defined contribution model, embodied in the 401(k) profit-sharing plan. Retirement and health care benefit costs are forcing employers to make difficult choices in shaping a benefits package that can help attract and retain good employees while allowing the company to grow and remain profitable at the same time.
Meanwhile, human beings remain human beings: they continue to live! And in living, most retirees or people planning for retirement have two overriding concerns. First, they fear outliving their resources. And secondly, they worry that health care costs, increasing at twice the rate of overall inflation, won’t be covered by traditional health insurance or Medicare. Beyond that is still another concern: how to pay for custodial care, e.g. helping someone bathe, eat, get dressed, and the other Activities of Daily Living (ADLs), or looking after a person who has suffered a cognitive impairment, such as Alzheimer’s Disease.
Illness or injury can easily result in a need for ongoing custodial care -- yet the family members who used to provide this type of care now work full time, leaving no one available to take care of those in need. And, while most family members want to be there to help, the financial pressures that they face make it nearly impossible. The care must then be purchased -- usually at a very high price.
Now consider that the 78 million baby boomers are entering retirement and beginning to require long-term custodial care themselves. Did you know that 40% of people requiring long-term custodial care are between the ages of 18 and 64? This generation has the least amount of financial or societal preparation for the eventualities of living a long life, while manifesting the highest level of expectations regarding standards of care and preserving individual autonomy. Why is there such a disconnect?
These boomers are, increasingly, the immediate family members who provide the custodial care for a loved one. At the same time, they have no illusions about the financial resources their parents had such faith in. Most boomers know that at retirement, they'll need enough money to be able to live on a fixed income, fighting against inflation, for possibly 20, 30, or even 40 years. They know that while medical advances will keep pushing the frontiers of longevity, one health crisis could easily wipe out their retirement savings, increasing the risk of outliving their financial resources.
With pressure coming from every side, what are boomers supposed to do?
For people who are preparing to transition into a caregiving role—and that can include you, your family members, and your clients with their families--it is important to know five practical steps that can make the transition process easier for everyone. Even if you’re not a boomer caught in the pressures I’ve described, you can put these tips to work for yourself while you also recommend them to your clients.
You can not be an effective caregiver if you do not first care for yourself. Identify what is required to keep your life in an acceptable balance, incorporating all of those elements of life that are critically important to you. Sacrificing one or more areas to meet the needs of another person may seem noble, but it inevitably will cause resentment, emotional fallout, and exhaustion.
By identifying the elements necessary for a balanced life, you can craft a plan to ensure you're getting what you need to stay healthy in mind and body. Life will still throw challenges at you, but they are easier to navigate with a plan rather than without one.
It is a rare person who comes to caregiving without some emotional baggage. Relationships with parents and other loved ones are complex. It can be extremely tempting, but not necessarily wise, to use the caregiving phase as a means to atone for previous difficulties or to heal childhood wounds. Be mindful of the deeper motivations you may be bringing to the table and take steps to keep everything in perspective and respect your core values.
Knowing that they were not prepared (through no fault of their own) practically requires that we adjust our expectations of how the process moves. Things may go more slowly or awkwardly than we would like, but that is necessary to engage the care recipient in his or her own future -- critical for that person’s self-worth and continuing quality of life.
The parents of boomers—the “Greatest Generation” that came of age in the Great Depression and World War II--assumed that if they played by the rules, their prudent planning and saving, along with Social Security and Medicare, would position them for a full and enjoyable retirement. Employers provided pensions in return for years of loyal service, Social Security was solvent, and there was no shortage of family members prepared to provide long-term custodial care at home. In fact, family members usually lived relatively close to one another, making it geographically more convenient for caregiving.
In today’s culture, family relationships are much more complicated and less cohesive. It is much more difficult to provide custodial care within the home. Meanwhile, the financial picture for families is more uncertain than it was for past generations. As you move through the transition to caregiving, make sure you understand the impact generational differences have on the discussion. Clear and frequent communication is essential to minimize misunderstandings and eliminate fears.
We’ve all heard the definition of insanity: repeating the same actions over and over and expecting a different result. This proverb is no less true in long-term care planning. It is time to ask yourself: how is your situation going to be any different?
Generally, a plan should include each of life's major areas of need: medical, housing, financial/legal, and family/community. Begin by identifying an objective -- a vision of where you'd ideally like to be in 10, 15, or even 20 years. This is a critical first step. From there, you can “reverse-engineer” your way back to the present, identifying the steps you need to take at each juncture to ensure you progress toward your goals.
This is where working with a long-term care planning specialist comes in. Using the right financial planning tools, the specialist can ensure you're not closed out of protection you'll want later, to preserve both your legacy and your quality of life. Leverage that person’s expertise to ensure that no matter what the financial climate may be, your future will be steady and secure.
Helping you live longer, better.