Long-Term Care Looms Large in Retiree Pessimism

NEW YORK (MainStreet) — The number of U.S. adults who aren't confident in their ability to fund a decent retirement is at the lowest level since 1990, the Washington, D.C-based Economic Research Benefits Institute says.

Of particular concern to baby boomers — the U.S. demographic nearing its golden years — is their ability to pay for health care. AsIn EBRI's 2013 Retirement Confidence Survey, released last month, says:

Confidence about other financial aspects of retirement reached record lows in 2013, continuing the decline from highs recorded in 2007. In particular, increases are seen in the percentage of workers not at all confident about their ability to pay for basic expenses (16%, up from 12% in 2011 but statistically equivalent to 13% in 2012). Larger concerns were medical expenses (cited by 29%, up from 24% in 2012), and long-term care expenses (39%, up from 34% in 2012).

To rally the cause of 50- and 60-somethings, and to give younger workers a heads-up on long-term medical care costs, Ameriprise Advisor Group has some tips and strategies that can help mitigate health care payout risks in retirement.

Plan for the "what-ifs." According to data from EBRI, nearly three in 10 retirees (28%) are doubtful they would be able to come up with $2,000 for an unexpected need. Reducing your debt and saving as much as you are able before you retire is the simplest way to prepare for any unanticipated expenses — medical or otherwise — in (or before) retirement.

Be realistic. Many boomers aim to retire before the traditional retirement age, but one of the biggest challenges in retiring early is paying for health care without insurance through an employer and before Medicare benefits kick in. There are several options to help bridge this gap, but a health crisis during these years can affect your retirement income long term, so determine how you will afford health care during this period well before you near your planned retirement age.

Be proactive about your health. Begin by researching what Medicare covers and determine if a long-term care policy makes sense for your situation. Often, as retirees age, health risks become more real as they see siblings and friends experience medical crises; it's at this time they begin considering how they may be affected by similar issues. It's important to think about long-term care insurance many years before, though, when premiums may be more affordable and a person is more likely to qualify for coverage.

To put that long-term care insurance plan in action, Ameriprise Executive Vice President Pat O'Connell advises getting the earliest possible start, kicking as many tires as needed to get the best deal.

"Generally, the earlier the better when it comes to purchasing a long-term care policy," O'Connell says. "It may not make sense for a person in their 20s or 30s, but by the time a person nears 50, he or she should be thinking about paying for future health care expenses. LTC policies typically cost less for healthy individuals, so as a person ages, the likelihood that he or she won't qualify due to a health issue increases."

O'Connell has some advice on those all-important "first steps," too.

"It's important to understand what your future health care needs could be, and to do as much research as possible about different policies before choosing one," he says. "Depending on your family's health history and any pre-existing conditions you have, you may have different long-term needs. For example, if you had one parent who lived into their 90s and another with Alzheimer's, you may have a greater chance of spending many years in a care facility. After you calculate what you may need to cover long-term care costs in retirement, be sure to read the fine print on policies and understand how and what the policy will cover."

Don't shy away from the perceived expense of adding an LTC element into your retirement savings, either.

"It's crucial to do the math," O'Connell says. "It may appear counterproductive to purchase a policy as you're trying to sock away as much as you can for your retirement, but consider the value of each dollar that goes towards a LTC policy vs. into an IRA or 401(k). Of course, doing either is a great way to prepare for your future, but you may find that your policy will pay out more to help with future health care costs than what you can save on your own."

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