Even though financial advisors encourage their clients to have a long-term care solution, consumers are not appropriately planning for long-term care and significantly underestimate potential costs, according to survey results by Lincoln Financial Group.
The results are based on two online surveys between Aug. 28 and Sept. 22, 2017 — one of 1,012 consumers and one of 500 financial advisors. The advisors represented a full range of channels, including independent broker dealers, wirehouses, regional and insurance broker dealers, banks and others. To qualify, they had to have familiarity with long-term care or hybrid products, a minimum five years of tenure as an advisor, and a minimum average client portfolio of $100,000.
The results of the 2017 Long Term Care Research study indicate that nearly all of the financial advisors agreed that families should discuss plans for long-term care before they actually need it, ideally around age 50, but 93% of advisors say consumers are not sufficiently planning for it.
The reason? Only a third of consumers believe they will need long-term care in their lifetime, even though estimates by the Department of Health and Human Services show that more than one in two people turning 65 will need some form of long-term care, the report notes.
That outlook was supported by the study’s consumer findings around planning, where only 52% said they have spoken with their spouse about who would provide care, 35% have spoken with their parents, and just 29% with their children. In each of these cases, even fewer consumers had discussed how such care would be funded.
Most consumers believe they would pay for care through Medicare or health insurance, seemingly unaware that these options cover only limited types of long-term care. The second most cited source was personal savings and assets, yet only a third of consumers felt confident of having the financial resources to pay for long-term care.
Despite these findings, two-thirds of advisors are taking a broad, holistic approach to financial planning, believing their clients want emotional piece of mind and that it’s important to offer advice that supports a client’s family. Nearly all advisors (97%) cite the importance to their clients in planning for a spouse’s future in case something happens to them and 67% cite the importance of planning for their children.
And while nearly 60% of advisors say they broach the topic of long-term care with their clients, many clients often prefer not to discuss it, believing they won’t need it (61%) or that it’s a low priority (52%). Consumers also have the perception that long-term care insurance is too expensive or that they’re too young to have it.
Not surprisingly, clients do become more interested when they have experience with it. A client’s willingness to discuss long-term care jumps to 75% when they have someone close to them who needs it and to nearly 60% when they see somebody close become a long-term caregiver.
Advisors also say that clients without long-term care insurance can spend their savings two to three times faster than expected if long-term care is needed. The report notes that the mean annual withdrawal rate from a typical client’s portfolio is 5%, but that level rises to 13% for clients experiencing a long-term care event without insurance.
