Forty-four years ago Bob Dylan wrote the song These Times They Are A Changing.
As it pertains to our financial well being, Mr. Dylan’s 1964 song rings true today. When it comes to change there is good news and bad news. The good news is we will probably live longer than at any other time in history—the bad news is we have a greater chance of becoming financially destitute than at any other time in history.
The National Bureau of Economic Research tells us that for millions of retirees, true financial security in retirement will prove an elusive goal. Dr. Ken Dychtwald , viewed as the leading authority on aging in America, states in his book Age Power that large numbers of elder boomers could wind up impoverished, and that we are woefully unprepared for what is about to occur as our population ages. If that isn’t concerning enough, 54% of retirees surveyed had never thought about how many years they will spend in retirement and many are finding out that meeting the financial demands of living longer is proving to be more complicated than they envisioned. Moreover, a study conducted by Fidelity Investments tells us that 78% of those in retirement do not have a financial plan.
It used to be that a person would expect a relatively short life expectancy after retirement. Now many of us can plan on one third of our lives spent in retirement. Today retirees face a tremendous amount of financial uncertainty. The shift has changed from dying too soon to living too long—or what many experts define as the new financial problem: “longevity risk.” The new challenge facing retirees today is how to make our money last a lifetime which leads us to the # 1 risk to outliving our money which is the cost of long-term care.
I find it interesting even though it is the top risk of retirees becoming impoverished it is the most ignored. Advisors are paid to put together portfolios, investment strategies, and crunch the retirement projections but almost all ignore long-term care. Isn’t it logical if we end up with an additional extra annual expense of $90,000 a year our investment portfolio is turned upside down and our financial security threatened? The fact is, ignoring this financial landmine is folly. We simply can’t do it and feel safe going into or currently being in retirement.
According to the American Health Care Association, “Failure to prepare for the cost of long-term care is the primary cause of impoverishment among the elderly.” More than 50 percent of people age 65 and older will need long-term care before they pass away. Sadly, only 18 months after entering a nursing home, many residents are broke. This does not have to be! By knowing how to protect our assets from catastrophic illness, this statistic can and will change.