LTC
LTC impact on retirement from page 37
RETIREMENT MODEL
( both husband and wife require long-term care ) 46 % probability of occurrence
The fourth simulation is based on the most likely outcome that both the husband and wife will need long-term care . There is a 46 % chance they will both need long-term care . To model this we use the same input as above , however , we start with a current long-term care monthly cost of $ 5,000 inflated at a rate of 5 %. At the husband ’ s age 80 that will be a monthly cost of $ 10,394 and the average male will require care for 2.2 years . We now add these expenses to the model starting at age 80 and continuing for 2.2 years . At the wife ’ s age 85 that will be a monthly cost of $ 13,266 and the average female will require care for 3.7 years . We now add these expenses to the model starting at age 85 and continuing for 3.7 years .
So , out of 10,000 runs there are now 9,335 failures which is only a 4.8 % success rate . This is a far cry from the 97 % success rate when modeled if no care is needed and more than four times more likely to occur . When the plan fails to meet the spending goal 95 % of the time the average spending shortfall is now 27 %.
The ending portfolio value is based on the 10,000 simulations . The median portfolio value would be exhausted at age 87 while the 90 % would be exhausted at age 93 and the bottom 10 % would be exhausted at age 85 .
A couple that reaches age 65 has a 90 % chance that one or both of them will require some form of long-term care .
How can a financial advisor prepare a retirement analysis for a couple that does not address a financial challenge that will affect 90 % of his clients ?
Conclusion
As financial advisors , it is incumbent on us to consider significant threats to our client ’ s retirement security . As the figure below clearly demonstrates , a retirement model that requires no expenditures for long-term care may have a 97 % success rate , but with only a 10 % probability of outcome , making it an unreliable model to base a retirement strategy on . When we model the more likely outcomes it paints an entirely different picture .
There are now asset based long-term care planning solutions that eliminate many of the problems with traditional long-term care insurance . The solutions can provide guaranteed benefits that can never be outlived combined with guaranteed costs . In addition , these planning solutions are not a “ use it or lose it ” for long-term care and are guaranteed to provide a benefit whether or not your client needs long-term care .
Retirement success vs . probability of outcome
100
80
97 %
20 |
10 %
|
22 %
|
22 %
|
5 %
|
0 |
No care needed |
Only husband needs care |
Only wife needs care |
Both need care |
Retirement success Probability of outcome
38 Perspectives Q3 2022