Every day, 10,000 baby boomers enter retirement. With that in mind, financial experts are trying to raise awareness of two facts: We are living longer, and we are spending more.

Recently updated mortality tables by the Society of Actuaries show the average 65-year-old male will live to be 86.6 years old; the average female, 88.2. For many Americans, this increased longevity means a quarter-century-long retirement. And during that time, rising out-of-pocket health care costs are expected to drain the average retiree’s savings.

HealthView Services, a health care cost-projection software provider, recently updated its out-of-pocket cost estimations. They show that health care inflation, along with increased longevity and cost-shifting, is driving projections upward. The average healthy couple retiring this year is expected to spend $288,400 on Medicare and supplemental core care premiums. Add dental, vision and hearing care, and the total becomes $377,412.

For younger workers, future out-of-pocket costs could be devastating. For a 55-year-old couple retiring in 10 years, out-of-pocket health care costs are predicated to eat up 88 percent of Social Security earnings; for a 45-year-old couple, those costs may account for 116 percent of Social Security earnings.

What the projections leave out

Yet there is one thing that even these staggering predictions leave out: the cost of long term care (LTC).

Genworth, a leading provider of LTC voluntary plans, says the national median monthly rate for an assisted living facility is $3,628, up more than 2 percent over the past five years. For more intensive nursing home care, the cost of a semi-private room has increased by 3 percent, for an annual expense of $82,125.

And the Department of Health and Human Services in 2010 said 75 percent Americans turning 65 will at some point require long term care. Around 44 million of those 65 or older receive Social Security; by 2025, that number is expected to increase by more than 18 million.

Yet despite statistical evidence of the value of LTC coverage, only 8 million Americans have LTC coverage, according to the American Association of Long-Term Care Insurance.

A tipping point for the LTC market

Designed as a protection for the middle class, LTCI is not as popular as it once was -- in large part because fewer carriers offer it.

Over the past decade, the number of LTCI carriers has winnowed to a fraction of the field, with a mere handful of providers dominating the market.

Some say this is due to the insurance industry’s bad bets, which have made LTCI largely unprofitable. Industry critics blame poor underwriting assumptions made in the 1990s. They say that actuaries failed to accurately factor LTC cost inflation and over-predicted the rate of surrendered policies. Then, as interest rates dropped to historic lows, providers struggled to gain the yields from premium investments that they needed to honor LTC obligations.

Providers that have stayed in the market have recently asked state insurance commissioners to raise premiums, some by as much as 130 percent. In return, regulators have capped premium increases at lower, yet still considerable, rates. Some LTCI beneficiaries of policies a decade or older have incurred several years of premium hikes, and media nationwide have documented their outrage.

Where voluntary fits in

Despite troubles in the individual market, LTC penetration rates for large employers remain substantial -- 38 percent, according to the most recent LIMRA data. This shows that no matter how poorly the LTCI market is faring, sponsors and participants continue to view long term care planning as a critical part of any holistic financial planning curriculum.

Hybrid products have emerged; yet these can be costly for many participants. Instead, more affordable voluntary options like vision and dental can be built into a pre-retiree’s benefits package to defray out-of-pocket costs throughout the remainder of the employee’s working years. Those savings can then be redirected to 401(k) plans, ensuring a greater nest egg to fill the long term care cost gap.

Portable vision and dental policies can also be carried into retirement, reducing out-of-pocket medical costs so that 401(k) and non-tax-deferred savings can continue to grow.

Ultimately, an intelligently designed and comprehensive benefits package is fundamental to consumers’ financial wellness. For younger savers with time on their side, the right voluntary package can encourage savings. And for older workers who may not be able to afford LTCI, voluntary benefits can help protect and grow savings to meet future care needs.

To this end, it’s important to educate sponsors and participants alike. For long term care, the basics will suffice: Nearly four in 10 workers older than 40 mistakenly think Medicare will cover long term care costs, according to new data from the Associated Press.

And nobody, no matter how young, should operate under such false pretenses.

Instant Insights /

How voluntary benefits can help save for long term care

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