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Advisors can help the sandwich generation assess their risk for long-term care (LTC) and protect financial goals with the right approach to LTC insurance.
More than half of adults in their 40s are part of the so-called “sandwich generation,” according to new data from Pew Research Center. This group, who has a parent 65 or older and are raising at least one child younger than 18 or providing support to an adult child, make up the sandwich generation segment. Those mid-life caregiving commitments are leading them to spend nearly $14,000 more a year than the average household.
But while those in their 40s might be satisfied while they are in peak earning years (49% of Gen Xers are very satisfied with their life), this might turn by the time they get into their 60s. With the ever-increasing costs of education and healthcare coupled with increasing inflation, the reality of day-to-day living expenses might be exponentially more expensive by the time they are ready for retirement.
For financial advisors, now is the time to have a dialogue about LTC and steps clients can take to protect their financial goals.
Here are a few actionable insights to consider for those conversations:
- Plan 20 years out
Those spending their time taking their parents to medical appointments and helping their children with homework might not think they’ll need LTC insurance any time soon. But what if in 15 or 20 years you’ll need long-term care or stay? Part of thoughtful financial planning includes considering current demands to help prepare for future needs. Unfortunately, health issues arise when we least expect it, and our clients need to be prepared.
I start with assessing the need such as the impact a medical condition might have on your asset base and your spouse at home. My job is to make clients aware of the risk and how it can impact their goals. Have clients decide if they want to live with the risk, insure part or all of it, or bring additional financial tools into the fold.
- Aim for a hybrid model
The trend in long-term health care insurance has moved toward a hybrid model. These newer policies are essentially a life insurance policy with LTC riders that provide benefits if the insured is in need of qualifying nursing home or in-home care expenses. The hybrid policies provide that someone will receive a benefit for the premiums that are paid, unlike traditional policies that were similar to homeowner’s insurance where you would pay a premium but hope you never have to use it. In the past, most people found that they were guessing about their future needs when they took out a LTC policy. They didn’t want to pay high premiums in their 50s, but then found that their care became significantly more expensive in their 60s.
We now have more data around LTC such as average cost per stay and differences between at-home and in-facility costs. These hybrid policies are more sensible and reflect the needs of today’s population. Nursing home stays on average last two to three years, and most LTC policies are structured to support this timeframe versus lifetime care. Some LTC planning has an option for at-home benefits.
Insured’s generally will have an opportunity to pay off the premiums within 10 years, during a time while they are still earning an income.
- Select a policy based on your client’s unique needs
When I have an older client who brings in a policy for me to evaluate, I try to determine if it is realistic. I want to understand if the family has a history of LTC issues. For high-net-worth clients, this might not be an issue. They could self-insure, and they can draw down their asset base and be fine with that. But for those who are not in this position within the sandwich generation, I can show through financial planning that impact of what LTC can do to your asset base. After reviewing options, it might be better for you to pay for a policy before retirement when you have that cash flow from earnings.
If you can fund your LTC policy over a 10-year period when you are working and have additional income and bonuses, it won’t be as much of a financial strain. This compares to when a client is retired and must liquidate assets that could be subject to taxes.
- Educate clients through regular meetings
Education is a key component to financial planning for this generation. Make sure they know what options are available to them as well as their children. When it comes to LTC planning, ask whether the policy protects against inflation. Does it cover facility or in-home living? Hold regular meetings with your clients and benchmark goals to give them a clear understanding of their long-term financial health.
If possible, have these conversations with families involved through a scheduled generational meeting. Many people in this generation don’t fully understand the financial and health issues their parents and children face. Those unknowns can create a hole in your clients’ finances and make for a difficult conversation. By having these conversations earlier, your clients can better assess what is available to them now and what they may need for care in the future.
Faron Daugs, CFP, is the founder & CEO of Harrison Wallace Financial Group, an Illinois-based wealth advisory firm.
Read more articles by Faron Daugs
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
