Employers
HOW DO WE MAKE CERTAIN THAT OUR EMPLOYEES WILL NOT HAVE TO SQUANDER THEIR RETIREMENT INCOME ON THE COSTS OF EXTENDED HEALTH CARE?
The biggest threat to your employees’ nest eggs, according to an article in the Wall Street Journal*, is not a bear market but the cost of long term health care. Equally serious is that 70% of all Americans over 65 will spend some, or all, of their retirement income on the cost of extended health care.
For many, these costs will be inconsequential. For others the cost of care from conditions such as severe strokes, Parkinson’s, and Alzheimer’s - or the results of a serious accident - can run into the millions of dollars. For example, the cost for 24/7 home health care can be substantial:
Year |
Cost for 1 year* |
Cost for 8 years** |
2009 |
$175,000 |
$1,557,900 |
2019 |
$235,454 |
$2,093,000 |
2029 |
$316,430 |
$2,813,000 |
*Costs assume 3% CPI. See MetLife Mature Market Studies on the Costs of Long Term Health Care.
**The average length of Alzheimer’s is 8 years.
And even the cost of a $95,000 a year private room in a nursing home in a large metropolitan area can decimate retirement income:
| Income portfolio | $1,000,000 | $3,000,000 | $5,000,000 | $10,000,000 |
| After tax income @4% | $ 40,000 | $ 120,000 | $ 200,000 | $ 400,000 |
| Cost of care | $ 95,000 | $ 95,000 | $ 95,000 | $ 95,000 |
| % loss of income | 236% |
79% |
48% |
24% |
There are only two sources from which to pay these costs: They can be paid from investment or retirement income or they can be paid by liquidating assets. However, regardless of the source, the ultimate payer of long term health care costs is not the person who needs care – it is their family because:
- If costs are paid from income, the family will usually have to reduce their standard of living or their lifestyle.
- If costs are paid by liquidating assets, the family’s legacy will be less than planned.
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