LeadingAge Magazine · November/December 2014 • Volume 04 • Number 06

The Next Wave: Boomers Poorly Prepared for Retirement and Aging

November 12, 2014 | by Debra Wood, R.N.

Aging-services providers focus a lot of attention on preparing to serve the next wave of adults that will age into long-term services and supports. But how prepared are those people for their own retirements? Here’s a look at the big picture.

Born in the years following World War II, the baby boomer generation has left its mark on society. Due to their sheer numbers, more than 76 million, and a lack of sufficient saving for retirement, baby boomers will do so again when it comes to aging services.

“When you look at the statistics, it’s scary,” says Cyndi Hutchins, director of financial gerontology at Bank of America Merrill Lynch, based in Baltimore. According to 2010 federal data, “about 45% of American workers are not saving for retirement.”

The baby boomer generation and beyond are expected to live 20 to 30 or more years in retirement, and they are not saving enough to meet out-of-pocket health care expenses and to meet possible long-term care needs, Hutchins adds.

“From a long-term care provider’s perspective, the real crisis I would be worried about is the general public not being prepared and planning ahead [for] this risk to their retirement savings,” says Bob Bua, Genworth vice president and business leader of its wholly owned subsidiary, CareScout in Waltham, MA. “Most people think programs such as Medicare or commercial insurance are available to pay [fully] for long-term care, and they are not.”

The U.S. Census Bureau reports that in 2011, when the first baby boomers turned 65, nearly 77 million people born between mid-1946 and mid-1964 resided in this country. The bureau expects that number to decline to 60 million in 2030, when the baby boomers will reach 66 to 84 years. At that time, more than 20% of the U.S. population will be older than 65 years.

“Ten thousand baby boomers a day are retiring for the next 19 years,” says Al Orendorff, spokesperson for Genworth. “After age 65, there’s a 70% chance you will have a long-term care event.”

People will require aging services as they deal with chronic illnesses. A study reported in JAMA Internal Medicinelast year found chronic disease rates and disability are higher among U.S. baby boomers than members of the previous generation at the same age. Boomers are more likely to be obese but less likely to smoke cigarettes or exercise.

Fidelity Investments in Boston estimates a U.S. couple will spend $220,000 on average for health care, not including long-term care, in retirement.

Health costs are the second-highest expense for older Americans older than 75 years, behind housing, according to the Employee Benefit Research Institute (EBRI) in Washington, DC. People aged 85 years and older spend 19% of their expenses on health care, which includes home health care but not nursing home costs in the EBRI study.

“Overall spending goes down with age, but health is different from the other categories,” says Sudipto Banerjee, EBRI research associate and author of the report. “Health goes up.”

A 2014 Robert Wood Johnson Foundation study reported that among Americans who reach 65 years, an estimated 70% will need some sort of long-term service and support. In 2011, long-term care cost $210.9 billion. Medicaid paid for nearly two-thirds of such care. Patients or families paid for 21.6%.

The Congressional Budget Office in 2013 estimated the amount spent on long-term services and supports will increase from 1.3% of gross domestic product to as much as 3.3% by 2050 as the population ages. In 2010, 2.7% of Americans required nursing home level care, but among people age 85 and older that rose to 9.3%. The cost of nursing home-level care, with a semi-private room, averaged $80,000 annually but was as high as nearly $250,000 in Alaska. That government report estimates the growth in prices for long-term services and supports grew by 4.5% for semi-private nursing home beds between 2002 and 2012.

The Genworth 2014 Cost of Care Survey found a five-year annual growth rate for home health aide services of more than 1% but an approximate 4% five-year annual growth rate for assisted living and nursing home costs. Costs of care vary regionally.

“Every year, the cost keeps rising across the board,” Bua says.

While Americans have saved $24 trillion in retirement assets, according to Investment Company Institute reports, many individuals have not saved enough. Hutchins reports that Social Security represents 38% of the total income for people age 65 and older, and 22% of married couples and about 47% of unmarried persons depend on Social Security for 90% or more of their income.

A TD Ameritrade survey found many baby boomers have saved far less then they think they need, $475,000 less for those not already retired. Twenty-nine percent of the respondents admit they are not prepared. Many have not saved and may not have the income to tuck away sufficient amounts.

According to a 2014 paper by researchers at the Federal Reserve Bank of St. Louis, baby boomers earned less than prior generations and are on track to have less income and wealth in old age, than people born in the 1930s and 1940s who were otherwise similar to them. Active saving has been lower, and they were not as fortunate in the job market. People born in the 1930s could achieve a middle-class life with just a high-school diploma. That’s not as true for baby boomers.

“Another factor probably was that people born in the 1930s were a smaller group,” says economist William R. Emmons, senior economic adviser at the Center for Household Financial Stability at the St. Louis Fed and author of the paper. They came of age at “a time of fast economic growth. A bunch of things contributed to successful financial outcomes. Plus, the saving behavior came out of the Depression.”

Baby boomers and people coming after them, on the other hand, were more willing to borrow more and less likely to save. Emmons says 1950 was a breaking point. Those born after that had large declines in wealth during the housing boom and collapse of the late 2000s.

“Timing will have an impact on groups of people retiring in the future,” Emmons says.

Additionally, late and early baby boomers lost 25% to 28%, respectively, of their median net worth during the Great Recession of 2007-10, according to a Pew Charitable Trust survey.

As baby boomers approach retirement years, many continue working, for a variety of reasons including staying mentally and physically active, yet many are forced to retire early due to health issues. Seventy-four percent of people take Social Security early.

“You can’t work forever and the biggest reason for early retirement is a medical issue,” Hutchins reports. “Health is the great unknown and the key driver in our ability to work longer and meet expenses.”

The Merrill Lynch and Age Wave Retirement Study “Health and Retirement: Planning for the Great Unknown” reported 55% of retirees surveyed retired earlier than they had expected, 38% when they planned to and 7% later than they expected.

Years ago, many retirees depended on company pensions, which covered most of their nondiscretionary spending.

“Many of the [workers] that retired in the silent generation had pensions,” Hutchins says. “We have a perfect storm of longevity creating a greater need for long-term care and the death of the defined-benefit pension plan, taking away one of the major sources of income in retirement.”

Without substantial savings, how will retirees pay for medical and long-term care? Absent significant long-term care financing reform, many will end up on Medicaid.

Some baby boomers have purchased long-term care insurance, but 90% of people age 50 years and older have not, according to the Raising Expectations scorecard produced by the AARP Public Policy Institute with support from The SCAN Foundation and The Commonwealth Fund.

Genworth found that 70% of respondents to one of its surveys underestimate the need for long-term care. That survey found 11% of respondents had purchased long-term care insurance. Thirty percent indicated they haven’t thought about planning, or don’t want to begin thinking about it, while 14% said that they don’t know where to begin or don't have enough information. Meanwhile, 8% of respondents indicated that they want to plan for their long-term care needs, but have been putting it off.

Eder law attorney Anthony Enea, past chair of the New York Bar Association’s Elder Law Section and managing partner at Enea, Scanlan & Sirignano, in White Plains, N.Y., says there is a growing trend among seniors to look into asset protection planning with irrevocable Medicaid asset protection trusts.

“I believe we will see more innovation in the type of services offered,” Hutchins says, perhaps more non-medical assistance in the home.

Traditional services will persist, perhaps with government support, but other, newer methods of helping people remain healthy in their own homes likely will gain in acceptance. Baby boomers are much more technology savvy than the current generation of older Americans. A Pew Research Center study found that 77% of adults age 50 to 64 years and 53% of those ages 65 and older use the Internet or email.

Consequently, more care may move toward remote monitoring or devices that can remind people to take their medication. Already devices exist to do this, and they may prove less expensive than people providing such services.

Orendorff indicates it’s time to approach the issue with some imagination and creativity.

“We are approaching a long-term care crisis in this country,” Orendorff concludes. “There’s a tidal wave of people potentially needing long-term care during the next quarter century, and as a nation we are not prepared for that.”

Editor’s note: LeadingAge’s Finance Reform Task Force was created to develop a series of potential “Pathways” for financing long-term services and supports in the U.S. for the coming decades. (See the task force’s report here.) In this issue’s Vision column, “We Must Find Pathways to Transform Financing for Long-Term Services and Supports,” we interview Kathryn Roberts, chair of LeadingAge’s Long-Term Services and Supports Financing Task Force, which is now doing outreach to stakeholders and policymakers, based on the Pathways document.