Advisor Resources: BMO Wealth Institute

Who will be your caregiver?

who-will-be-your-caregiver

As the population of the United States ages, the demands placed on the health care system and the need for long-term care options continue to rise. The question of whether Americans have adequately prepared for their future health and long-term care needs will be answered in the coming years as a wave of baby boomers retire.

For Americans, one of the greatest fears associated with aging is not being able to afford or have access to health care services and long-term support when these are required. We also worry about not having enough income or the ability to accumulate the assets needed to support our retirement goals. These concerns are supported by research that indicates that over half of all U.S. households will only be able to afford lower levels of consumption in retirement, effectively resulting in a lower standard of living than is currently enjoyed.1

This expectation of a lower standard of living in retirement is driven by a number of factors highlighted in a survey of Americans aged 45 and older, conducted by the BMO Wealth Institute in July 2015. The survey asked Americans to name their greatest health-care-related retirement concern and found that 36% of those asked most fear losing their ability to live independently, 20% of people worry about having enough money to pay for adequate health care, and 13% are worried about being able to afford to live in their own homes throughout their lifetimes.2 Yet, according to the survey, 28% have not made any preparations for the possibility of becoming unable to live independently. The following table shows how those surveyed have prepared for this eventuality.

How Americans have prepared for long-term care needs
Source: BMO Wealth Institute survey by ValidateIT Technologies Inc., June-July 2015

 

The ability of private companies and government to fund ever-increasing health care costs is also challenged, in part, by the fact that the first wave of baby boomers (Americans born between 1946 and 1965) has already reached retirement age. Health care spending continues to increase at a rate in excess of inflation and now accounts for approximately 17% of the nation’s Gross Domestic Product.3 In the United States, about 34% of all health care expenditures are for people aged 65 and over.4 These financial pressures, driven by increasing demand, could make health care and long-term care services harder to obtain in the future.

The population is aging

Today, about 15% of the American population is aged 65 and over. The senior population as a proportion of the overall population will continue to grow – it will be another 15 years before the tail end of the baby boomer generation reaches 65.5 The following population pyramid demonstrates that the aging of the baby boomer generation (highlighted) will lead to a larger senior population in the years to come.

Age pyramid for the population of the United States
Source: U.S. Census Bureau

As the population ages, the demands placed on the health care system and the need for affordable long-term care options will increase. All of this is happening at a time when health insurance costs are increasing, government budgets are already stretched, and personal resources are needed more than ever to meet retirement goals.

Caring for our parents

Not only are we aging, but many of us are also members of the sandwich generation. This term is used to describe people who are facing the demands of caring for their aging parents while still raising their own children.6 There is no better example of life events coming full circle than the experience of the sandwich generation. Just as our parents once cared for us, we may one day end up caring for them by providing for their long-term care. Long-term care can be defined as services to assist with the activities of daily living. Consider the story of Mr. Leung. At the age of 72, he has developed dementia and requires continuous supervision and assistance to take his medications, to eat and to dress. While members of his family can care for him mornings, evenings and on weekends, further assistance is required during the work day. The following table shows that the cost of providing supervision and ensuring his safety in the home environment can be significant – in this example costing about $35,000 per year.

Source of hourly costs: LongTermCare.gov
Source of hourly costs: LongTermCare.gov

The cost of providing a parent with long-term care outside of the home environment could be substantial. It is not uncommon for long-term care facilities to charge thousands of dollars per month.7 The following table provides details of potential costs for in-home/community-based care, retirement homes/residences, and nursing homes.

Most people view long-term care facilities as a last resort, for the time when staying at home is no longer possible. The survey indicated that a majority (59%) of people would prefer to receive care in their own homes. In most cases, this will result in family members or close friends taking on caregiver responsibilities. More than one quarter of all Americans (29%) provide care to a family member or friend who have a long-term care condition, disability, or needs associated with aging.8 While the costs of home care are less than those for long-term care facilities, caregivers often have out-of-pocket costs, added stress, and less time for other activities like working and spending time with their family.8 The following table shows where Americans would prefer to receive long-term care, if and when they need it.

Who uses long-term care?

The majority of older Americans live in their own homes or with family members. U.S. census data from 2010 indicated that 96% of Americans aged 65 and over were living in private homes. The percentage of Americans living in institutional settings, such as nursing homes, long-term care facilities and seniors’ residences, does however increase with age. Only 1% of Americans aged 65–74 were living in such facilities, but this rose to 13% for seniors aged 85 and over.9

infographic-caregiver-sm

Despite all the available evidence, 76% of Americans who responded to the survey were not sure if they would ever need long-term care, stating that this would depend on their future health and other factors. Assuming they did indeed require long-term care, 78% of survey respondents expected it would start sometime between the ages of 75 and 94. This is significantly higher than the findings from the 2010 U.S. census, which indicated that less than half of all seniors were living in retirement or nursing homes.9

Alzheimer’s disease or dementia is thought to be the most likely reasons for needing long-term care by many survey respondents (64%). This belief is confirmed by research that indicates almost half (49%) of all nursing home patients suffer from Alzheimer’s disease or other dementias. Alzheimer’s is also prevalent in seniors who use adult day services centers and various home care service options.

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1 Falling Short: The Coming Retirement Crisis and What to Do About It.
Munnell, A.H. Center for Retirement Research at Boston College, April 2015.
www.crr.bc.edu/wp-content/uploads/2015/04/IB_15-7_508.pdf
2 BMO Wealth Institute survey – survey conducted by ValidateIT Technologies Inc. for the BMO Wealth Institute between June 16 to July 14 –18, 2015 with an online sample size of 1000 Americans 45 years of age and older. Overall probability result for a sample of this size would be accurate to within 3.1% 19 times out of 20.
3 Historical National Health Expenditure Data. Centers for Medicare and Medicaid Services, 2013.
www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/
NationalHealthExpendData/nationalHealthAccountsHistorical.html
4 Table 1: Total Personal Health Care Sending by Gender and Age Group, Calendar Years
2002, 2004, 2006, 2008, 2010 Level (in millions), Distribution (percent), and Average
Annual Growth (percent). Center for Medicare and Medicaid Services, Office of the
Actuary, Nation Health Statistics Group, 2010.
www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/
NationalHealthExpendData/Downloads/2010GenderandAgeTables.pdf
5 The World Factbook. Central Intelligence Agency. (accessed August 2015)
www.cia.gov/library/publications/the-world-factbook/geos/us.html
6 Advisors help out when sandwich generation gets squeezed. O’Brien, S.
CNBC website, September 15, 2014.
www.cnbc.com/2014/09/14/advisors-help-out-when-sandwich-generation-getssqueezed.
Html
7 Genworth 2014 Cost of Care Survey, 2014.
www.genworth.com/dam/Americas/US/PDFs/Consumer/corporate/130568_032514_
CostofCare_FINAL_nonsecure.pdf
8 Selected Caregiver Statistics.
Family Caregiver Alliance, December 31, 2012.
www.caregiver.org/selected-caregiver-statistics
9 A Profile of Older Americans: 2011.
Administration on Aging, U.S. Department of Health and Human Services, 2011.
www.aoa.gov/Aging_Statistics/Profile/2011/docs/2011profile.pdf

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