Data & Research October 26, 2017

Lack of Funds for LTC is Americans’ Greatest Fear About Aging

Yet only 20% have taken any step toward funding their long-term care expenses.
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Not having enough money to pay for health care or long-term care is the greatest fear adults have about aging, Genworth found in a survey of 1,200 people. 

Despite these overwhelming apprehensions, only 20% of Americans have taken any steps towards figuring out how to finance long-term care costs.

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In addition, only 50% feel they should be responsible for their own care as they age, with the remainder feeling it is the responsibility of the government, their family or community or faith-based organizations.

“As these findings suggest, many people will not be prepared financially to handle the impact of growing older, which means the burden of caring for them will fall to their families, friends and communities,” says David O’Leary, president and CEO of Genworth’s U.S. life insurance division. “That’s why it is so important for people to talk to their families about who will care for them, educate themselves about the cost of care and develop a plan for how they will pay for it.”

NEXT: Additional misunderstandings

Sixty-six percent of Americans mistakenly think government programs will fund long-term care, despite the fact that Medicare only pays a limited amount and Medicaid has strict financial eligibility requirements. In addition, 45% of respondents either confused Medicare and Medicaid or did not know the difference between them.

Forty percent underestimated the hourly cost of professional help in the home, and 52% did not know that a long-term care insurance policy can cover help in the home. Sixty-one percent of respondents did not know that long-term care can be personalized and that the insurer can help them find quality care providers.

Genworth says that 70% of the people who are turning 65 today will need long-term care at some point in their lives. Nonetheless, only 52% of Boomers think they will need these services. However, Millennials and members of Generation X are more realistic, with 64% and 65% of these demographic groups, respectively, conceding that they may need long-term care in the future.

Genworth discovered that Millennials, who already are facing the prospect that Social Security may not exist in its current form by the time they retire, are the most likely group to have taken action to obtain long-term care insurance.

“People are never too young to begin preparing for how to pay for long-term care costs, which as often overlooked as a major retirement expense and can quickly wipe out a person’s savings,” O’Leary says. “Understanding the costs is a good first step, followed by a conversation with a financial professional about potential funding options that will protect assets against long-term care costs.”

Genworth has developed a video, “Let’s Talk,” to help families confront the delicate subject of long-term care. The company also points to a website from the government that explains Medicare and Medicaid coverage: longtermcare.gov. For a link to Genworth’s offerings, go to genworth.com/longtermcare.

Data & Research October 26, 2017

EBRI Breaks Down Number Affected by Tax Reform Changes

An Employee Benefit Research Institute analysis breaks down the number of 401(k) contributors who would be affected by a mandatory, partial Rothification proposal in tax reform.
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As interest in potential corporate and individual tax cuts continues to grow, retirement plan sponsors worry this may lead to legislation requiring employee contributions in workplace retirement plans to be made after-tax, in order to counterbalance tax cuts—a mandate that in turn, could impact plan participation and participant deferral rates.

The Employee Benefit Research Institute (EBRI) has released its most current information as to probable effects of the Rothification proposals now under debate. 

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According to the release, some tax reform packages might include a “mandatory, partial Rothification” rule, whereby 401(k) employee contributions up to $2,400 annually can be made either pre-tax or Roth—after-tax—depending on plan design and employee choice; those over $2,400 would  be treated on a Roth basis. Employee contributions made pre-tax, as well as ensuing investment returns, would, as now, be taxable on subsequent distribution, and employee contributions made on a Roth basis, including their investment returns, would not.

Using its numbers from year-end 2015—i.e., its latest, from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project—EBRI breaks down the percentages of 401(k) contributors, and their contributions, that the $2,400 threshold would affect, subjecting the contributions to tax.

For those at the lowest wage level—$10,000 through $24,999—38% would be affected. Of those making $25,000 through $49,999, slightly fewer, 32%, would be affected, whereas in the $50,000 and up ranges, sharp increases would occur. The affected group grows to 60% for workers making $50,000 through $74,999 and to 76% for the $75,000 through $99,999 wage group. Eighty-seven percent of 401(k) contributors who make over $100,000 would be affected.

As to percentages of 2015  401(k) plan contributions,  58% made by those earning $10,000 through $24,999 exceeded $2,400 and would have been subject to Rothfication—and tax. The percentage drops to 51% for the $25,000 through $49,000 earners, then increases to 58% for those in the $50,000 through $74,999 income range. Additionally, 70% of contributions for those making $75,000 through $99,999 a year and 80% for those making $100,000 or more would be affected.

EBRI further broke down, by age, how many 401(k) contributors would surpass the threshold: Forty-three percent of the youngest group—ages 25 through 34—56% of those 35 through 44, 62% of those 45 through 54, and 64% of those 55 through 64.

Slicing its data by both age and amount saved, EBRI found 53% of contributions made by the youngest employees—i.e., 25 through 34 years old—would exceed $2,400 and be “Rothified.” This number increases to 66% for employees ages 35 through 44, to 72% for those 45 through 54, and 75% for those 55 through 64.

The EBRI expects to release its complete study—conducted through the EBRI Retirement Security Projection Model—on how possible tax reform changes will affect retirement income adequacy, in an EBRI policy forum during early or mid-November. More information about this study can be found here.

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