Long-term care (LTC) costs could wreck the finances of many high-income Baby Boomers and members of Generation X after those consumers spend about 20 years in retirement.
Jack VanDerhei, an analyst at the Employee Benefit Research Institute (EBRI), makes that prediction in a set of forecasts made using the EBRI Retirement Security Projection Model.
VanDerhei tried to predict what would happen to the retirement nest eggs of Boomer and GenX households under a variety of conditions.
The EBRI model gave VanDerhei tools to analyze how the households might deal with "stochastic risk" — the somewhat hard-to-predict threat of needing long-term care, either in a nursing home or in the family home — as well as everyday, "deterministic" expenses and ups and downs in returns on retirement savings.
VanDerhei broke up the sample into four categories based on how much the households were earning at retirement.
Assuming the households had to handle 100 percent of ordinary expenses and 100 percent of LTC costs, and they were not eligible for help from Medicare or Medicaid with paying the LTC bills, about half of the households in the bottom quarter in terms of income would probably start running short of money after just one year in retirement, VanDerhei estimates.
