The long list of risks facing today's retiree is enough to strike fear into even the most-prepared among us. The risk of another major stock market decline looms, an unprecedented level of government debt threatens the very underpinnings of our economy, not to mention growing taxes, and a weakened Social Security system. As if that list isn't enough to contend with, we have to consider inflation for our clients. They're thinking about it, so we had better be proactive in talking about it and preparing them for the worst.
If you research the subject of inflation-fighting investments, you'll discover countless articles that tout inflation hedges such as TIPS (Treasure Inflation-Protected Securities), Commodities, Real Estate, and equities. All of these investments have demonstrated positive correlation to the rise in consumer prices. In other words, when prices rise, these investments tend to go up. Problem solved, right? Actually, that depends: Who exactly is your client and how are they planning to spend their money in the future?
If you work with retirees, you may want to dig a bit deeper before dispensing the standard investing advice. According to the Bureau of Labor Statistics' Consumer Expenditures Report, retirees spend less in almost every spending category as they move throughout retirement than they did when they began retirement. The exceptions? Housing spending remained stagnant as a percentage of income, and the other change – you guessed it – health care. In fact, the "retirement smile" spending curve, demonstrating a consistent reduction in spending throughout retirement, only trends up (thus forming a smile-shaped spending curve) at the end of life because of the steep rise in medical spending.
What this means is the inflation fears that retirees have (and we should be planning for) are driven almost exclusively by medical costs. The standard list of inflation-fighting investments is thereby missing a notable entrant: long term care investments. For if we don't allocate resources to long term care, aren't we neglecting the very cause of the inflationary effect of our retired clients real spending?
Consider sharing these four distinct options with your clients for funding their long term care costs:
Self pay – Choose to pay for any care needs out-of-pocket or from investment assets and/or spend down those assets until Medicaid begins to pick up the tab. It may be possible to do some legal estate planning to move assets out of the client's estate to avoid a full spend-down before qualifying for Medicaid. Consult an estate planning attorney to ensure this is done correctly.
Buy traditional long term care insurance – Purchase policies that are designed to pay for your care during your life. Unfortunately, this type of long term care insurance typically leaves nothing to loved ones after death. If you're fairly certain that you'll be a long term care candidate, and still qualify medically, this can still be a very effective strategy for getting help with your care needs.
