What will eventually happen to Social Security?

Since I work in this industry, it is likely that I track developments on this more than you.  While I do not have any special insights or inside information, I have some thoughts. My first comment is that it is not going away. It will continue to be an important income source for low and middle income people. Believe it or not, I have many, many clients that are doing ok – maybe not great – but ok living on their Social Security plus some small other income they generate from work or savings. They have simply adjusted their lifestyle to meet their income – this is key.

Second, there will need to be changes since the system is projected to pay only about 77% of benefits in 20 years or so. I foresee reductions in benefit payments for what would be higher income recipients. It is a form of means testing and I do not see any way around this. I don’t know how or where the lines will be drawn, but do believe this will happen.  Finally, and I realize that this is unpopular with many people, I would like to see an increase in the Full Retirement Age continue to age 70. That is very difficult for many people to accept, but I believe it is an important part of the solution. Regardless, Social Security is not going anywhere, it will simply be less important to future generations.

Medicare is, in my view, a much more challenging issue…

What do you think?

How Long Term Care Insurance is Sold

For years I have felt that Long Term Care Insurance is an important tool that people can consider to protect their assets.  I encourage my clients to evaluate the cost and benefits of a policy and how it may fit into their strategy.

That being said, I part with the sales tactics of agents and firms that mislead consumers about their risks.  The big number that is always used is that nearly 2/3’s of Americans over the age of 65 will need long term care.  However, what is “needing” long term care?  Is it a stay of 5 years?  Or 2 weeks?  What are the averages and the actual out of pocket costs that someone might face?  Many long term care stays are less than 1 year and roughly 70% of Americans that reach age 65 have long term care events that will cost less than $25,000.  Only 16% of people have stays that are greater than $100,000 and only 5% greater than $250,000. While 2/3’s is technically correct, it is quite misleading.

Another tactic I do not care for used by some firms or agents is the Hold Harmless letter they have consumers sign.  This letter is used when a firm recommends a policy and the consumer decides not to pursue (purchase?) it.  The letter removes any liability from the firm for the consumer’s decision.

I understand that people and organizations want to protect their liability, but really?  Why doesn’t every firm that sells anything to anybody have every potential client sign a hold harmless agreement? For example, you get a bid on a new roof and then they have you sign the following statement:  “You didn’t agree to buy the roof we recommended?  We cannot be held responsible when your roof leaks and ruins your house.”   Everyone knows this is a pathetic scare tactic.  You might as well say to the client, “Hey, I tried really hard to save you all of your money but you were stupid and cheap and would not take my advice so sign this form saying that you are making a really bad decision!”

Clearly long-term care is costly.  It is wise to consider how a policy can help someone protect what they have accumulated.  But bogus statistics and lame tactics used to scare consumers and sell products damage the industry trying to offer this protection.

On a separate but related note, I think an excellent option for Long Term Care Insurance products would be very high deductible policies – in the area of $200,000 to $300,000.  Benefit payments would kick in after long term care bills reach these levels. These would allow many people that have accumulated some assets to purchase policies at much lower costs since the carrier’s risk would be substantially reduced.   Consumers could protect against an unlikely but catastrophic care event in a much more affordable manner.  Unfortunately, the current price of many policies discourages many middle class consumers from a purchase.