Reprinted from BROKER WORLD. January 2005. www.brokerworldmag.com
Used with permission from Insurance Publications. Subscriptions $6/yr. 1-800-762-3387

It's Retirement Insurance

One of the most powerful messages that emerge during the sale of long term care insurance is this one inescapable fact: You may have planned for a secure retirement in terms of assets and income, but if you do not own a quality, comprehensive long term care insurance policy, you have not protected the security of a lifetime of frugality and sacrifice.

I recently served on a panel at the annual Society of Actuaries meeting in New York to discuss the findings of a longitudinal study sponsored by the Society of Actuaries called the "2003 Risks and Process of Retirement Survey." This survey was conducted by Matthew Greenwald and Associates, Inc. and the Employee Benefit Research Institute on behalf of the Society of Actuaries. "The purpose of the study was to evaluate Americans’ awareness of potential financial risks, how this impacts the management of their finances with respect to retirement, and how Americans are managing the process of leaving the workforce."

I would like to begin by describing my participation in the event before revealing some very interesting research findings. I am seated on a stage at a table with the past president of the Society of Actuaries and the past president of the Academy of Actuaries, and Matthew Greenwald, who conducted the research. I am gazing out on a room filled to the brim with very bright, analytical minds. To suggest it was a little intimidating would be a cosmic understatement. I began by identifying the obvious -— I must have been added for color commentary and I hoped I did better than Dennis Miller.

What makes this research significant is that the survey was first conducted in August 2001 -— prior to September 11th -— done again later last fall, and reported to Congress in February of this year. The study was conducted on Americans age 45 to 80, divided into pre-retiree and retirees.

Let’s begin with some general findings. It is clear from the research that pre-retirees have dramatically increased their anxiety levels since September 11th. When compared to the original survey, pre-retirees are more likely to believe that protecting themselves financially by purchasing extended nursing care is a good idea; 58 percent for pre-retirees, 52 percent for retirees. Preretirees are more likely to have acted on that concern. One in 6 pre-retirees believes he has purchased long term care insurance, while only 1 in 10 retirees believes he has. What is important to note here is that these numbers are larger than estimates currently popular in the industry, which is less than 10 percent. The point that needs to be made here is that for baby boomer clients with money, we have done an increasingly good job of providing protection.

Americans understand that eventually they will be on a fixed income. They understand that they will require a lifetime income. Nine out of 10 retirees in the survey acknowledged that most people have not saved sufficiently. Survey respondents also clearly understand that inflation will continue to lurk in their future. Seventyeight percent of pre-retirees and 57 percent of retirees are concerned that the value of their savings and investments will not keep up with inflation. Interestingly, the survey indicates that leaving an inheritance is the least concern.

The survey also indicates that Americans know they will live longer and are concerned about who will pay. Differences between pre-retirees and retirees may be attributed to fear of the unknown versus the reality of retirement in America.

Pre-retirees are much more concerned about retirement security now than in 2001.

I suggested this may not just be a reflection of the largest demographics of our times -— those 70 million baby boomers marching to retirement -— it may only be a selfish awareness or it may be a clear vision of an extended retirement and the loss of faith in a government solution. Medicare and Medicaid are disappearing on the horizon like a mirage in the desert. Maybe longevity is the fear. I believe boomers do understand they will live a long life and their health will change.

The two greatest fears revealed in the survey were: (1) money for healthcare and (2) inflation. Two-thirds of those surveyed were concerned about the money to pay for long term care. Sixty-seven percent of pre-retirees and 47 percent of retirees said it is a good idea to buy insurance to leverage risk.

I would like to make one important observation before I move on to a summary. In this survey, as in any random sample of Americans, there is going to be a group of individuals who will not take action. Once you exclude this hardcore group, the findings of this survey and others like it improve dramatically.

In the survey, two-thirds of pre-retirees were concerned there would not be sufficient dollars for long term care, and 8 out of 10 believed they would not have enough money for healthcare. I wonder to what extent these are the same fears. Also, it may not be just the fear of not having the benefits, it may also be the fear of what not having the benefits means to issues of caregiving and dependence. I see much in the data to comfort and encourage us. The need is perceived. It is understood that insurance is the best solution, and sales to boomers shows improvement, as would be expected.

There is much work yet to be done. Seventy percent of retirees and 74 percent of pre-retirees said the average person will need nursing home care. However, when asked if they would need it, it dropped to 44 percent.

RONALD R. HAGELMAN, JR. CLTC, CSA, LTCP, has been a teacher, cattle rancher, agent, brokerage general agent, corporate consultant and home office executive. As a consultant he has created numerous individual and group insurance products.

A nationally recognized motivational speaker, Hagelman has served on the LIMRA and Society of Actuaries LTCI committees and is the president of the American Association for Long Term Care Insurance, as well as a master trainer for the LTCP professional designation. He is a principal in the agent sales training company Hagelman-Barrie Sales Training Solutions.

Hagelman can be reached at Hagelman Consulting, 156 North Solms Road, New Braunfels, TX 78132. Telephone: 830-620-4066. Email: ronjr@satx.rr.com.