Are baby boomers invincible?
Perennially youthful celebrities Susan Sarandon, Meryl Streep, George Clooney and Bill Clinton may perpetuate the impression that the baby boomer generation, who came of age during the freewheeling 1960s and 1970s, will stay active forever. Yet statistics from the National Funeral Directors Association paint a decidedly more sobering picture: the American death rate is projected to dramatically increase by 2030, with 3.3 million Americans expected to die each year. That’s a 32% increase from the current rate.
As the longest-living generation in history, boomers today are at the forefront of what’s been called a “longevity economy,” whether they are generating income in the workforce or spending their Social Security checks. According to a recent AARP Bulletin, baby boomers––those born from 1945 to 1964––continue to generate a powerful amount of economic activity. As consumers, they take in $7 trillion per year in goods and services.
Paying Taxes on it All
If you care to hazard a guess on the boomer tax bill, you might want to add a zero or two to the figure: members of this generation pay a whopping $420 billion a year in federal income taxes alone. That’s not surprising when considering that 80% of the country’s personal net worth belongs to boomers.
Yet despite belonging to a hardworking generation that includes Oprah Winfrey, Bill Gates and other icons of economic success, baby boomers are not necessarily making forward-thinking decisions about their inevitable deaths. According to the Pew Research Center, about 70% of Americans do not have a living will, which details their medical wishes, such as whether to be put on life support should they become unable to articulate their wishes. (For more, see: What Baby Boomers Need To Know About Making Out A Will.)
More Prepared Financially
When it comes to fiscal decision making, the numbers prove better: more than two out of three older Americans have drawn up wills that stipulate how their assets should be distributed in the event of their own deaths. However, that still leaves over 30% of those over 65 without such a document, leaving the door open for a host of potential legal and financial problems, such as potential family disputes over the age-old question: 'who gets what?'
According to the Gallup Poll, a diverse group of U.S. industries have undertaken studies to predict the social and economic impacts as boomers age, and eventually die.
Some impacts are surprisingly positive. For example, though the number of older drivers will continue to grow, the overall rate of accidents is not predicted to increase. Contrary to what younger drivers may believe, it’s teen drivers that are statistically the worst, with a far higher share of collision claims: 70% above the national average. The safest driving demographic, according to a 2012 study by the Highway Loss Data Institute? Drivers age 60-64. (For more, see: 7 Insurance Tricks That Cost You Money.)
A Shift In Final Needs
Industries that expect to benefit from boomers leaving this mortal coil are, unsurprisingly, those most closely associated with death itself. One example is cremation. In 1985, fewer than 15% of deaths resulted in cremation. That percentage has already climbed dramatically, and is expected to reach more than 55% by 2025, according to data from the Cremation Association of North America.
Another industry making preparations? Nursing homes. Before the oldest of the boomer cohort turns 85 in 2031, nursing homes and rehabilitation centers expect to see an influx––some call it a “silver tsunami”––of baby boomers requiring assisted living care.
Big Demand...But Thin Margins
One issue, though, remains the declining profitability of such facilities. According to the Partnership for Quality Home Healthcare, profit margins for nursing homes plummeted from an already-low rate of 2% in 2010 to 1% in 2012. That could squeeze companies like National Healthcare Corp. (NHC), Kindred Healthcare Inc. (KND), Brookdale Senior Living Inc. (BKD) and Skilled Healthcare Group Inc. (SKH). Many healthcare professionals blame reimbursement levels, which Medicare and Medicaid continue to slash. (For more, see: Medicaid vs. Medicare.)
Baby boomers and their families would be prudent to consider that Medicare, the federal government’s health insurance program for those aged 65 and over, suffers what some experts consider an alarming gap: it does not cover long-term nursing home care for those over 65. While Medicaid technically covers nursing home care, there remains a significant caveat. The program enforces strict asset rules that restrict all but very low-income seniors from receiving nursing home care benefits. In most states, “countable assets” that exceed $2,000––about the price of a used 15-year-old Toyota Camry––disqualify older Americans from even basic nursing home coverage through Medicaid. (For more, see: Medicaid vs. Long-Term Care Insurance.)
High Cost of Care
The many Americans forced to reach into their own pockets to pay for nursing home care should prepare for serious sticker shock. The average annual nursing home bill is steep: $130,000 to $150,000, or $350 to $400 per day. Comparatively, a year at New York’s prestigious Sarah Lawrence College, the United States’ most expensive college, may seem like a bargain at $64,992 (including tuition, fees, and room and board). That’s at an institution whose residents dine on such delicacies as lemon-chive tilapia, Korean-style barbecue, and grilled bourbon pork: all offered on a recent weekly menu at Sarah Lawrence’s dining hall. (For more, see: Long-Term Care: More Than Just A Nursing Home.)
With unaffordable long-term care options and other gaps in planning, some researchers who specialize in the post-retirement period paint a fairly grim picture of what aging will soon look like in America. Figures released last year from Boston College’s Center for Retirement Research indicate that greater than half of working-age adults will likely see their standard of living worsen after retirement. (For more, see: Investing In Long-Term Care.)
Cashing Out of Real Estate
For boomers concerned that their post-retirement financial picture may not be a rosy one, solutions do exist. It’s never too late to make a budget or to start saving. Boomers who renting or pay mortgages in pricey urban centers such as San Francisco’s Bay Area might consider reducing housing costs by relocating to a less expensive area. In addition to yearly reports from Sperling’s Best Places and Forbes on how retirement destinations stack up in terms of affordability, the AARP puts out an annual list of the most affordable cities for retirement.
Those who are still working should consider making a greater contribution to retirement accounts. Even seniors with moderate savings are ahead of their peers: according to the AARP, two out of five households headed by those aged 65 or older possess zero savings in retirement accounts. (For more, see: Avoid The Downsides of Downsizing in Retirement.)
The Bottom Line:
It’s important to examine data, rather than assumptions, when it comes to baby boomers and aging. While this demographic gets high marks for productivity and prosperity, those heading for retirement will want to take a hard look the potential costs of long-term nursing home care, keeping abreast of policy developments in Medicare and Medicaid coverage. When it comes to retirement finances, while it’s never too late to start saving and reducing costs. Cashing out of pricey housing and moving to a cheaper locale could be the easiest way to make retirement accounts stretch farther.
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