LTC Bullet: Beware the Baby Boomer Bust

Tuesday, July 22, 2003


LTC Comment: Smart boomers will heed the warning signs of future financial Armageddon and prepare with private savings and insurance. That's good for them and better yet for the less fortunate who must depend on whatever's left of public social programs after the Age Wave hits. More after the ***news***.

*** QUERY: HOW MUCH HOME EQUITY DO THE ELDERLY OWN? The answer is important because home equity conversion can provide a godsend of supplemental income for seniors whose interest on savings has plummeted recently. Among other things, this extra income could help more seniors afford the premiums for private LTC insurance to protect the remainder of their estates.

We calculate the total home equity of people over age 65 to be at least $1.4 trillion, probably much more. If you have a better estimate, please respond to this email with a source and citation. The two germane tables from the Census' "American Housing Survey for the United States, 2001" are:
Here's how we derived the $1.4 trillion estimate.

Of 17,513,000 owner-occupied elderly households in the U.S., 73 percent or 12,792,000 are owned free and clear, i.e. no mortgage. Median home value (the Census tables do not provide the mean) is $107, 398. If we assume the mean average is at least as large as the median, which is a safe assumption because the really huge home equities get washed out when calculating the median, then total home equity of elderly households is at least $1.37 trillion (12.8 million unmortgaged households times $107,398). We say "at least," because (1) the mean home equity is probably considerably higher than the median and if we knew the mean, that would be our value multiplier for total unmortgaged homes and (2) of the 4,721 mortgages on elderly households (some elderly households have more than one mortgage), most have been paid down considerably so that, while the equity is not 100%, it would still be substantial, and is not included in the $1.4 trillion estimate. Based on this, we conclude that $1.4 trillion in senior home equity is probably a low estimate. Comments? ***

*** Are you planning to attend THE 2003 NATIONAL LTCI PRODUCERS SUMMIT this November in New Orleans? If so, plan now for a late dinner on Monday, November 17. Immediately after the "Networking Reception" sponsored by Physicians Mutual and MetLife from 5:45 PM to 7:00 PM, Steve Moses will present a one-hour preview (7:00 PM to 8:00 PM) of the Center for Long-Term Care Financing's highly regarded LTC Graduate Seminar. Contact Amy McDougall at 425-377-9500 or to reserve a place. For information on the conference, go to . For information on the LTC Graduate Seminar, go to . ***

*** LATEST DONOR-ONLY ZONE CONTENT: Here's the latest Zone content followed by instructions on how to subscribe.

LTC E-Alert #3-045--Obesity Plagues Medicaid/Medicare Seniors and Budgets

(Health Affairs article says obesity-related ailments drive up Medicaid and Medicare costs far more than they increase private, out-of-pocket health care spending.)

LTC E-Alert #3-046--High Tech LTC

(Remote sensors tracking infirm seniors' behavior and transmitting instructions via the internet to take your pills or turn off the stove. Will LTCI pay?)

Don't miss our "virtual visits" to major LTC industry conferences in The Zone. You'll find our comparison of the conferences, session summaries, interviews and pictures at .

Individual donors of $150 or more and corporate donors to the Center for Long-Term Care Financing receive our daily email LTC Bullets, LTC E-Alerts, LTC Readers, and LTC Data Updates for a full year. You'll also get access to the donor-only zone where these publications are archived along with other donor-only features. If you already qualify for The Zone, you can click the following link, enter your user name and password, and go directly to the latest donor zone content and archives: . If you do not already qualify for The Zone, mail your tax-deductible contribution of $150 or more to the Center for Long-Term Care Financing, 2212 Queen Anne Avenue North, #110, Seattle, WA 98109. Then email your preferred user name and password (up to 10 characters each). You can also contribute online by credit card or direct withdrawal at . ***


LTC Comment: For years, we've highlighted the impending financial crisis facing baby boomers in this space and in the Center's donor-only publications. We've also faithfully covered the impending fiscal crises confronting "pay-as-you-go" social insurance programs all around the world. For examples of this coverage, take a look at the archives of LTC Bullets at and (if you’re a donor) browse our LTC E-Alerts, LTC Readers and LTC Data Updates in The Zone at . You'll find summaries of and links to numerous studies by the General Accounting Office, the Congressional Budget Office, and public and private think tanks that describe and explain the frightening financial prospects posed by aging demographics.

What's new on this subject and why does it matter? What's new is that the volume and level of concern about the financial consequences of aging demographics is skyrocketing. What matters is that people must recognize these risks now and begin immediately to prepare privately for what may happen. We offer the following examples of heightened concern. We hope LTC Bullets readers--including media, legislators, policy makers, public administrators, LTC providers and insurers--will help awaken the public to these concerns and urge them to save, invest and insure aggressively in preparation. Individuals and their families may not be able alone to solve the social problems of retirement and health security facing America's aging population. But each of us can reduce the likely impact on ourselves and our families. By so doing, we will also help save public resources, which are scarce now and likely to become much more so, for the truly needy or uninsurable.

Here's a potpourri of recent news--ammunition to help break through the barriers of denial and ignorance that block so many Americans from realizing and confronting the real risks that lie ahead. (To access the complete Wall Street Journal articles, you'll need a subscription to the WSJ Online edition.)


Excerpts from Jonathan Clements, "Boomer Bummer: Retirement May Get Ugly for Generation," Wall Street Journal, July 9, 2003,,,SB105769701432273000,00.html .

"The boomers' retirement dreams are about to go bust.

"I don't have much tolerance for doom-and-gloom pundits. Still, as I think about the rapidly approaching retirement of the baby boomers, those born between 1946 and 1964, one thought comes to mind: It's going to get ugly. . . .

"Losing Steam: Bulls and bears argue fiercely over whether stocks, bonds and real estate are over or undervalued. But whichever side you favor, it is pretty clear returns in the decade ahead won't match the heady gains of the 1980s and 1990s. That means boomers will find it tougher to retire in comfort. . . .

"Result? Going forward, investors are almost certain to garner far more modest gains from their three biggest assets, stocks, bonds and real estate. My advice: Don't bank on earning double-digit gains. Instead, to make your wealth grow, hold down investment costs, avoid foolish investment mistakes and save like a demon.

"Feeling the Squeeze: For the moment, Uncle Sam seems wonderfully generous. But this largess won't last, and my hunch is retirees will bear the brunt of future government cutbacks. . . .

"Currently, the two Social Security trust funds -- one for disability, the other for retirement benefits -- generate a surplus, partially offsetting the regular government budget deficit. By 2018, however, the trust funds will be paying out more than they collect through payroll and other taxes. The Medicare hospital-insurance trust fund will be in a similar bind, starting in 2013. . . .

"What to do? If you want to retire at age 65, you will likely need a bigger nest egg. I would assume tax rates are headed higher, which means the post-tax value of your retirement savings will be less than you imagine. I would also assume that the Social Security retirement age will rise, with younger boomers having to wait until age 70 to get full benefits.

"Coming Up Short: If all the boomers quit the work force at 65, it would create major economic problems, because there would be too many retirees and too few workers. But this is one problem that's likely to solve itself. Many boomers are already on track for a later retirement, because they simply aren't saving enough. . . ."


"COST OF HEALTH INSURANCE TOPS LIST OF BABY BOOMER FINANCIAL CONCERNS. BLOOMFIELD HILLS, Mich.--(BUSINESS WIRE)--July 2, 2003--57% of surveyed baby boomers list the cost of health insurance as their top financial concern according to the Baby Boomer Report, a newly released survey commissioned by Del Webb, the active adult brand of Pulte Homes (NYSE:PHM). 'Finances are on the baby boomers' mind as they ready for retirement,' said Dave Schreiner, vice president of active adult development for Pulte Homes. 'Even with the abundant focus on fitness and wellness in our communities, long term financial considerations are critical to our residents. The current discussion over prescription drug benefits and other adjustments to Medicare will be very meaningful for the baby boomers.' According to the survey, boomers are not confident the money will be there when it's needed. 76% of those surveyed are not confident they will have enough income in retirement and 36% reported thinking about their retirement finances nearly every day. Also on the list of top financial concerns is the loss of social security benefits (ranked number 3 at 31%) and the cost of long term insurance (ranked number 6 at 20%). Because of this, the size of the retirement nest egg is growing. On average, surveyed boomers feel they will need approximately $800,000 in savings for retirement and expect it will need to last as long as 19 years. Download other Baby Boomer Report news releases or the complete survey report at

Source: INSURANCE-LETTER for Tuesday, July 6, 2003. To subscribe send an e-mail to with the word "subscribe", or call 888.282.1765, or subscribe online at



"The U.S. pension system -- what's left of it, that is -- is in sad shape. While many employers have moved away from offering workers fixed pensions, about 34 million current and retired employees are still covered by such plans, and many of them are woefully underfunded: They don't have nearly enough money set aside now to cover their eventual costs, according to an editorial in the Washington Post.

"According to the Pension Benefit Guaranty Corp., the shortfall totals more than $300 billion. The airline industry has $26 billion in underfunding, the auto industry more than $60 billion.

"In light of this, the Bush administration has put forward a plan that deserves serious consideration, says the Post. It would use the corporate bond rate for two years, an approach that has multiple benefits as a short-term remedy:

o It would help companies during an economic crunch, ease a transition to a different system and, perhaps not coincidentally, keep pensions from becoming an election-year headache.

o After that period, however, firms would have to adopt payment rates more directly linked to the composition of their own workforces.

o The notion is akin to certificates of deposit that pay different interest rates based on their maturity dates--the shorter the holding period, the lower the rate.

"According to the Post, under this plan, companies with a greater proportion of older workers would have to pay into their funds based on lower interest rates -- in other words, they would have to ante up more money because their costs come due earlier. The administration, commendably, also wants to beef up disclosure rules that would let workers know the true financial state of their plans."

Source: Editorial, "Fixing Pensions," Washington Post, July 15, 2003.

For text

For more on Social Security (Reform)

Source: National Center for Policy Analysis, DAILY POLICY DIGEST Thursday, July 15, 2003


Excerpts from Kelly Greene, "As Fed Cuts Rates, Retirees Are Forced to Pinch Pennies With Interest Income Down, Senior Citizens In a Florida Complex Face Tough Choices, The Wall Street Journal, July 7, 2003,,,SB105752928082607800,00.html .

" . . . Across the country, retirees and older adults are struggling with the dark side of falling interest rates. The Federal Reserve has made 13 cuts in the past 2 1/2 years, chipping its benchmark rate to 1% from 6.5%. While cheap money has helped fuel a housing boom and may yet spur capital spending, the low rates are ravaging interest income from older Americans' investment vehicles of choice -- certificates of deposit, bonds and money-market accounts.

"Low interest rates have always been a threat to retirees relying on interest income. But the relentless decline of the past two years, with no uptick in sight, is taking a particularly hard toll on elderly CD and money-market investors. These are the people who tried to do everything conservatively with their money. For the most part, they didn't chase Internet stocks, and they didn't load up on debt. They sacrificed to pay off the mortgage while building nest eggs to leave their kids. . . .

"So, with interest rates at a four-decade low, one big piece of income is drying up. The average rate for a one-year CD purchased last week was 1.59%, nearly four points off the average rate in 2000, according to The return on some money-market funds approaches zero after subtracting for overhead. . . .

"Pat Wheeler, a Clearwater financial planner, got an earful while manning an advice hotline two months ago for a local TV station. The retirees he talked to typically had several hundred thousand dollars in CDs that had been paying 7% interest a few years ago and were now down to 2%, he says. 'If you have $200,000, that's $14,000 a year in interest that's gone down to $4,000. It's quite a cut in pay.' . . ."


"State, Local Budget Situation 'Remains Grim,' Fed Says. By John Connor,

Dow Jones Newswires. The Wall Street Journal. July 15, 2003. The Federal Reserve Board told Congress yesterday that state and local budget problems remain 'grim,' with an aggregate deficit of $50 billion in 2002 and a growing deficit rate in the first quarter of 2003. Weak incomes, falling stock prices and tax cuts in the late 1990s all contributed to eroding receipts. Although states are hardest hit, the effects are spilling over to localities, who must reduce spending due to lower payments from the states. States and many localities, required to balance their budgets, are resorting to a variety of measures to remedy their situations: selling assets, issuing bonds, drawing upon reserves, increasing taxes, and moving payments into the next fiscal year.",,BT_CO_20030715_006697,00.html

Source: AHCA / NCAL Gazette, Monday, July 16, 2003


"Nursing homes under siege. A proposed 15 percent rate cut in the $116 daily Medi-Cal reimbursement rate to health-care providers threatens to affect the ability of nursing homes to keep their staffing levels intact and remain open. The 15 percent cut was proposed by Gov. Gray Davis as a part of the seemingly never-ending budget battle in the state Legislature. Republicans and Democrats blame each other for the budgetary stalemate... "

Source: Long Term Care Newsletter -
Wednesday, July 16, 2003