March/April 2015

February 28, 2015



Merrill Lynch Conducts Retirement Study in Partnership with AgeWave

Some may renovate, others relocate. But a full two-thirds of retirees agree on one thing: they are now living in the best home of their lives. This study, the latest in a series exploring new retirement realities, looks at how freedom from work, shifting family dynamics, fewer home-related expenses and unprecedented longevity are empowering retirees to pursue a home that fits their desired lifestyle and changing priorities.

Key insights from the study also include:

  • The “Freedom Threshold” phenomenon: Why, by age 61, the majority of people feel free to choose where they most want to live
  • The “Downsize Surprise,” revealing that many retirees choose not to move to a smaller home
  • “Retirement HotSpots”: The places people say they want to live in retirement—and why
  • Top Renovation Projects: What retirees are doing to make their current homes even better
  • Important considerations when deciding where to live in retirement
  • New options empowering retirees to stay in their homes and remain independent in later life

This report is the fifth in a series of in-depth studies conducted in partnership with Age Wave focusing on seven life priorities, as defined through Merrill Lynch Clear®. Merrill Lynch Clear is a pioneering approach designed to connect people’s lives to their finances and help them live their best life in retirement. The study was conducted and data analyzed during the second half of 2014 and is based on a nationally representative survey of more than 3,600 respondents. To learn more about the findings, download the study here.


What Will You Do in Retirement?

As baby boomers near the end of their careers, more Web services are helping them think about how they want to spend their time in retirement.

One popular one is:, which offers a free series of introspective exercises. The site also provides links to financial planners trained in “life planning,” which focuses on helping clients clarify their goals, values and priorities before planning their finances. (It receives no compensation for the referrals, says George Kinder, founder of the Kinder Institute of Life Planning, which developed the website and trains financial advisers in life planning.)

One exercise asks three questions: What would you do if you had all the time and money in the world? How would you live if you knew you had only five to 10 years left? And what would you most regret if you died tomorrow?

The goal: “To lead people to a deeper and deeper understanding of what’s most important to them,” says Mr. Kinder.

The site pushes users to come up with concrete goals they can achieve within weeks. For example, someone who dreams of moving to Vermont might pledge to research towns and discuss telecommuting with an employer, says Mr. Kinder.

An alternative:,  an AARP website that offers free online tutorials on topics including setting goals and career planning. Developed by experts including author and executive coach Richard Leider, the program includes free 90-minute “checkups” for as many as 25 participants in locations nationwide. AARP is developing longer workshops and in 2015 plans to offer one-on-one online sessions with coaches for about $125 an hour.

People often underestimate how long they are going to live, which can cause them to overestimate how much they can spend each year in retirement. For many, the mistake lies in overlooking advances in health care that improve their odds of living longer than their parents did.

For an estimate that incorporates health, habits, socioeconomic status and family history, there are life-expectancy calculators such as and How Long Will I Live? The latter was developed by professors at the University of Pennsylvania.


Medicare Toughens Standards on Nursing Homes

The star ratings of nearly a third of the nation’s nursing homes were lowered last month, as federal officials readjusted quality standards in the face of criticism that the ratings were inaccurate and artificially inflated.

Federal officials said they hoped the changes would make it easier for consumers to differentiate between facilities, as well as spur nursing homes to make improvements.

“You do need to raise the bar,” Dr. Patrick Conway, the chief medical officer at the Centers for Medicare and Medicaid Services, told reporters. When it becomes relatively easy to achieve a high rating, he said, “that’s not going to incentivize the same level of improvement.”

The changes that took effect recently were mainly aimed at one of three major criteria used to rate the homes on the Nursing Home Compare website, which ranks more than 15,000 nursing homes on a one- to- five-star scale. Officials essentially adjusted the curve for the quality-measures rating, which is based on information collected about every patient.

Representatives for the nursing home industry said that rather than helping consumers, the changes could frustrate them.

“Any time that nearly a third of an entire sector is impacted by a change of this magnitude, there will be confusion,” said Mark Parkinson, the chief executive of the American Health Care Association, the trade group for profit-making nursing homes. “We’re not helping patients and their families get the information they can trust when the star rankings don’t match the quality care being delivered.”

Advocates for nursing home residents, however, described the changes as long overdue.

“We think that rescaling the quality measures will result in improved reporting of the quality of care a nursing home may provide,” said Robyn Grant, director of public policy and advocacy at the group Consumer Voice.

Nursing Home Compare has become the gold standard for evaluating the nation’s nursing homes, even as it has been criticized for relying on self-reported, unverified data. The website receives 1.4 million visits a year, federal officials said.

In August, The New York Times reported that the rating system relied so heavily on unverified information that even homes with a documented history of quality problems were earning top ratings. Two of the three major criteria used to rate operations — staffing levels and quality measures statistics — were reported by the homes and not audited by the federal government.

In October, the federal government announced that it would start requiring nursing homes to report their staffing levels quarterly — using an electronic system that can be verified with payroll data — and that it would begin a nationwide auditing program aimed at checking whether a home’s quality statistic was accurate.

Before the recent change, about 80 percent of the nation’s nursing homes received a four- or five-star rating out of five on their quality measures score; afterward, nearly half did. The number of homes receiving one star in that area increased to 13 percent, from 8.5 percent, after the recalibration.

The changes led to declines in the quality-measures rating of 63 percent of homes. The staffing scores of about 13 percent of homes also fell because of other adjustments that took effect recently.

Federal officials said the higher bar reflected the fact that the industry had improved since December 2008, when the rating system was put into effect.

“We expect improvement over time,” said Thomas Hamilton, the agency’s director of Survey and Certification, comparing nursing homes to the automobile industry. “Just like the Model A in its day was — I’m told — an excellent car, it wouldn’t measure up to today’s models.”


Long-Term Care Insurance: Costs Are Up But Vary Widely

Rates for long-term care insurance, which can help pay for care in your own house or in a nursing home, rose last year an average of nearly 9 percent, a new industry report finds.

Still, rates vary greatly depending on the insurer and the specifics; increases for some policies were much larger, and in some cases — like certain policies covering couples — quite modest, according to Jesse Slome, executive director of the American Association for Long-Term Care Insurance, a trade group.

Each January, the association compares top-selling policies offered by major insurers to determine average rates. This year’s analysis includes rates from 10 insurers, using policies sold in Tennessee, a “representative” state, Mr. Slome said. Factors behind the rates include higher claims costs, he said; in 2014, insurers paid out $7.8 billion in claims, an increase of nearly 5 percent.

A healthy 55-year-old man can now expect to pay, on average, $2,075 per year for $164,000 in initial benefits, up from $1,765 last year, the report found.

The cost for a healthy, single woman of the same age is higher: Her average premium is $2,411, up from $2,307. Insurers take gender into account when pricing long-term care policies, since, statistically, women live longer and are more likely to need long-term care.

Last year, the National Women’s Law Center filed federal sex-discrimination complaints against four insurers, challenging such gender-based pricing on the grounds that the practice violates a provision of the Affordable Care Act barring sex discrimination in health care. The action is pending with the Department of Health and Human Services’s Office for Civil Rights.

Couples generally get a discount if they buy a joint policy; the rationale is that one or the other is likely to provide some care for a spouse initially, Mr. Slome said. A married couple, both age 60, would now pay $3,930 combined, up from $3,840, for $328,000 of initial coverage.

The numbers assume a “three-year” policy that uses a daily benefit of $150 to compute a maximum payout, and includes inflation protection — a 3 percent compounded annual increase in benefits. Eliminating inflation protection greatly reduces the cost — the average premium for a single man would be cut roughly in half — but that means you will probably have to pay more out of pocket if you eventually need care. A middle option, which costs more than the base premium, allows the choice of adding inflation protection later.

The rates cited in the report are for new policies. Premiums for outstanding policies, particularly older ones, have been increasing as well, in part because people are living longer and insurers had underestimated the level of claims.

Insurers generally must get state approval before increasing rates on existing policies. In many cases, however, even with large increases, premiums on older policies are still lower than they would be if the policyholder had waited until now to buy a new policy, said Michael Kitces, director of research at Pinnacle Advisory Group in Columbia, Md.

Mr. Kitces said consumers can try to hold down premiums on new policies by making sure that their coverage is tailored as much as possible to their situation. For instance, he advises checking rates for care facilities near your home — or near a family member’s home, if that’s where you would likely receive it — to make sure you’re not overpaying for a high daily benefit rate if rates in your area are lower than national averages.

One way to make premiums more affordable generally, Mr. Kitces said, might be to lengthen plan deductibles, known in industry lingo as the “elimination period.” That’s the length of time during which you pay for care out of pocket, before the policy begins paying.

Most plans sold today have a 90-day elimination period. But if the window were significantly lengthened — say, to two or even three years — in exchange for expanded benefits afterward to cover events like very long, financially catastrophic nursing home stays — premiums could be much lower. Policyholders could then use the savings to help fund a deductible.

One barrier, however, is that most states prohibit elimination periods of longer than one year, Mr. Kitces said — a consumer protection holdover from a time when people didn’t live as long and plans were less costly.

Here are some questions and answers about long-term care insurance:

Premiums typically will be lower if you buy when you are younger — say, in your 50s — rather than waiting until your 60s or 70s. Coverage not only becomes more expensive as you age but also becomes more difficult to qualify for at all, since health problems are more likely as you age.

Can I find policies now that offer longer elimination periods?

You may be able to find a policy with an elimination period of up to a year, but the amount saved with a 12-month deductible, compared with a three-month deductible, may not be significant, Mr. Kitces said.

How can I find the best rate?

Mr. Slome advises comparing rates from several insurers, as premiums vary widely. The latest analysis found the difference between the lowest- and highest-cost policies for the same coverage ranged from 34 percent to as much as 119 percent. A 55-year-old woman, for instance, might pay as little as $890 a year or as much as $1,829 for a similar policy without inflation protection, depending on the insurer. An insurance broker can help sort things out, but since some work exclusively with one insurer, you may need to talk to more than one.


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