If you are 65 or older, should you expect to need a significant level of long-term care? And can you predict that need?
The short answers are yes. And no. You absolutely should expect to need that care. And, unless you already are very poor, you should plan to pay for at least some of it. But it is impossible for most of us to predict whether we as individuals will need support in old age, how long we’ll need it, where we will get it, and what it will cost.
That would make long-term care both expected and unpredictable. Which does not make it easy for people trying to plan for old age.
A few statistics: at least six in ten older adults will need moderate or significant levels of care before they die and only about 20 percent will need no care at all, according to a study by the Retirement Research Center at Boston College. Other studies vary somewhat but all are in the same ballpark. And my Urban Institute colleagues Richard Johnson and Melissa Favreault estimate that roughly half of all older adults will use paid care at some point over their lifetime.
Here is where it gets tricky: Rich and Melissa estimate that all older adults will need significant care for an average of about 3 years. But if you are one of those who needs care, you’ll need it for an average of about 5 years.
And the averages can be misleading. For all older adults, roughly 4 in 10 never will need a high level of long-term care and another 10 percent will need it for less than a year. But about one in seven will need care for 2-5 years and more than one of every five older adults will need assistance for five years or more.
It is the same story with costs. On average, long-term care after age 65 will cost about $140,000, according to the Urban research. For about half of older adults, these costs will be zero. But for nearly 20 percent, costs will exceed $250,000—far beyond the resources of most older adults.
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And keep in mind, long-term care is far from the only expense you’ll have in old age. If you still are living at home, you’ll have to pay for utilities, food, transportation, repairs, and perhaps rent or a mortgage. And you’ll have significant medical costs: The financial services firm Fidelity estimates a couple age 65 will need to set aside about $300,000 to pay out-of-pocket medical bills even if they have Medicare.
Narrowing the spectrum of risk
Is there any way to narrow this wide spectrum of risk? Sort of. The Boston College study found that on average, married, better educated, and higher-income people are less likely to need high levels of long-term care than people who are unmarried, less educated, and lower-income. Black and Hispanic people are more likely to need high levels of care than White people. On average.
The Urban study found far fewer differences when it looked at race. But both studies found that higher income people were less likely to need significant care than low income people.
The BC study also found that self-reported health between age 65-70 can be a strong predictor of future long-term care needs. Thirty percent of individuals who report their health as “excellent” or “very good” will have no need for support but only five percent of those who say their health is “fair” or “poor” will avoid long-term care.
Managing the uncertainty
How should younger people consumers respond to all this uncertainty?
That’s even harder to say. Almost any financial expert would tell you the way to deal with a high- but not certain risk is to buy insurance. But few Americans are interested in private stand-alone long-term care insurance that many feel is too expensive.
Long-term care insurance would be cheaper if they bought when they were younger, but other priorities such as paying off college loans, getting a mortgage, paying for health insurance, raising children, preparing for their college, and planning for a healthy retirement all intervene.
We could save for it. But most don’t. We could arrange to tap home equity. But that is costly and most won’t. Or we could just try to beat the odds.
That it will prove to be a bad bet for many. Long-term care needs in old age are much closer to inevitable than unlikely. Knowing whether any specific individual will need this care and for how long is little more than a coin-flip. But if you are typical, you are going to need some help in old age.
“If I Ever Got Dementia, I’d Be Outta Here”
Having heard this many times, I know it’s common for folks to say, “I’d off myself” or “I’d check out”. There seems to be a belief that if we ever did develop this sad disease, we would find a way to eliminate ourselves from it.
That we would never want to lose our minds is probably a universal desire. But is it realistic that we could just stop living if we did develop dementia? The truth is that dementia in any form, Alzheimer’s disease being the most common, has a gradual onset. People who are in the early stages of the disease often do not realize that they have any impairment at all. “I feel fine” they say. Physically, they may be otherwise fine, but their brains are not. And reasoning, planning, and looking ahead are functions of that brain that is losing ground. There is no clear marker for when one can definitely say, this is the moment I got dementia. It doesn’t work that way.
A frequent reason people seek advice at AgingParents.com, where we consult and strategize with families, is that they have an aging parent with dementia. The care and legal management of an impaired aging loved one presents a complex struggle. Those who have cared for a relative with dementia are often heard saying they’d never want to put their own families through this and they could not live with it. But in truth, there may be no realistic way to plan for what to do if any one of us actually does develop dementia.
Some people who show early signs of dementia in any form experience difficulty remembering simple things. They forget that you were coming to visit. Or they forget appointments even after being reminded. And the short-term memory loss issue grows progressively worse over time and begins to interfere with daily life. They don’t see this happening. The impaired person neglects grooming, hygiene, cooking, managing bills and other activities. Eventually the person is not able to remain independence. Many people are terrified of having to depend on anyone else to care for them on a daily basis. They don’t want to be that kind of burden. They don’t want what they see as humiliation. That is why we hear them say they’d end their life if they got dementia. But they can’t identify when they would know if they got it.
What Is The Risk Of Ending It All For Elders?
The subject of ending one’s own life is highly controversial, and fraught with religious, moral, ethical and legal considerations. Essentially, our society wants to prevent suicides. Elder suicide has been studied and is a matter of concern, often arising from a sense of hopelessness, grief, loneliness and depression. It’s not typically about dementia. However those with mild cognitive impairment are sometimes considered to be in the earliest stages of dementia. According to the National Council on Aging, this group is at higher risk than the already high risk group of elders likely to commit suicide. But that assumes that the person at risk is capable of looking ahead, planning and choosing an option. For many persons in the middle or later stages of dementia, the ability to carry out a plan has totally eroded.
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Couldn’t You Get Someone Else To Help You End It All?
Assisted suicide, legal in ten states, requires following strict legal rules. Among them, one must be declared by a physician to be terminally ill. There’s the dilemma with dementia. It can last 8-20 years. When is it “terminal”? And it is very critical to understand that where assisted suicide is legal, one must be fully mentally competent to have a physician prescribe a lethal drug cocktail. Dementia, by its very nature, means that in the terminal stage, one is definitely not fully mentally competent. The brain is too far gone by that time. Essentially, the idea that if you got dementia, you’d end our life may not be at all realistic. You certainly would not be able to do so legally with a physician’s assistance.
1. If you ever did develop dementia, there is certainly no guarantee that you would realize it at the earliest stages or that you would be able to form a plan as to what to do.
2. Elders do have a high risk of suicide compared with the general population most often from multiple factors that include grief, hopelessness, loneliness, depression, and loss. These can exist in anyone who does not have dementia. We simply do not know when, if at all, a person with these other factors would also realize they have developed dementia.
No one wants to lose independence later in life. Most people are very afraid of losing our minds. We are well served to consider that we are not helpless to prevent dementia, or to at least forestall the onset. The very same advice doctors give us about preventing heart disease is similar to the advice about dementia prevention. Every day-to-day decision we make to adopt or continue healthy habits contributes to prevention. We have more power to maintain our healthspan (the time we are in reasonably good health until the end) than many realize.
With Democrats Gaining Legislative Momentum, Now Is The Time For Biden To Weigh In On Marijuana Legalization
Last week Marijuana Moment broke the news that President Joe Biden’s daughter-in-law Melissa Cohen was spotted shopping at a cannabis dispensary in Malibu, California. This certainly raises ethical questions about an immediate family member of the President enjoying the convenience of legal cannabis sales while such behavior remains strictly illegal in the eyes of the federal government that her father-in-law oversees.
But for those who have been following cannabis policy development at the federal level, it raises a more pressing question: Why has President Biden been largely silent on the issue of cannabis policy reform when it has become a major policy priority for the Democratic Party this legislative session? After all, the President has been outspoken about the need to bring home WNBA star Brittney Griner for being unfairly detained and incarcerated in Russia. Yet he remains silent about the first consequential attempt at legislation that would impact tens of thousands of Americans currently languishing in American jails and prisons for the same offense.
Both House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer have made passing marijuana reform a major priority. Speaker Pelosi’s House of Representatives has twice passed the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act that would federally legalize cannabis, and in July Leader Schumer introduced the long-awaited Cannabis Administration and Opportunity Act (CAOA), followed shortly by the first ever Senate hearings on federal legalization.
While their are no expectations that MORE or CAOA will become law in 2022, as there is virtually no path to either bill receiving the 60 votes needed to pass the Senate, both House and Senate champions on this issue have indicated that negotiations are underway for a more incremental compromise bill that could pass both chambers. The bill, being referred to as “SAFE Banking Plus” or the “cannabis omnibus,” is currently being negotiated by members of both parties who have been outspoken about the need for reform but have largely differed on their approach.
For the past year and a half this dispute has largely existed between members of the Democratic Party. Moderates and pragmatists like Rep. Ed Pearlmutter and Sen. Patty Murray have argued for the passage of the SAFE Banking Act, a bill that has passed the House five times with bipartisan support, while progressives like Rep. Alexandria Ocasio-Cortez and Sen. Cory Booker have argued that banking access should wait until more comprehensive reform that does more to repair communities that have been most negatively impacted by marijuana prohibition.
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As we near the end of the legislative session, the Democratic Party, and the activists and industry interests following along, finds itself at a critical juncture trying to piece together a bill that includes a handful of provisions that can garner 60 Senate votes. Discussions have reportedly included the language in the SAFE Banking Act, expungements for people with federal criminal records for cannabis offenses, Small Business Association loans for social equity cannabis licensees, and possibly revising the 280e provision of the IRS tax code that treats state licensed cannabis businesses the same as drug traffickers for the purposes of filing their taxes.
Yet throughout this process, arguably the most important voice in the Democratic Party, the President himself, has remained largely silent. Sure, his spokespeople have reiterated Biden’s campaign stance that he does not support legalization but instead favors decriminalization and allowing states to set their own policies. But none of this addresses the specific detailed and more nuanced proposals currently being negotiated as part of an incremental reform package.
Banking and tax reform, expungement, and SBA loans for equity businesses all fall short of full legalization, but go beyond decriminalization. Where does the President stand on these issues? Sure, he has historically been one of the Senate’s biggest supporters of marijuana prohibition, but Biden has also shown a willingness to change with the times, as evidenced by his political evolution on issues like same sex marriage and abortion. Would he sign a bill that includes all of these provisions and manages to pass both chambers of Congress? Would the President dare to veto something so universally popular among his party and base despite his long-documented opposition to marijuana reform? The answer is, we simply don’t know.
Senator Booker recently indicated that this compromise bill would likely be voted on during the lame duck session between the midterms in November and the new Congress being seated in January. That leaves precious little time to get the details right and pass the bill. Should Biden disapprove and veto, there may be no time left to make changes that would appease the administration. President Biden inserting himself into the process now, making clear what he supports and what he opposes, could avoid a disaster scenario in which nothing becomes law before the end of the session.
This is crucial, because if comprehensive reform doesn’t pass this year, and the Democrats lose one or both houses of Congress as is largely expected, it will be highly unlikely that a GOP controlled Congress will advance any of these measures. This makes it even more imperative that Biden chime in now, since under this scenario a president who clearly does not want to spend time on this issue will find himself faced with continued pressure and calls for action from his administration. After all, in a scenario in which Congress has failed to act on this issue with a new GOP controlled Congress unwilling to pass anything that could be seen as a win for Democrats, advocates and members of Congress alike will ramp up pressure on the Biden administration to take executive and administrative action to address these issues through the executive branch.
This could include seeking new guidance memos from the Department of Justice to replace the Obama-era Cole Memo, which was rescinded by then Trump appointed Attorney General Jeffrey Beauregard Sessions III, directives to the IRS to reinterpret the 280e provision of the IRS tax code to not apply to state licensed cannabis business, mass presidential pardons, commutations and expungements for those currently and previously convicted of cannabis offenses in federal court, guidance allowing for interstate commerce between states with legal cannabis laws, or instructions to the federal Small Business Association to consider making loans to social equity and mom and pop cannabis business owners.
If President Biden truly does not want this issue to be something he needs to address throughout his administration, it is in his interest to come out now and clearly state his position on which incremental changes he would sign into law before the end of the current session, rather than continuing to leave the discussion entirely to Congressional leaders. This could end nearly two years of intra-party fighting, allow Congress to pass a reform bill efficiently, and give the President a bill he can sign and move on to other issues that he would rather spend his time on. And hey, it might even add a little joy to the next Biden family gathering.
Markdowns Are Coming To Private Equity, Highlighting The Wide Dispersion Among Managers
Amid the soaring volatility in the public markets, investors continue to look for alpha, and many are turning to alternative investments. A recent survey conducted by With Intelligence found that while investors and allocators are bullish on both private equity and hedge funds, (private equity) PE is leading the way in investor intentions.
The survey found that 72% of institutional and private wealth investors planned on investing in private equity within the next 12 months, and a review of the asset class’ performance reveals why. However, a closer look at the performance data reveals why investors might also want to be selective about which PE manager they invest with.
Analyzing PE manager performance
Logan Henderson, founder and CEO of Gridline, a platform that enables investors to invest with top-tier fund managers, has been seeing average returns of 25% to 30% among private equity managers. In a recent interview with ValueWalk, he said investors who can get in with high-quality fund managers will significantly outperform the public markets over an extended period. In fact, the wide dispersion among PE managers can also mean a sizable outperformance within private equity when selecting only top-tier managers over lower-tier managers.
Of course, the public markets have done really well over the last four or five years, so they were evenly matched with PE returns. However, over the long term, private equity consistently outperforms public market returns, which average around 9%.
“Investors can see significant private market alpha, but they have to be involved and invested in top-tier managers to realize these returns,” Henderson explains. “I haven’t seen markdowns as big as we’ve been seeing in the public markets to date. Part of it is how private investments are marked in that they’re not market-based. It comes from a private funding round or some other financial event.”
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However, some PE fund managers had been marking their portfolios down to levels comparable to the markdowns in the public markets. He added that markdowns will undoubtedly come in the next six to 12 months, especially as portfolio companies don’t perform well due to the weakening economy.
Markdowns in private valuations
They will have to take down rounds, which means they will have to accept financing at lower valuations. As a result, PE managers will see the value of their portfolios decrease, even though most of them haven’t yet.
“I do think some private markdowns, some decrease in valuation, is healthy,” Henderson clarifies. “There needed to be a reset in valuation and a reset within the private as well as the public markets. Their forward multiples were close to historical highs, and normal valuations are more reasonable. We’re not seeing private companies valued at 100 times forward revenue, so it’s more reasonable, more tangible to achieve.”
He’s been looking at recent market commentary, especially what’s been coming out of the technology space. Logan states that what he’s been seeing suggests far more reasonable growth expectations with a focus on bottom-line profitability.
“This growth-at-all-cost mindset over the last four or five years has started to taper,” he said. “… A handful of companies are being rewarded for growth but with a clear line of sight to profitability. Someone who has a clear path to achieving a profitable and healthy, growing business will see continual valuation increases and large markups on funding rounds.”
Businesses growing in unscalable ways and pouring money into sales and marketing are feeling the pain of markdowns on their future valuations. He also noted that such businesses might not be able to survive over the next 24 to 36 months.
Benefits of investing in the private markets
Henderson highlights three advantages of investing in the private markets. Of course, one is the rate of return, especially among the top quartile of performers. He said the net investment rate of return averages 20% in the private markets. However, some outlooks for the S&P 500 over the next decade suggest 5% to 6% returns, depending on the analyst.
Another advantage of investing in the private markets is reduced volatility. Some of this is due to the way private portfolios are marked. It’s not through daily pricing of the asset like public equities are.
He said the private markets remove the human and psychological element of looking at their account balance every day to see the fluctuations in pricing. Investors aren’t trying to time the markets and sell at the right time, which no one has ever proven is possible in the public markets.
Henderson also points out that the private markets force investors to take a long-term mindset because they can’t just pull their money out at any time. In particular, venture capital and private equity are less liquid than public equities.
Staying invested throughout the cycle to combat volatility
Fund managers typically invest in seven- to 12-year horizons across market cycles. Logan uses the example of a fund manager deploying capital in the tech space now versus six months ago. He noted that the entry valuation is significantly lower today.
“It’s a great time because buying low is a sound investment policy,” he opines. “You can continue to find companies appreciating in value over next five to 10 years. The longevity and time horizon of the investment allow you to invest across short-term market fluctuations.”
Of course, no one can know how long the recent spate of volatility will last, but it’s clear why the volatility is happening. Corporate balance sheets and consumer spending are down, while interest rates are up. The war in Ukraine has resulted in significant geopolitical uncertainty while inflation is soaring, leaving investors wondering if or when it will taper. Energy prices are up as well, further contributing to the volatility.
“There’s a lot of volatility priced into the market already, but I do think we’ll start to see some normalization events happen,” Henderson states. “… There’s a number of factors at play, and one of the benefits of private market investing is when you’re focused on a particular asset class, you can monitor specific inputs that lead to changes in that market. They can be monitored, but clearly, external market factors still contribute to the health and growth of each asset class.”
What investors should know about investing in private equity
Investors who have only invested in the public equity or bond markets will have some things to learn before they dive into private equity. Logan believes the most important thing to understand is the asset class’ liquidity profile. He explained that private equity is an illiquid asset.
“That doesn’t mean there are not ways to exit a position in the private markets, but it’s not daily liquidity,” Henderson explains. “You can’t get out at any time… Make sure when you’re investing in the private markets, it’s money you’re comfortable being invested for a longer period of time, so you’re not investing your reserve account.”
He noted that investors should have other investments they can pull funds out of immediately if something happens. Another factor new investors are advised to consider is the lack of information on private companies. He noted that they don’t publish their financial information quarterly as public companies do, so there is more opacity with a private-market portfolio than with public-market holdings.
“I think some managers are doing a good job of providing updates and visibility into the health of their portfolio, but the level of information is not as readily available as you see on the public market side,” Henderson states. “One of the things we talk about with new entrants in the private markets and alternatives is looking at opportunities that come from a trusted source. A number of managers are raising capital right now, but it’s very significant to make sure you’re deploying capital with the highest-quality managers.”
He noted that with public-market options like exchange-traded funds, the differences between managers can be 1% to 3%. However, in the private market, the differences can be 20% or more, making it especially critical to select the best managers.
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