When the 75 million baby boomers begin retiring in 2011, the United States will begin facing en masse a problem that many individuals already struggle with every day: how to provide long-term care for aging relatives with Alzheimer's disease or other disabling conditions.
Unfortunately, on the whole, baby boomers have not planned well for extended post-retirement needs. As a result, the bill will trickle down to their children.
To respond to this looming need, I propose that we, the children of the baby boomers, embrace a forced savings plan to help provide long-term care for our parents. We'll also protect ourselves from the often devastating effects of trying to provide care with insufficient resources.
There are many reasons why people fail to make arrangements for their own long-term care. Some wrongly believe that Medicare pays for all such care; it does not. Due partly to this false assumption, less than 10 percent of the population purchases private long-term care insurance.
Others avoid insurance for financial reasons. Premiums are low at young ages, but the time for needing benefits is far in the future, and it is hard to know what a policy purchased with today's dollars will actually buy when it is finally needed. At older ages, when disability sets in and persons begin thinking about long-term care needs, premiums are unaffordable.
Others don't plan because they assume they won't need such care. Some will be correct; around three in 10 persons surviving to age 65 will not need long-term care, but seven in 10 will. One in 10 will need such care for five or more years.
The end result is those with relatively low financial assets (most people) depend upon families to provide care, with Medicaid providing a near-universal nursing home safety net with the deductible essentially being an individual's non-housing wealth.
This lack of planning often leaves families scrambling when a loved one develops Alzheimer's or another disabling condition. The first and sometimes only providers of care are family members, and many adult children are devastated by this commitment. The costs are tremendous and multifaceted: financial strain, depression, isolation, sibling conflict, marital stress and negative career consequences.
To address this situation, I propose that persons my age (40) and younger honor our parents by embracing a forced savings scheme implemented via a federally mandated payroll tax of 1 percent of our wages up to the Social Security wage limit of $102,000. The money would be paid into private investment accounts that would be owned immediately; it would not be a part of Social Security.
Individuals would control how the funds were invested. There would be no employer match. Persons could contribute more, if desired, as could persons who are older than 40. If our parents don't need long-term care, we could use the funds for our own care. If we don't need it, we could pass it on to our children.
The funds accumulated by the payroll tax would be modest but would provide families with options to tailor a care plan in line with family preferences. It would encourage families to discuss long-term care and ensure that someone in the family would benefit
Such a plan would encourage the ethic of saving relatively early in our working years and provide investment experience for all persons regardless of income. Finally, it would boost the savings rate, which is disastrously low in our country.
Every generation across the centuries has had to practically interpret how best to "honor thy father and mother." The demographic reality is that it will be tougher for us than previous generations because our parents are living longer and their generation outnumbers ours. The steps we take to provide their long-term care will be the ultimate measure of how well we honor them. We can do so in a way that protects ourselves.
(Donald H. Taylor Jr. is an assistant professor of public policy at Duke University’s Sanford Institute. This commentary was first published June 20, 2008 in the News & Observer.)
Donald H. Taylor, Jr.