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By Adam Zoll and Christine Benz | 03-08-2013 02:00 PM

Worrisome Trends for Retirees

Morningstar's Christine Benz addresses who sequestration will and won't affect, changing prices for long-term care, and a timely mortgage-paydown strategy.

Adam Zoll: For Morningstar, I'm Adam Zoll. The federal spending cuts known as the sequester went into effect earlier this month. Here to talk about the effect of these cuts on seniors is Morningstar's director of personal finance, Christine Benz.

Christine, thanks for being here.

Christine Benz: Adam, great to here.

Zoll: So many seniors may be concerned that the sequestration cuts may affect their Social Security. Should they be concerned?

Benz: They shouldn't because Social Security is exempt from the sequestration. So, it's not affected at all. If you're senior receiving Social Security benefits, you should receive your check on time just as you always did. Actually [instead of a check, it would be] direct deposit because increasingly seniors are being opted into direct deposit.

Where there might be a little bit of an effect is in the area of dealing with the Social Security Administration because there are some cutbacks in terms of personnel. So, if you need a question answered or perhaps you are filing a claim for the first time, you may see a little bit of a delay in processing, but it probably won't be significant. If there are any effects, they will be there.

Where there will be a more significant impact is in the area of Medicare because providers who are providing services through Medicare will see a cutback in the reimbursement they'll receive of 2%. So, there has been a lot of handwringing in the health-care industry saying that long term this might have a big impact on hiring within the health-care industry, and there have been some people who have said there might be some doctors who will not take Medicare at all. I think with the 2% cutback, it probably is not realistic to think that if your doctor was seeing you before the 2% cutback that he or she might decide not to. It's probably not a reason get too worried at this point given that that the cutbacks are fairly modest.

Low-income seniors may also see an impact. So, for example, there may be cutbacks or there will be cutbacks in terms of Meals on Wheels programs as well as energy-assistance programs. So a few other programs set up to benefit long-term seniors are seeing cuts under sequestration. Low-income seniors will probably feel the biggest impact of all.

Zoll: Switching gears to a topic that is also of great concern to many seniors and people who are approaching their senior years is long-term care. There have been some recent developments in that area as well, correct?

Benz: A couple of big headlines in that area. One is that Genworth, which is the giant in the long-term care insurance industry, announced that it's going to start introducing separate pricing for males and females. Certainly the actuarial tables all show that females on average tend to live longer than males. So, Genworth intends to start pricing its policies accordingly. So, the policies for women will tend to be pricier than they will for men because women are more likely to use those benefits over their lifetimes. So, that's something to keep in mind, and there has been a sort of widespread acknowledgement that as long as Genworth is doing this, we will probably see other long-term care insurers introduce pricing that is also gender-based.

One thing that couples might think about is purchasing long-term care insurance together, and in general, if they do so versus purchasing it separately, they will obtain better pricing in doing so because what the data show is that if a couple is together, one couple may in fact take care of the less healthy part of the couple, and that will reduce the overall pressure on that long-term care insurance. The couple might defer receiving long-term care insurance benefits as long as they are together.

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