Failure to predict the future

At the course I'm taking on aging in place vs. Continuum of Care Retirement Communities (CCRCs) and other types of living situations for older people (the next big financial planning challenge facing my client cohort), I learned something interesting last week. Substantially all if not 100% of the new CCRCs being built in NC these days are of the "rental" model. That is, they offer all levels of care like more traditional CCRCs but have a policy of "if you can pay, you stay." The older communities had cost structures and "Benevolence funds" that assured that, once you came to the community, you could live out your days there. Seemingly this was true even of the communities like the Cedars (where my mom lives) in which you bought your unit and had to sell it when you die (your heirs do, that is).

It seems to me -- and I need to dig deeper on this -- that the situation rather resembles what happened with long-term care insurance (LTC). The first generation of products offered very generous care for a fixed set up annual premiums. Then people lived longer than the industry expected and the insurers took baths. So the insurers stopped writing the traditional policies and cobbled together a set up "hybrid" policies which offered small death benefits but more limited long-term care benefits and which were altogether less good deals than the first gen products. Makes sense. Insurers have to stay solvent and indeed make money to stay around to offer any products at all. I get it.

Taking a further step back, each of these two cases shares a lot with the history of Social Security. As the program expanded over the decades, contributions and benefit levels were calculated on the basis of a wide range of expectations around economic growth, birth rates and longevity. But people lived longer than expected and birth rates trended down (the United States has been above replacement rate of 2.1 babies per woman for just a couple of years since the early 70s -- substantially all population growth has been through immigration). The finances of Social Security are not what was expected, and contribution and/or benefit rates will need to change in the next few years. Everybody knows this.

There's a tendency to say "economists, demographers, actuaries, they are all a bunch of idiots and we should fire the lot of them." That's the easy soundbitey way to think about problems like this. But the exact opposite is true. All plans are crap, but planning is essential. Plans must be updated continually. The problem comes when we have to enshrine things into law or policies that last over decades. But we do. We just need more limber processes, a willingness to accept imperfection and an ability to adjust course when necessary. For that, though, we need stable leadership and some semblance of consensus on shared values across society that accepts change when necessary,