3Q2018 | Ages 50 – 65
Have You Insured Your Retirement Assets?
I hear you saying, “What are you talking about? How do I insure my retirement assets and what am I insuring them against?” Well, in planning our retirements we often think about how much we need to live comfortably and how much will be required to cover health care costs, but far too often we have not considered the possibility of the potentially catastrophic costs of long-term care, which can decimate your retirement nest egg. It can also create significant physical and emotional burdens.
Although you have saved well and retirement is on the horizon, according to the U.S. Department of Health and Human Services, 70% of people over age 65 will require some level of nursing care at some time in their lives. The average national cost of that care is nearly $100,000 per year per person, according to the 2017 Cost of Care study conducted by Genworth Financial. How long will those assets last if you, or you and your spouse, are spending that much on nursing care?
So, what can you do? Should you try to self-insure? According to a 2014 study entitled, “The Benefits of Long-Term Care Insurance and What They Mean for Long-Term Care Financing,” prepared by America’s Health Insurance Plans, if you were to invest the value of the average long-term care insurance premium for over 20 years, you would only have enough set aside to cover about 6 months of care. Putting the same amount into a traditional long-term care insurance plan could provide you with more than 3 years’ worth of coverage.
By now you are seeing the dilemma. What other options might be available? First, you could consider a traditional long-term care insurance plan. This may be a good option, especially if you are younger and in good health. These plans can be expensive, but not nearly as expensive as self-insuring (essentially placing yourself in the Medicaid spend down process). The sooner you begin such a plan, the better, as premiums are lower and you are more likely to be insurable at younger ages. This type of protection will provide a daily or monthly benefit amount with an elimination period (a period of time, usually 90 days, in which you cover your own care costs) and a maximum period (the longest amount of time and/or the total amount of money the carrier will cover). Other features are available, such as automatic inflation protection and future purchase options, and these plans can cover skilled care, assisted living, adult day care services, and in-home care.
Another increasingly popular option is life insurance and long-term care “hybrid” policies. Those who are concerned that their premiums would be lost if they never require care often prefer this option. This type of coverage provides long-term care protection, but also provides a death benefit that can pass to your heirs tax free and an accessible cash value that grows tax-deferred. These policies can be purchased with a lifetime premium structure, a limited pay structure (your plan is “paid up” in 10, 15 or 20 years, for instance), or a lump-sum option. The lump sum option can be the best choice if you have a large amount of savings in CDs, money market accounts, bank savings, or an old life insurance policy that contains a built-up cash value. You can move those funds into this type of life insurance, have a paid-up life policy, savings that is earning a higher, tax-deferred rate of return, and long-term care protection all-in-one. It is a bit like a financial “Swiss Army knife.” One way or another, the policy’s benefits will be paid.
Some of you are thinking, “What if I am uninsurable?” There may be another option for you. A relatively recent development is annuities with living benefit riders, which are offered at little to no cost and require no underwriting. These annuities provide the ability to receive some multiple of your purchase payments to pay for long-term care costs (for example, 3x your original deposit) or an increase in your payout rate while you need care. These contracts can be a very good option if you have funds that you have already set aside for retirement. The accounts can be non-qualified or IRAs. Advantages include a lifetime income for either you or you and your spouse, access to cash for emergencies, the ability to invest according to your risk tolerance, long-term care protection and a death benefit if the entire account goes unused.
So, there are ways to insure both your quality of care and your retirement assets. Each situation is unique and it is wise to have yours analyzed. Think about it, you insure your home against loss, you insure your car against loss, but have you insured your retirement assets, which are typically much larger in value? The chances of needing long-term care are far greater than a home burning down or a car being totaled, yet too many of us leave ourselves unprotected from that risk. Please meet with an advisor and make sure you are not at risk.
Mark A. Gash, AIF®, CFP®, JD
Advisory services offered through Prime Capital Investment Advisors, LLC. (“PCIA”), a Registered Investment Adviser. PCIA: 6201 College Blvd., 7th Floor, Overland Park, KS 66211. PCIA doing business as Qualified Plan Advisors (“QPA”).
This commentary is provided for information purposes only and does not pertain to any security product or service and is not an offer or solicitation of an offer to buy or sell any product or service.