With retirement approaching, you have reviewed your numbers and perhaps are feeling good about what you see.
You have a comprehensive plan. One that accounts for taxes. Protects you from market risk and delivers you a strategic form of income to address your routine monthly expenses. And possibly, even the added costs of any bucket-list items that you hope to check off once you have more leisure time on your hands.
But despite all that planning, your retirement income plan may be missing an important, and hefty, expense.
Long-term care.
If so, you’re not alone. Plenty of retirees, and unfortunately, a lot of the financial professionals who advise them, avoid the topic, even though practically everyone agrees it’s important. About 70% of people age 65 and older will require long-term care at some point, and the cost of that care can be overwhelming.
Clearly, it’s an expense that can rack up quickly, stealing away those dollars that prop up your retirement and maybe even wiping out any legacy you hoped to leave your heirs.
Why It’s Not Easy to Talk About
So, what’s causing this disconnect, and why isn’t long-term care a topic of conversation every time retirement planning is discussed.
A few factors come into play, and perhaps the most significant is that, for many financial professionals, the primary focus tends to lean toward helping clients accumulate money for retirement. But that fails to address your comprehensive needs. You should also be properly prepared for the unique challenges that exist once you cross over into the retirement phase of life — where the rules are quite different.
Also, the need for long-term care can raise distressing images. So, the subject is set aside for another day — and often, that day never comes. And then it is too late.
What Are Your Health Care Options?
Retiring before 65 means Medicare isn’t an option for you (yet), so you’ll likely have to purchase some form of private health insurance. This will be crucial in case of emergencies but also for routine checkups and prescriptions. You will want to factor anywhere from $500 to $1,000 monthly, per person for health insurance premiums if you’re retiring before 65.
It’s important to look at the fine print of private health insurance plans to make sure it’s the right decision for both your medical and financial situation.
Other options for health insurance for those retiring early include COBRA, a spouse’s policy, and short-term health insurance.
Ultimately, however, the cost of health care alone might make your decision to retire early far less feasible, depending on your current savings as well as your age.
One additional factor could be that traditionally, the standard answer for long-term care planning was to buy a stand-alone long-term care policy. That option has receded in popularity as the cost of premiums has risen dramatically, for both new and existing policies, making long-term care insurance unaffordable for many people.
What led to those premium rate hikes? An assortment of causes. The data available for pricing earlier policies was limited, and insurers did not price them accurately.
Also, insurers were wrong about how many people would use long-term care insurance and how long they would use it.
Other Options Besides Traditional Insurance:
- Annuities. Many, though not all, annuities have riders that can help you address their long-term care need should it arise. These annuities still serve your needs as a strategic retirement vehicle — but they also have an enhanced benefit of helping with such expenses as assisted-living facilities and nursing homes. One additional advantage is that the usual underwriting requirements are not necessary when adding the rider. This is great for people with health problems who might be rejected as too great a risk for insurance carriers. Further, you would not have to stress about your premiums increasing unexpectedly, and quite often, prohibitively.
- Asset-based long-term care insurance. Unlike traditional long-term care insurance, this is a life insurance policy designed so you can use the death benefit while you are still alive to pay for long-term care. But if you never need long-term care, the death benefit goes to your heir’s tax-free when you die. That’s a big advantage over traditional long-term care insurance, which is a use-it-or-lose-it proposition.
- Life insurance with a long-term care rider. With the asset-based policy, the long-term care benefit is primary and the death benefit is secondary. But another option is a linked policy, where you buy life insurance and add a long-term care rider as a secondary benefit. This allows you to accelerate the use of the death benefit while you are alive to pay for long-term care.
With any of these options, it is important that the financial strength of the insurance carrier you go with is considered secure as rated by the top rating agencies.
The long-term care conversation is not a fun one to have, but it’s an important one. If you haven’t already had this discussion, it’s time to do it.
There is too much at stake.
You and your family will be happy you did.
Source: Kiplinger
Content in this material is for general information only is not intended to be a substitute for individualized financial advice. Please consult your legal advisor regarding your specific situation.