The long list of risks facing retirees is enough to strike fear into even the best-prepared among us. The risk of another major stock market decline looms, an unprecedented level of government debt threatens the very underpinnings of our economy, not to mention growing taxes, and a weakened Social Security system.
The current cost of a long-term stay in a nursing home in Ohio is between $73,000 and $81,000 per year for full care.
Even with inflation, the rise in prices of most of the products we buy, studies repeatedly show that retirees spend less and less money throughout their retirement as they slow down. That is, until a medical emergency occurs.
How can a retiree prepare for that very probable occurrence? A bit of planning can go a long way.
Consider these four distinct options for funding long term care costs:
• Self pay – Choose to pay for any care needs out-of-pocket or from your investment assets and/or spend down those assets until Medicaid begins to pick up the tab. It may be possible to do some legal estate planning to move assets out of your estate to avoid a full spend-down before qualifying for Medicaid. Consult an estate planning attorney to ensure this is done correctly.
• Buy traditional long term care insurance – Purchase policies that are designed to pay for your care during your life. Unfortunately this type of long term care insurance typically leaves nothing to loved ones after death. If you’re fairly certain that you’ll be a long term care candidate, and still qualify medically, this can still be a very effective strategy for getting help with your care needs. For this option and the two to follow, seek the advice of a reputable retirement planner.
• Link long-term care benefits to a life insurance policy – By using a specially designed policy, there will be a pool of money available to pay for long-term care expenses. If no long-term care is needed, a tax-free death benefit passes to your loved ones, meaning the money was not lost to the insurance company.
• Link long-term care benefits to an income annuity – The Pension Protection Act of 2006 enabled certain annuities to have an “income doubler” that will enhance your guaranteed income payout by a factor of two for up to five years when qualifying long-term care is needed. The effect, like the long term care-linked life insurance, is one where you actually get the use of your money whether you need long-term care or not. If you don’t use the annuity income or long term care benefits during your life, your beneficiaries get the money.
Because of these options, the landscape has changed, as have the conversations surrounding long term care. It’s no longer a use-it-or-lose-it proposition. For people who live to age 65, there is a 40 percent chance of becoming a resident of a nursing home.
Leaving financial security to chance is simply not necessary with so many options available.
Adam Cufr, RICP®, a Northwood native, is the owner of Fourth Dimension Financial Group, LLC in Perrysburg. He is a retirement planner, a monthly columnist for Retirement Advisor Magazine, and the author of “Off the Record – Secrets to Building a Successful Retirement and a Lasting Legacy.” To learn more, visit www.OffTheRecordRetirement.com.