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.
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, according to Genworth’s annual cost-of-care
study. The median monthly cost of an assisted-living facility in the U.S. is
$4,300. The median monthly cost of a private room in a nursing home is $8,821.
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.
Advisers and Clients Don’t See Eye-to-Eye
Unfortunately, a disconnect exists between financial
professionals and their clients on this issue. Advisers say they have talked
about long-term care with 48% of their clients, yet just 38% of clients say
their advisers have discussed the topic with them, according to a study by the
Lincoln Financial Group.
What’s even more puzzling is that nearly every adviser (98%)
says it’s essential for families to discuss long-term care, and 96% say it is
an important part of a financial plan. Similarly, on the consumer side, 96% of
Americans say it’s important to plan for long-term care, but only 17% have
planned for it.
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 between every adviser and every client?
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 the client’s comprehensive needs. To fully serve a client, an
adviser should also properly prepare for the unique challenges that exist once
the client crosses over into the retirement phase of life — where the rules are
Also, the need for long-term care can raise distressing
images, and some financial professionals may feel uncomfortable broaching the
topic. They also may feel that they are not well-versed on the subject. Indeed,
only 48% of advisers in that Lincoln Financial survey said they feel “very
prepared” to discuss long-term care options with clients. So, the subject is
set aside for another day — and often, that day never comes. And then it is too
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
But if traditional long-term care insurance isn’t the go-to
solution it once was, what alternatives can you turn to so that long-term care
doesn’t upend your retirement? Here are just a few options to consider:
Annuities. Many, though not all, annuities have
riders that can help clients address their long-term care need should it arise.
These annuities still serve the client’s 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, the client will not have to stress
about their 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
heirs 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
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 with your
financial professional, it’s time to do it. There is too much at stake!
You and your family will be happy you did.
Click here for the