By Nicholas Efthemis, CFP®, CRPS®
It’s hard to imagine not being able to care for yourself in the future. Right now, you may need to ask your kids for help moving something heavy so you don’t throw your back out again, but what will happen when you can no longer go to the grocery store or even do dishes by yourself?
According to the U.S. Department of Health and Human Services, people who turned 65 in 2020 have a 70% chance of needing some type of long-term care as they age. (1) Although it’s a positive that people are living longer lives and can spend more time with family, long-term care can be outrageously expensive.
Planning for long-term care is an increasingly important component of the retirement planning process, and many people are turning to long-term care insurance as an affordable way to build anticipated long-term care expenses into their plans.
Standalone Long-Term Care Policies
Long-term care insurance isn’t usually provided by employers, so it’s a type of insurance that most people have to search out and learn about on their own. Long-term care policies have traditionally been expensive, with an average of about $5,000 per year in premiums for a couple aged 55. (2) These premiums can be in addition to life insurance premiums you already pay.
Standalone long-term care policies are also notoriously complex. Some companies, such as New York Life, are beginning to offer simplified policies. Standalone policies may be good options for those who can afford them, but there are drawbacks to standalone policies, including the risk that you will pay a lifetime of expensive premiums for insurance you may never use.
Long-Term Care Riders
To accommodate some of these drawbacks, some life insurance policies offer a policy add-on called a long-term care rider, also known as a hybrid policy. Hybrid policies are more likely to maintain stable premiums and often come with a death benefit, so the premiums don’t go completely unused if you pass away without ever needing long-term care.
Long-term care riders are also typically more affordable than standalone policies. However, adding a long-term care rider to a life insurance policy may require you to pay a large lump-sum premium up front when purchasing the policy.
Annuities With Long-Term Care Benefits
Finally, some fixed and indexed annuities offer contracts that will pay more per month if you ever need long-term care. For example, if you own an annuity that pays you $2,000 per month and then start needing long-term care assistance, your annuity would begin paying an additional amount per month to help cover the long-term care costs.
Annuities usually come with lower returns than other types of investments, but some people prefer the security of knowing they will always receive a monthly payment for the duration of their life. If you are considering purchasing an annuity or already own one, it may be worth looking into options to add long-term care benefits to the contract.
Which Is Right for You? We Can Help You Decide
Your life and your family’s security are far too important to leave the long-term care question to chance. With the national median cost of a nursing home’s private room totaling at $9,034 per month, (3) the consequences of failing to plan for long-term care can be severe. A monthly bill of that size can quickly drain the average person’s retirement savings.
Choosing the right long-term care insurance—or another planning strategy entirely—depends on your unique circumstances and projected needs for your retirement. But the worst thing you can do is to do nothing at all. Strategizing for long-term care needs is complex, and it’s a decision you shouldn’t have to make alone.
To objectively weigh your options and make a decision with more confidence, partner with financial experts like our team at Emergent Wealth Advisors. We take an enlightened approach to financial planning that aligns all components of your plan to help you focus on what matters most. To get started, schedule an appointment online, reach out to me at (716) 828-8390, or email nick@emergentwa.com to schedule a no-obligation conversation.
About Nick
Nick Efthemis is wealth advisor and chief compliance officer at Emergent Wealth Advisors, a fiduciary financial advisory firm serving retirees and pre-retirees with customized financial planning solutions. Having worked in the financial industry since 1997, Nick has deep knowledge and experience in retirement, investment, and comprehensive planning strategies, coupled with an understanding of the hopes, needs, and goals his clients have for their future. He is dedicated to helping his clients find confidence in their financial situation through personalized advice and support that empowers them to make the best decisions for their lives.
Nick is a CERTIFIED FINANCIAL PLANNER™ and a Chartered Retirement Plans SpecialistSM professional. Outside of the office, Nick is an active member of his community, working with the SPCA and the Humane Society. In his free time, you can find him hiking or fishing with his family. If you want to learn more about Nick, connect with him on LinkedIn.
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(1) https://acl.gov/ltc/basic-needs/how-much-care-will-you-need
(2) https://smartasset.com/insurance/how-much-does-long-term-care-insurance-cost
(3) https://www.investopedia.com/insurance/paying-longterm-care-how-its-changing/