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Building
a Nest Egg For Long Term Care
by Craig S. Myers
You've worked hard over the years to accumulate assets that will
help provide you with a comfortable lifestyle at retirement. But
if you're like most people, you're probably concerned about making
those assets last for the rest of your life.
Thanks to the advent of 401(k) plans, increased sales of small businesses
and a greater emphasis on saving for retirement, a lot of otherwise
"average" Americans are surprised to find they're worth
quite a bit more than they had imagined (Source: The Kansas City
Star, April 13, 1997). But despite these sums and the Social Security
income that most of them will receive, most people worry about what
will happen if their money runs out, or if they get sick and require
nursing home care. According to figures compiled by The New England
Journal of Medicine, Feb. 28, 1991 Issue, 43 percent of people over
the age of 65 will enter a nursing home at some time before they
die.
These days, the costs associated with nursing home care could wipe
out a lifetime of savings in a few short years. With costs that
can range from $30,000 to $50,000 a year (Source: US Census Bureau),
many families are forced to liquidate assets or sell their homes
in order to provide care for a loved one. And those costs keep going
up. You didn't work hard to get where you are just to see a lifetime
of work wiped out by nursing home costs, but without proper planning,
it's a very real scenario.
So What Are The Alternatives?
Self insuring: This amounts to taking the chance that nothing will
happen, or, if it does, hoping that your assets will be sufficient
to cover the costs. The danger in this is that even a short stay
in a nursing home or extended in-home care could result in your
hard-earned retirement assets being wiped out.
Medicaid: Medicaid serves as a health supplement to health insurance
coverage by Medicare. It pays for extended nursing home care for
elderly people who cannot afford to pay for it themselves. That
means you may have to give assets away or transfer their control
to others before benefits will be paid. (Source: All About Medicare,
National Underwriter, 1998 - pg. 124). Not a pleasant thought after
years of hard work. Plus, even if you do transfer assets, removing
them from the picture, waiting periods of up to three years or more
aren't unusual before benefits become payable.
Annuities and Long-Term Care (LTC) Insurance: This concept combines
the advantages of annuities with the protection of LTC coverage
to help you plan for possible nursing home care while protecting
and retaining control over your assets. Let's take a look at a hypothetical
example:
Mr. And Mrs. Smith, both age 58, have moderate assets: They own
their own home (valued at $200,000); they have $250,000 in qualified
401(k)s, mutual funds and other accumulation vehicles; and they
have $50,000 in a non-qualified CD. They plan to retire at age 65,
when their social security income is projected to be $1,500 per
month.
To protect their assets, each of the Smiths decides to purchase
a Long-Term Care policy with a lifetime $2,500 per month nursing
home benefit; a $1,250 per month "at home" benefit; and
a no-limit inflation rider which increases the benefit by 5 percent
every year, even when the policy is not being used. In that way,
benefits keep pace with future costs. The premium for the two policies
is $1,514 annually, and premiums are waived during periods of nursing
home care.
To pay for this coverage, the Smiths transfer $19,072 from their
$50,000 CD into 20-year certain Single Premium Immediate Annuity.
In this example, the annual income from the annuity contract pays
the LTC premiums for 20 years, or until they are 78. The Smiths,
and their assets, are now protected for the next 20 years against
the high cost of nursing home care and expensive in-home care should
it become necessary. And since LTC premiums are waived while the
policy is in use, they would receive income from the annuity to
assist with other costs. If either of the Smiths die before the
20-year income has been paid out, the other will receive the balance
of the annuity payments.
By setting aside what amounts to one-half of a year's nursing home
costs today, the Smiths have provided for nursing home coverage
should it be needed at any time during the next 20 years. They've
helped protect their future financial security and lifestyle.
By utilizing the advantages of both a Long-Term Care policy and
a Single Premium Immediate Annuity, you can help preserve your assets
and get on with the business of enjoying a comfortable retirement.
2000 Craig S. Myers, J.D. All Rights Reserved Columbus, Ohio
Craig S. Myers, J.D. is a financial representative specializing
in executive compensation, business continuation/succession planning
and estate planning with McCloy Financial Services in Columbus.
He's currently working with the Ohio Chamber on the development
of a business financial services benefit program. He can be reached
at (614) 442-4514, (800) 686-5146, ext. 4514 or by or email.
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