The U.S. government estimates that by the time they reach age 65, 70 percent of Americans will require some form of long-term care. At a time when people are living longer than ever before, the majority of Americans nearing retirement age acknowledge the need for long-term health care coverage as part of their retirement plan, and yet a recent study from Northwestern Mutual finds that very few retirees are actually addressing that need. —
Many financial planners advise their clients that a disciplined approach to preparing for their own longevity needs after retirement should be a priority rather than an option. Still, only about one in four people address long-term care in their retirement plan, while the majority of retirees (61 percent) continue to weigh their options without making any definitive plans. Many pre-retirees say that when the time comes, they expect to rely on savings and the help of family and friends, should the need for long-term care arise.
Too many pre-retirees believe that long-term care planning is only about making the decision to purchase long-term care insurance, when in fact the issue is much more complex; how to fund the expense, where the retiree wishes to receive long-term care when the need arises, and who will provide their care are all subjects that must be discussed in advance. However, less than eight percent of Americans have dealt with the issue by purchasing long-term care insurance, and only 10 percent have any plan in place to deal with long-term care expenses.
The Northwestern Mutual survey results also confirmed one of the most widely held misconceptions about long-term care funding: 43 percent of those surveyed believe that long-term care expenses are covered by Medicare, Medicaid or private health insurance, which in reality is rarely the case. Medicare won’t cover all medical expenses, nor will it cover the costs of most long-term care. Additionally, to qualify for Medicaid one must have a low income and virtually no assets.
Considering the fact that the average annual cost of a room in a private nursing home was roughly $95,706 in 2014—a 20 percent increase over the past five years—and the cost of long-term care services continue to rise with few affordable coverage plans available, finding new creative options for funding long-term care expenses have been keeping retirement planners busy in recent years.
“The good news is that there are funding options for anyone willing to make some concessions to ensure they are prepared if the need for long-term care arises,” says financial analyst Riley Bangerter of Sacramento, Calif. “There are ways for pre-retirees to prepare by making small changes now that can dramatically affect their long term care benefits.”
Retirement planners are taking advantage of changes in tax laws and looking outside the box to find affordable ways for seniors to lock in on long-term care provisions, through strategies like using annuities or hybrid life insurance plans with long-term care riders attached for some clients.
However, people continue to dodge the long-term care issue for reasons that are both simple and complex. Today’s retirees can expect to live 20, 30, even 40 years after leaving the workforce, and the longer one lives the more likely long-term care will be needed. However, the discomfort level most people experience over discussing their preferences with family members can prevent many from planning ahead. In fact, the Northwestern Mutual study found that only 37 percent of pre-retirees have shared their long-term care preferences with loved ones, a step that is crucial for retirement advisors to begin tailoring a strategy that will protect the retiree’s income and assets.
“Once there is a mutual understanding between the retiree and their family, an experienced advisor can tailor a strategy to help protect income and assets, while offering clarity to family members on what they can expect in the future,” Bangerter says.
Thanks to the Pension Protection Act of 2006, pre-retirees who already own an existing life insurance or annuity product may be able to exchange it for a hybrid product offering a long-term care benefit, or for a self-contained long-term care insurance policy without having to pay taxes on the value built up within the policy. The 1035 like-kind exchange eliminates the taxable gain inside the annuity or life insurance policy since the qualified long-term care insurance policy allows for tax-free payouts for qualified expenses.
It is important to remember that no single long-term care solution will fit every individual’s needs. An experienced retirement planner can perform the financial analysis necessary to determine the best strategy for including a solid, long-term care plan into an individual’s retirement plan.
Source URL: http://councilofeliteadvisors.com/liftmedia
Release ID: 85437