From high-quality security cameras to elaborate alarm systems, people spare no expense to keep their home safe. But what are you doing to protect your retirement home?
You worked hard to build a solid foundation with good saving and spending habits, and years of investing have helped the walls of your retirement home take shape. Protecting that home is critical. While you may have a strategy to lower your taxable income or a portfolio that protects against market risk, have you thought about your long-term care (LTC) plan?
Planning for the worst matters
Everyone hopes to pass away peacefully after a long, healthy retirement. Unfortunately, life rarely plays out that way. My family could never have predicted the impact LTC would have on our finances.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
When my father stopped to help someone with a flat tire on the side of a road, he was tragically sideswiped by a passing car. He spent the rest of his life recovering from the accident and never left the nursing home. Paying for 27 years of LTC cost my parents everything they had, including their 401(k) plans and the home they raised their family in.
We never saw this tragedy coming, and the same could be true for you. We don’t know what life has in store for us, but you’ll be thankful for the security LTC protection can provide.
The cost of LTC adds up quickly. On average, a semiprivate nursing home room costs over $80,000 per year, according to LongTermCare.gov. Keep in mind, the need for LTC is typically a progression: You may need in-home care to start, eventually transition into assisted living and then a nursing home. Those phases can stretch out over many years, even decades.
While traditional health care coverage and Medicare may cover some short-term services, most long-term assistance is not covered, such as an extended nursing home stay or in-home assistance. Paying for these services on your own may hinder your ability to meet day-to-day expenses in retirement, and you run the risk of depleting any legacy you were hoping to leave to your loved ones.
Long-term care plan options
The Assistant Secretary for Planning and Evaluation (ASPE) estimates that 70% of today’s 65-year-olds will need some type of LTC in retirement. Since traditional health care coverage and Medicare do not cover any ongoing assistance, those who need LTC are left with four options:
Self-funding. You can pay for LTC out of pocket, dollar-for-dollar. If you end up being a part of the 30% who won’t need LTC in retirement, this option could work in your favor. But that’s a major gamble! There’s no way to know if you’ll need LTC or not, and being forced to self-fund your LTC needs can quickly deplete your retirement savings that were earmarked for other retirement expenditures.
Long-term care insurance. In exchange for a monthly premium, long-term care insurance policyholders can receive coverage for their LTC needs. Depending on the terms of your policy, you may pay a premium for 10, 15 or 20 years. No matter how much money you pay in premiums, most policies do not offer a payout if the policy goes unused, and there is no death benefit to your beneficiaries. Many people are uncomfortable with that risk.
Life insurance. Most people know about term and whole, but there are other types of life insurance with features designed to protect you from LTC risk. Some indexed universal life insurance (UIL) and universal life (UL) insurance policies allow you to tap into the death benefit during your lifetime to cover any LTC costs. Unlike an LTC insurance policy, if the LTC features of a IUL or UL insurance policy go unused, your beneficiaries will receive the full tax-free death benefit when you pass away.
Talk to a retirement planner during your lifetime about the insurance options available to you. Life insurance coverage is dependent on a medical exam, so if you have certain health issues, it may not be a viable solution for you.
Fixed indexed annuities. A fixed indexed annuity (FIA) with an income rider can include LTC benefits. If you purchase an FIA, you’ll pay an insurance company a lump sum of money, and after a certain number of years, you’ll receive an income stream that pays out monthly for the rest of your life. If you add LTC benefits to your contract, you can receive a double payout when an LTC need arises. Let’s say your FIA pays out $2,000 every month. If you need to pay for any LTC, that monthly payout will increase to $4,000.
An accelerated benefit stream can usually only kick in once you’ve held the policy for five years, and the benefit is typically capped at five years, although some policies are only three years. However, the normal income stream from an FIA will continue throughout the lifetime of the policyholder.
Finding the right fit
Deciding what kind of fence to build around your retirement home is a personal decision. There are benefits and drawbacks to every LTC option, and what’s right for one person may not work for another.
While it’s important to be proactive, buying LTC insurance or life insurance at a young age could get very expensive after years of paying premiums. On the other hand, waiting to purchase a policy could put you at risk of paying high premiums because of any health problems you may have developed in your 50s and 60s.
It’s important to meet with a trusted financial adviser who can help you determine the right time to buy and what type of protection your family needs. No two situations are alike, but an adviser can help you weigh the pros and cons specific to your assets, family history, medical history, tax plan and beneficiary needs. I recommend working with a professional who has the experience and industry knowledge needed to keep you and your loved ones safe from the potential burden of LTC.
related content
- No Long-Term Care Plan? Here’s What to Do About It
- What Are Fixed Index Annuities, and How Do They Work?
- Long-Term Care Insurance Quandary: Keep Paying or Let It Go?
- Long-Term Care Insurance: To Buy or Not to Buy?
- Five Tips for Becoming a Financially Successful Couple
-
Stocks Slide to Start September: Stock Market TodaySeasonal trends suggest tough times for the stock market as we round into the end of the third quarter.
-
Here's What You'd Have If You Invested $1,000 Into Sherwin-Williams 20 Years AgoSherwin-Williams stock has clobbered the broader market by a wide margin for a long time.
-
The Unsung Hero of Aisle 5: A Tale of Forgotten Change and Compassion at the SupermarketThis supermarket manager went above and beyond to help when a child forgot her change at the checkout counter. You might be surprised at some of the complications that supermarkets face when it comes to customers' forgotten change.
-
Train, Integrate, Retain: A Strategic Playbook for Adviser OnboardingsBuild a thriving practice by training new advisers with clear goals, structured processes and consistent mentorship for strong team growth.
-
I'm a Financial Professional: Here Are Four Ways You Can Use Debt to Build WealthUsing debt strategically, such as for homeownership, education and more, can lead to greater financial stability and growth.
-
Five Key Wake-Up Calls for Ambitious Business Owners, From a Biz SpecialistYour personal financial plan needs to include a formal exit strategy for your business, or you could be in trouble.
-
I'm a Retirement Psychologist: Here's Why Doing What You 'Ought' in Retirement Beats Doing Whatever You WantTrue retirement freedom isn't about simply doing whatever you want, but about finding purpose and direction through commitments that align with your deepest values and allow you to contribute meaningfully.
-
Tactical Roth Conversions: Why 2025-2028 Is a Critical Window for RetireesThe One Big Beautiful Bill (OBBB) extended today's low tax brackets, but they may not last. Here's how smart planning now can prevent costly tax surprises later.
-
Ready to Retire? It's Not Too Late to Convert to a Roth IRAMillions of Americans are turning 65 this year. If you're retiring soon, don't dismiss the idea of a Roth conversion — it could still be a smart move even now.
-
I'm a Financial Adviser: Three Things You Will Wish You Did Before the Fed Cuts Interest RatesWith potential interest rate cuts on the horizon, you might want to lock in today's higher yields and consider adjusting your asset allocation.
