Your Retirement . . . with Brian & Bob: Planning for end of life medical expenses: A long-term care case study

Innovative product development and the evolution of hybrid long-term care products provides alternatives to traditional long-term care.

By Bob Price and Brian Harrigan

Seventy percent of Americans age 65 or older will need long-term care  during their lifetime, but many do not plan properly for these events. As a result, we see many who are forced to pay more than desired in taxes and sell off assets to address these expenses. The good news is there are more options today than ever before.

Innovative product development and the evolution of hybrid long-term care products provides many with a great alternative to traditional long-term care. This approach generally combines long-term care with an annuity or life insurance contract ensuring the policy holder has some type of return on investment even if the long-term care benefits are never activated. The case study below provides an example of how this tool could be useful.

A couple both 65 years of age met with us recently. Having gone through the stress of helping parents establish services and pay for long-term care they prefer to spare their children of this experience. Unfortunately, the parents they helped  waited too long and were not healthy enough to qualify for coverage. As a result their assets including retirement savings were rapidly depleted.

Additionally, the crash from 2008 caused 45 percent of their brokerage account and IRA savings to be eliminated. Making matters worse, capital gains tax and  income tax on needed monies pushed them into a higher tax bracket. By taking $10,000 per month to cover long-term care expenses, the parents were pushing into a higher tax bracket, forcing them to pay higher taxes on nearly all of their income.

This could’ve been avoided with proper insurance coverage and planning. Determined not to repeat what their parents went through, the couple met with us to review options. They had done a great job accumulating assets for retirement by having brokerage accounts and IRAs totaling  $1 million of mixed investments.  Sixty percent of their savings was in safe investments yielding 3-4 percent interest annually. They also had an annuity which provided growing lifetime income and an indexed life insurance policy for tax free  income during retirement.

Although they had done a good job accumulating these assets, they hadn’t yet planned how to protect and distribute them. The life policies they purchased years ago did not provide this coverage like many on the market today offer. The other accounts did not include any long term care benefits either.  In an attempt to avoid what they had gone through previously, we discussed their health and qualified them for a joint life insurance policy providing them both with lifetime long-term care coverage. The policy guaranteed a return of premiums paid, included a 4 percent guarantee on growth  and a lifetime long-term care benefit of $7,500 a month per person. It also included a death benefit of $360,000 that would go to their kids income tax free.

This is only one of many options available on the market today that can address these types of  needs. The policy’s $7,500 monthly per person limit comes to them income tax free  and has reduced the potential need for them to liquidate their accounts for medical expenses. The ability  to use money from both taxable and non-taxable accounts to supplement costs of care also improved their ability to stretch their savings and  make possible  leaving more financial support like helping with college tuition for  grandchildren.