Not having long-term care coverage can be the “biggest devastator” of your retirement financial planning.

No one likes to think about needing long-term care, yet the reality is 70% of those over 65 will have some type of long-term care stay.

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Think about it, you feel like you have all of the possible catastrophic risks covered, such as homeowners insurance in case your house burns down and liability insurance in case of a car accident. However, the one gap in our retirement financial planning is overlooking the possible unexpected need for a long-term nursing home stay, for either you or your spouse.

The giant unknown is your health in the future!

Thanks to advances in medical technology our exposure to a long-term care event greatly increases as we get older. Our life expectancy is much longer today than in the past. One out of four over 65 today will live beyond 90 and one out of 10 will live past 97, the Social Security Administration has said.

The costs for a nursing home stay on the average is $97,000 a year, according to a Genworth Financial survey. Dementia and Alzheimer’s costs are estimated by the Alzheimer’s Association to be $341,804 for a person. More than 50% of Americans end up paying for their long-term care out-of-pocket.

The average stay in a nursing home is 2½ years. So, you can see how quickly a couple can burn through their life savings and possibly end up turning to Medicaid, which is projected to account for 40% of national spending for long term care by 2030.

Based on these facts, this is a good time to look at the options available to you:

Medicare Many seniors mistakenly believe that Medicare will cover long-term care costs. Medicare provides help only for short term care for 20 days, then you pay a co-insurance amount per day for days 21-100 of each benefit period.

Medicaid assistance requires asset spend down, which means depleting your assets. Also the government has a 5-year look back period in which all money transfers are reviewed.

Self-fund option is extremely expensive. This option would cost you $97,000 a year, which is $242,000 over two years and is why seniors deplete their retirement nest egg so quickly.

Long-term care insurance. Only 11% of seniors have private long-term care insurance. That’s because the costs are too expensive for most people. Average cost is $2,400 annually per person, however, the coverage lacks any cash value, so you either use it or lose it.

New hybrid combination coverage. Combining life insurance with long-term care into one policy or an annuity-life insurance in one policy.

• Hybrid policies have opened up new ways of thinking about the role of long-term care and financial planning, because of its unique benefits and may deserve a look from those who may have written off long-term care insurance. This new option is becoming very popular.

• What is so significant is the fact that of those 350,000 Americans who bought long-term care protection in 2018, 85% chose the hybrid coverage. The combo linked benefit creates a huge difference than traditional long-term care policies, because now with the hybrid combo linked benefits, if you need it, LTC is covered, if you don’t you, can pass on money to your heirs. (Source: The American Association of Long-Term Care)

Here’s why these hybrid LTC combo policies might be worth considering:

Avoid taxes, you can take a deferred tax annuity and move into a tax-free benefit. By taking advantage of the IRS code 1035 exchange and roll over some of your savings that becomes tax free, avoiding thousands of dollars in taxes.

Flexibility, example, if you have a life insurance policy with cash value, you can take the cash value and roll it into a hybrid LTC/ life insurance coverage giving both long-term care coverage and life insurance, if the LTC is not needed. Should you need long-term care, you now have money in your policy to help pay for care and if you don’t need the LTC benefit, the money will then be paid out to your beneficiaries.

Repurpose money that is currently in a fixed annuity and now you have LTC benefits, not just a death benefit.

• The hybrid LTC/annuity gains interest and functions like any other annuity. However, if the annuity owner needs LTC, then the amount of benefits becomes available every month for the cost of care.

Covers both you and your spouse in one policy.

• If LTC is never needed, then your beneficiaries will get money

Guaranteed to get your money back if you change your mind and decide you do not want coverage.

Here’s an example of how a hybrid LTC combo policy would pay out:

A 60 year old, with $500,000 in annuities and CDs for retirement savings.

(Source:(LTC Partners.com)

• Move $100,000 of the $500,000 into a single premium hybrid LTC/ annuity tax free.

• $400,000 is now available in case of the need of long-term care, providing $7,000 per month for 6 years for long-term care.

• $165,000 is available for life insurance, should you not need the LTC care.

• $100,000 is available should you change your mind and do not want the policy.

The giant unknown is your health in the future, however, now you have a new option that is worth considering, so that you can be prepared for “the what if?”

Robert L. Whiddon is a senior benefit specialist with more than 10 years specializing in products for the senior market. Whiddon also has contributed to The Memphis Business Journal. Contact him at 901-331-4177.

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