Health and long-term care costs are often some of the largest expenses we face in retirement. Janney’s Head of Investment Solutions, Jessica Landis, suggests exploring an alternative to the pay-as-you-go approach most people use to cover these costs.

When it comes to making large one-time purchases, such as buying a home, oftentimes folks say that they plan to borrow to make that purchase.

Some common responses when asked, “Why not pay cash?”:

  • It doesn’t make sense with interest rates so low.”
  • “ There are tax benefits associated with the loan.”
  • “ I like to leverage ‘other people’s money’ to grow my wealth.”

When the same question is posed about how people intend to fund their long-term care (LTC) needs, the response is often: “We should have enough to cover it.”

While that may be true, let’s also consider this question: “Why would you want to cover 100% of that expense with your dollars when alternatives exist?”

The conversations around purchasing a new home and paying for health and long-term care are similar. You’ve worked incredibly hard to build the nest egg you’re heading into retirement with, so why not protect that nest egg against one of the largest retirement risks you’ll likely face.

Cost of health and long-term care is high

Health care and long-term-care costs are likely to be one of the largest expenses you’ll face during the later years of your life.

Estimates on lifetime out-of-pocket health care expenditures often reach in excess of $250,000–$300,000, depending on the report. Meanwhile, long-term care costs can easily exceed $200,000.

Many people fall into the trap of looking at the average costs for retirees. It can be particularly dangerous when someone falls outside the averages. Some common reasons why costs differ include living with Alzheimer’s or dementia, or dealing with a persistent medical issue that requires ongoing treatment.

Those with ample retirement assets may decide that self funding is their preferred option. However, it may be worthwhile to consider alternatives to fund their future care needs.

Why consider alternatives to self funding?

There are several advantages to exploring other strategies:

Keep your options open.

One of the main misconceptions about long-term-care insurance is that you can only use it if you enter a long-term care facility.

This is often not the case.

There are many policies on the market today that will provide benefits if you need care at home. These policies may even give income for a family member delivering care to offset their lost earnings and compensate them for their time.

When you purchase a long-term-care policy, you’re making sure that all of your choices stay on the table without you and your family having a difficult conversation about whether to deplete your assets to obtain your preferred level and method of care.

This way, the focus stays where it should be—on you and your health.

Explore hybrid LTC policies for portfolio protection.

Leverage is one of the main reasons individuals consider purchasing a long-term-care policy to help pay for future care needs.

Why risk spending more than $200,000 out-of-pocket in the future if you could take a much smaller portion of your assets now to help cover the costs when they arise?

When many people think about long-term care policies, they’re most familiar with traditional “use it or lose it” type policies.

Traditional LTC policies didn’t offer cash accumulation or death benefits to policyholders or their families. If you didn’t need the coverage, there were little-to-no benefits for the cost incurred to maintain the policy over the years.

However, there are several hybrid policies available that do accumulate cash, allow you to take your premium back if you decide to terminate the policy, and/or provide a death benefit.

Help your family make the necessary choices.

Many long-term care insurance policies now come with care-coordinator benefits, providing a service to the policy owner’s family members when they’re making difficult decisions. These types of services help the family talk through the possibilities and understand how to use the policy.

It can be an emotionally trying time whenever someone needs to make important medical decisions for another person. These services support your loved ones so they can continue to support you.

Avoid becoming a financial burden.

The average woman loses $650,000 in lost wages and benefits for providing care for an aging loved one.1

This loss can be a taxing financial drain on those you love. Purchasing a long-term care policy allows you to make sure that if your family wants to care for you themselves, they’re able to do so without jeopardizing their own financial situations.

Make sure to consider a policy that provides benefits that will give income to your family member/caregiver.

Long-Term Care Partnership Program.

Depending on the rules of your state and the policy you choose, your policy may be considered a “Partnership Policy.”

The Long-Term Care Partnership Program is a joint federal-state policy put into effect to promote the purchase of long-term-care insurance.

Essentially, if you purchase a partnership policy, you receive $1 of asset protection for every $1 of insurance you have. For example, if you had $200,000 in insurance benefits, you could be able to keep $200,000 of assets above your Medicaid-eligibility level.

Tax considerations.

Premiums for “qualified” long-term care policies may be tax deductible if they, along with your other unreimbursed medical expenses, exceed 10% of your AGI (2020).

Speak to your accountant about whether this deduction might apply to you.

Working with Janney

Depending on your financial needs and personal preferences, you may opt to engage in a brokerage relationship, an advisory relationship or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile. 

When you engage in an advisory relationship, you will pay an asset-based fee which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory accounts. For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on  www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.

By establishing a relationship with a Janney Financial Advisor, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences. Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.

1. “Value Your Independence? Make Time to Make Long-Term Care Plans.” Minnesota Women’s Press (November 2013).

This is for informative purposes only and in no event should be construed as a representation by us or as an offer to sell, or solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable, but is not guaranteed by us as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed within. Janney makes no representation that an individual will obtain gains or losses similar to those illustrated. The concepts illustrated here have legal, accounting and tax implications.

Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

About the author

Jessica Landis

Vice President & Head of Investment Solutions

Read more from Jessica Landis

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