May, 2008
by Dr. Joseph Delano, CFP®, Wachovia Securities
As you continue nurturing your nest egg, it may be helpful to think about your plan in three different ways: funds to replace income during retirement, funds to set aside for possible long-term care needs and finally legacy funds that you plan to pass on to your beneficiaries. Many of us have already thought extensively about the amount of income we need for general living expenses as well as the amount of money we would like to pass onto our loved ones, but the thought of long-term care may be a topic you've been avoiding. While this is no doubt a difficult subject to think about, you will want to be prepared should you find yourself in need of such services.
Long-term care is the assistance you might need in the event of a prolonged illness or disability. It includes a broad range of supportive medical, personal and social services for people who are unable to meet their basic living needs for an extended length of time. Although there is no guarantee that you will need long-term care, statistics indicate reasons you should think about it now. It is estimated that Americans will spend $57.3 billion in 2007 for home health carei. Whether it's for nursing-home or in-home care, long-term care costs can drain all of your personal assets, including retirement savings. While this may seem a bit extreme at first, it isn't hard to fathom when you realize that just one day in a nursing home can cost from $115 to $531ii.
Long-term care insurance provides generally tax-free benefits and offers a targeted strategy for the high costs of extended medical care. Because most health insurance policies do not cover long-term care costs and Medicare offers very limited benefits for long-term care, you will want to consider this if you want to protect your lifestyle during retirement and also avoid spending your assets. In exchange for a monthly premium, most policies pay a fixed dollar amount for care you receive in a variety of settings, including your home.
There are two types of long-term care insurance. You can choose between traditional long-term care insurance or specialized life insurance to meet your needs.
Traditional Long-Term Care Insurance: With this policy, you have the ability to customize the benefits and features of the policy to what is most important to you. You can tailor your policy to fit your financial needs and depending on the policy you choose, your spouse may be able to share your unused benefits. You can also take advantage of tax-free benefits that may increase over time to help offset inflation.
Specialized Life Insurance: This combines long-term care protection with a life insurance death benefit. You can access your death benefit to pay for covered long-term care services. The benefit value of your policy could also be increased to up to 200 percent or more of the initial death benefit to help you meet long-term care expenses.
While the idea of long-term care is difficult to think about today, you will want to set aside a portion of your nest egg so you are prepared to face it in the future. Talk with a financial professional to review your options for meeting your long-term care needs.