You’ve turned in your notice, you have your last workday scheduled, and you’re set up to move your assets to a new advisor. The new advisor has assured you that your portfolio will perform, and you will not run out of money later in life. All set, right?
Wrong! You may have just accidentally set yourself up for disaster — you won’t be able to provide to your loved ones.
If you are one of the retirees who have hard-earned retirement assets of over a million dollars in your retirement account, these funds should be diversified to last you and your spouse through the good and bad times of the market. But, if you have the majority of the retirement assets in your IRA and your spouse has not been able to save as much as you, what happens if you need long-term care?
Statistics show that one in two people who are 65 or over will use long-term care services sometime during their life. If it’s you with all these retirement dollars but now you have to spend them for your care, what’s left for your spouse? Nothing, especially if you live a relatively long time in care. Just seven years in acute care would wipe out most million-dollar retirement savings.
What do you do? Your retirement is supposed to be yours and your spouse’s retirement. But this is only true in death. In death, your beneficiaries have access to all of your remaining retirement assets. However, if you are in long-term care and trying to pay for both a spouse’s lifestyle and acute care for yourself, you will strain your retirement beyond repair.
But there is a solution. Look at a “second-to-die” permanent life insurance policy that has a rider that can be added for long-term care benefits. A second-to-die policy means that when the first person passes, no death benefit is paid. The added rider for long-term care will still be there for the remaining spouse. If you need long-term care, the burden to pay for that care is diverted from your retirement assets and placed on the shoulders of the insurance company. These types of policies are more affordable than you may think and are readily available in most states.
Generally, since this is a permanent life policy, the rates or premiums you pay will never rise. If you or your spouse, or even both of you, need long-term care, the benefits are paid for one or both of you. You can also tailor riders to make sure you never lose benefits and that it pays out for both of you for in-home, assisted living, and even acute care.
The next question is this: What’s affordable? This is different for every plan. My best advice is to never go over 1% of your withdrawal rate to pay for long-term care coverage. If you are taking out 3% to 3.5% from your total retirement accounts value for income, adding 1% more should be okay. If the premium is over 1%, this is too costly and may damage your portfolio for future income needs.
We all know unexpected expenses or items come up at the most inopportune times. Making sure you have an insurance policy that is right for you means it has to be in force when you need it. Even a modest monthly income for long-term care is much better than no assistance at all. And in the end, if you don’t use the long-term care benefits, your heirs will have the death benefit tax-free!
Now go and enjoy your retirement, you both have earned it.
-Gary Mattson