Mattson Financial Blog

“One Of The Biggest Disasters Facing Retirees” as featured on Forbes.com

You’ve turned in your notice. You have your last workday scheduled. You’ve started moving your assets to a new advisor, who has assured you that your portfolio will perform, and you won’t run out of money later in life. 

All set, right? Wrong!

You still have to make sure your loved ones are provided for and protected!

Senior couple calculating their monthly finances at home.
If you’re one of the retirees with over a million hard-earned dollars in your retirement account, your funds should be diversified to help last you and your spouse through the good and bad markets. KRISTIAN SEKULIC / GETTY IMAGES

The Danger of Long-Term Care

If you’re one of the retirees with over a million hard-earned dollars in your retirement account, your funds should be diversified to help last you and your spouse through the good and bad markets.

But here’s the real question: If the majority of your assets are in your name, and your spouse hasn’t been able to save as much as you — what happens if you need long-term care?

Statistics show that of every two people age 65 or over, one will need long-term care services sometime in their life. If you need long-term care and you have to spend down your retirement assets for your care, what’s left for your spouse?

Probably not much! Even sizeable savings of a million dollars or more can be diminished by the need for long-term care.

A Tough Last Chapter

Very early in my career, I helped an elderly couple in their mid-80s. The wife had worked hard and saved very well, so the retirement account in her name alone was substantial and in the six figures.

Since the husband’s health was starting to fail, I asked them about long-term care. They told me they didn’t want long-term care insurance because past advisors said only 5% of retirees end up in a critical-care facility (care providing round-the-clock need). They felt comfortable depending on their own assets in case anything happened.

Shortly after our conversation, the husband fell and broke his hip. He went into rehab, and with him out of their condo, the wife had to handle all the upkeep, which she did to the best of her ability.

As he was getting ready to be discharged from rehab, she fell and broke her hip. Unfortunately, her rehab took several months. The substantial assets they thought were enough started dwindling fast.

Her husband visited her each day and assisted in her rehab, but she never fully recovered. She passed away, and he lived three years after her.

When one person in the family has all the retirement assets in his or her name alone, there isn’t something left for the spouse if these assets are used up for the loved one’s care. The wife used up 88% of their assets for her care, and they even had to sell their condo. This left the husband almost penniless, with just his Social Security income — not enough to pay his assisted living.

When the time came to pass their assets to their children, there was only a few thousand dollars left. The couple was fortunate they didn’t run out of money, but it was close.

How to Avoid the Bitter End

What do you do? You would think your retirement is also your spouse’s retirement. But this is only true in death, when your beneficiaries have access to all your remaining retirement assets. But if you’re in long-term care, trying to pay for a spouse’s lifestyle and acute care for yourself could strain your retirement beyond repair. 

There is a solution: a second-to-die permanent life insurance policy that has a rider added for long-term care benefits. This policy means when the first person passes, no death benefit is paid. The rider added 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 might think and readily available in most states.

Generally, since this is a permanent life policy, the rates or premiums you pay will never rise. If you, your spouse, or 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 it pays out for both of you for in-home, assisted living, and nursing facility care. Since the insurance company is underwriting two lives with the death benefit paid out on the last one’s death, you can get some of the toughest health issues through the underwriting process.

How Much Should You Pay?

The next question is: What’s affordable? This is very different for every individual. 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% percent from your total retirement account value for income, adding one more percent should be OK. If the premium is over 1%, it is probably 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 right for you means it must 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

Gary Mattson is the Managing Partner & Investment Advisor Representative of Mattson Financial Services and Lakeview Financial Group and has over 30 years of experience getting retirees to and through retirement. Gary focuses on working with retirees to accomplish their retirement dreams, goals, and desires as well as families to pass on the knowledge of money for legacies to come. He served on President Bush’s National Advisory Board and has been seen in USA Today, Newsweek, Parade, and the Wall Street Journal. Gary frequently appears on My West Michigan and eightWest in Grand Rapids and hosts a weekly radio show, “Money Mentors.”

This content was brought to you by Impact PartnersVoice. Investment advisory services offered through Mattson Financial Services, LLC, a Registered Investment Advisor with the state of Michigan. Insurance and annuities offered through Lakeview Financial Group, LLC. Mattson Financial Services, LLC and Lakeview Financial Group, LLC are affiliated companies. DT995784-1020