Reflections for Wealthy Couples on Long-term Care Insurance & Self-Insuring

It's time we take a moment to reflect on a significant insight that arose from recent discussions I had with clients and financial advisors. Some of these revelations came from a highly regarded colleague who compares self-insuring—or more accurately, self-funding—to a form of "uninsuring." It's akin to playing roulette with your retirement savings. If you're contemplating using your income-generating investments to take care of your future long-term care needs, you're stepping into a world filled with uncertainties. Yet, we're all drawn towards certainty and good deals, aren't we?

Through years of hard work and relentless dedication, you've created a significant fortune. This accomplishment echoes your sweat, strategic decisions, and keen sense for value. You're not the kind to gamble this well-deserved wealth, especially when faced with unpredictable health and market fluctuations.

Let's channel your knack for securing valuable deals to an area you might not have considered yet—long-term care insurance. Here's a thought: purchasing long-term care insurance now is essentially securing a substantial amount of care at a considerable discount. It's akin to snagging a high-value deal at just a fraction of the cost. This strategy protects your savings and comes with tax benefits, enhancing the value even further.

Now: Imagine a scenario where the value of insurance in covering long-term care expenses is overlooked. This could potentially influence your wealth accumulation strategy, especially if you're required to withdraw large sums from your investments during a market downturn.

Consider the impact this situation might have on your spouse's future income from these investments. According to the U.S. Department of Health and Human Services, about 70% of individuals turning 65 can anticipate needing some form of long-term care in their lifetime. If there's uncertainty around your long-term care strategy and a sudden need arises, the required funds could be staggering. The national average for long-term care in 20 years is projected to be between $100,000 to $211,000. Needing care for four years might drain $400,000 or more from your wealth.

Consider the effect of this scenario on your spouse's standard of living. How much of your hard-earned assets are you willing to let go of, and how could this disrupt the legacy you've meticulously planned?

Thankfully, there are ways to avoid such unfavorable outcomes. Long-term care insurance can be a robust shield, protecting your wealth against a dollar-for-dollar reduction.

Let's imagine you've built a robust $2 million nest egg for retirement. You've made astute investments and have plans to enjoy life, leave a legacy for your children, and contribute to causes you hold dear. But at age 80, you experience a serious fall, stroke, or some other long-term care event that requires a hefty $120,000 annually for 4 years, to be pulled from your investment. You die at age 84.

This unexpected expense of $480,000 has severe impact on your portfolio. Your spouse would be left with a dwindling nest egg (in this case $825,996), which could further diminish if they experience their own long-term care event in the future. They would have to reduce income down to $40,000 because they are going to a LTC facility. Escalating costs could deplete resources in just over three years, leaving no legacy for your children and the causes close to your heart. For investment advisors, this leaves nothing for you to continue managing.

This isn't about spending more; it's about investing wisely to safeguard what you've already earned. You can leverage your commitment to securing good value in this situation. Long-term care insurance is a smart and strategic investment to protect your future and legacy.

For a clearer understanding, consider the hypothetical situation of a $2 million nest egg here:

Data Sources: American Association for LTC Insurance (2019) Mutual of Omaha (2022) Nationwide Life Insurance (2023) One America (2023) Credit to: Tony Massenelli, CLTC for hypothetical example and inspiration

If you have any questions about this topic, please email us at contact@peachinsurance.net.