Longer lives, rising costs increase need for planning

In every aspect of planning for the future, there comes a certain decision we would like to just ignore because it’s too much of a headache to worry about the unforeseen future. And many of you may agree that health care is one of those topics that we may sweep under the rug. Sooner or later, it’s time to face the looming truth that planning for health care is a necessary piece of the puzzle in a happy, lasting retirement. A recent study released by Fidelity disclosed that a couple, both 65, retiring in 2013 would more than likely need $220,000 to cover health-care expenses if the husband lives to 82 and the wife to 85 (the average life expectancies). This number applies to traditional Medicare coverage and does not include the costs of nursing homes or long-term care expenses.

The average life expectancy will continue to increase with technological and medical advancements and given today’s health and longevity among older Americans, it’s important to create a long-term health care plan. Many people assume that plans like Medicare will cover the expenses of long term care. Therefore millions of retirees fail to prepare for healthcare after retirement because of this common misconception. Other misconceptions regarding long-term care include underestimating the actual costs of long-term care or falling into the trap that they will never need it. According to MetLife survey the average daily cost for a private room in a nursing home went from $239 in 2011 to $248 for 2012. That’s about a 4 percent increase over one year. And you can bet that this will only continue to increase. Also increasing will be the likelihood that long-term care will be needed. At this point there is a two out of three chance that people over 65 may need long-term care services. Many people assume that long-term care just means nursing homes and assisted living arrangements, but the majority of these services are provided in the home of the individual. Another thing to take in to consideration for married couples is that you are not only planning your future but also preparing for the future of your spouse and making sure that if either of you pass away that the surviving spouse will still have enough money in retirement.

Countless individuals may choose not to purchase long-term care insurance because they believe the costs are too high and don’t want to throw out all that money if they don’t end up needing long-term care in the future. There are many other alternatives out there other than the traditional long-term care insurance policy. A few examples include income annuities which are designed to combine protection of principal with guaranteed lifetime income, which is becoming an anchor in the portfolio of the baby boomer generation. Some of these annuities offer a rider that will double the monthly income if you or your spouse has a long term illness. This strategy alone may help reduce the need for traditional long-term care insurance. Another option is life insurance with what’s referred to as a living benefit rider. If you have a life insurance policy that has a cash value and not sure how that fits into your retirement plan, consider evaluating the benefits of moving that cash value to a new life policy that offers a living benefit rider. This rider typically allows access to 50 percent or more of the death benefit if you have a long-term illness. This options offers a pool of tax-free money that could be used if a long-term illness were to occur and on the other hand if it doesn’t occur this death benefit could be passed on to your heirs (your spouse or children). In any event the premiums you have added to your life insurance policy will not go to waste. Another option to consider is a policy such as the Lincoln Financial Group Moneyguard. If you have money sitting in a savings account or a CD earning a low rate of return and you don’t need this money, you could move this money into a Moneyguard policy that offers a long-term care benefit that typically will give you three times the amount of what you put into it, in the case of a long-term illness. As you’re planning for retirement, it’s important to educate yourself about the different strategies that can be used separately or together. Remember to learn the questions to ask and the problems to solve before you make these decisions.

Chris Abts is president of Cornerstone Retirement Group in Reno. Contact him at 775-853-9033 or through www.cornerstoneretirement.com.