Did You Know You May Have Both in One Product?
When it comes to discussing the pros and cons of Long Term Care, there will always be opposing views depending upon the age and outlook of the participant. For the purposes of this article, I will assume age 50. On the one hand, there is the “optimist” who believes that he or she will forever remain in good health and never need long term care and/or life insurance. On the other hand there are the “realists” who understand that life and health are unpredictable, and much can happen in a span of 20 to 30 years.
Regardless of whether you are an optimist or a realist, the odds of needing Long Term Care are either 0% or 100%. Statistics only give us an average. However, regardless of the average, you will either need it or you won’t. I am sure that statistics may be relevant to some, so for those who are interested, I will refer to an article published on the Morningstar website.[1] It is also relevant to note that no governmental program pays for “home health care.” This is significant, since the vast majority of individuals prefer to stay at home, if possible. According to a 2013 study, 71% of all long term care costs provided by all governmental and non-governmental sources were paid for by families.[2] Long Term Care insurance is the only vehicle that provides this type of coverage.
The Accumulation Period Prior to Retirement
What is common to both the optimist and the realist during this period is that they are both planning for retirement and building a nest egg that will hopefully be sufficient to support them through their retirement years, however long that may be. Each has a retirement savings goal (i.e., their “number”) that they believe will result in the retirement for which they are planning. The number is different for everyone.
In planning to achieve their respective “number”, each believes that he or she will receive some long term average investment return during the accumulation period (in this case, 20 years). If I were to graph the view of each during the accumulation phase, it might look something like this:
Given the length of investment horizon, and assuming the realistic projected average return, they should both be very close to their goals at the end of the 20-year period despite the ups and downs of the market, which are certain to occur. There are, however, potential issues that might change this during this period:
- Serious health problems
- Termination of employment
- Family, including parents, may need financial assistance
- College tuition or other support for children
- Income earner dies
Distribution Period
When it comes time for distributions, additional road blocks may appear. We all know that the above graph is not the way the market behaves. The market is volatile, so in the distribution phase any significant downturn in the market during a distribution year will have a significant impact on the retirement fund, even if it recovers to its historical norm at a later date. The market, more or less, behaves in the following fashion. The graph does not indicate any specific time period or actual returns, but is merely an indication that the market goes both ways—up and down.
Withdrawing from a retirement account in a down market means that the losses, to the extent of disruptions taken, are locked in and can never be recovered.
In addition, there are other potential problems that may upset the retirement plan during retirement years. These include:
- Inflation
- Health care costs
- Longevity
- Death of spouse (loss of caretaker)
- Chronic illness requiring long term care
I will briefly address a couple of important misconceptions that many people have. Firstly, Medicare, a Medicare Supplement Plan or Medicaid assistance is limited. The fact is that with a Medicare or a Supplemental Plan, payments are limited in duration and neither pays for Long Term Care.[3] Medicaid will pay for Long Term Care, but only after you are virtually impoverished.
The question that everyone approaching retirement should ask is—“20 years from now, do I want to have flexibility, choice and control of my future, and protection for myself and/or my spouse, should my retirement plan hit a roadblock?”
Are you an optimist or a realist?
If you are a realist, then Long Term Care and/or Life Insurance are solutions that you might consider. If you are interested in learning more about this topic, and the benefits of Long Term Care and/or Life Insurance, please contact Barry Koslow at bkoslow@mkaplanners.com or (781) 939-6050.
Securities offered through Advisory Group Equity Services, Ltd., Member FINRA/SIPC. 444 Washington Street, Woburn, MA 01801 (781) 933-6100.
This article should not be considered as providing accounting, business, financial, investment, legal, tax, or other professional advice or services. It is not a substitute for such professional advice or services, nor should it be used as the basis for any decisions or actions that may affect your business or you personally. This should only be one part of your research. You should seek authoritative guidance from a qualified accountant or attorney before taking any action.
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[1] http://news.morningstar.com/articlenet/article.aspx?id=564139
[2] Source: The State of Long Term Care Financing. The Scan Foundation, March 19, 2013.
[3] Medicare only pays for long term care if you require skilled services or rehabilitative care in a nursing home for a maximum of 100 days. Medicare or Medicare Supplemental Plans do not pay for non-skilled assistance with Activities of Daily Living (ADL).
