I have seen many financial plans. A common plan will take into consideration a savings target during the income years, investment diversification, an assumed investment return commensurate with age and risk/reward profile, income need projected during the retirement years, and the impact of taxes and inflation.
Good health is almost always taken for granted. What if the breadwinner dies or becomes disabled before retirement? How would this impact the savings component of the financial plan? What if the breadwinner, or spouse, requires long term care after retirement? How long would the retirement funds last?
Of these three “retirement-planning busters,” death is the least likely to occur, and, therefore, if term insurance is the solution, it is very inexpensive to insure against. I just placed $500,000 of 15-year coverage on a male, age 56, preferred non-smoker, for less than $85 per month.
Disability is more likely to occur than death during the pre-retirement years. I just placed $6,000 per month disability coverage until age 65 for a male, non-smoker, age 38, for less than $135 per month.
The need for long-term care is, statistically, the most likely to occur and potentially the most devastating retirement buster. There are a number of options available to insure against this potential event. The options include a stand-alone long-term care policy, an asset-based long-term care policy, a life insurance policy with a long-term care rider, an annuity with a long-term care rider, and a traditional annuity. There are pros and cons to each, and which option is the best depends upon your personal financial situation, budget and need for guarantees.
The source for payment of premiums is also varied and includes savings, current income, or cash value insurance or annuity products. Long-term care insurance, just like any other insurance, has a cost. A traditional stand-alone long-term care policy for a husband and wife, both age 50, with a daily benefit amount of $200 each and a maximum benefit amount of $219,000 each may cost less than $150 per month, and premiums are deductible within limits prescribed by the IRS tax code. We are happy to assist you in exploring the various options, explain the pros, cons and benefits of each type of policy and alternative funding sources.
Since premiums will increase with age, you should consider a long-term care policy by age 50 and no later than age 64. If you have health issues, you should consider the purchase of a policy before the health issues render you uninsurable. Protecting your retirement plan is less expensive than you think, and may prove to be the difference between a successful plan and one that implodes.
If you would like more information on this subject, or have a client who might benefit from a discussion about it, 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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