Retirement Planning

Insuring a Healthy Retirement

Imagine that you've set aside a handsome nest egg for retirement. Now imagine it gone, the result of chronic illness or disability that requires round-the-clock care. According to the Society of Actuaries, nearly half of all people reaching age 65 in the U.S. will spend some time in a nursing home.

Most Americans' finances put them somewhere in the middle between Medicaid and paying for your care. Legislation has made it difficult to transfer assets to other family members in order to qualify for public assistance. And if you have to pay for your care yourself, you could wipe out your retirement savings in just a few short years, which, ironically, would leave you dependent on public assistance.

Playing the Insurance Card
That's why most financial professionals recommend long-term care insurance (LTCI) for individuals who are nearing retirement and who have accumulated substantial retirement savings. LTCI is an insurance policy designed to cover a lengthy stay in a nursing home or to provide home health care service if you don't need the level of medical attention a hospital environment provides. Premiums are based on age, health, and the type of coverage you choose, so it's a good idea to purchase LTCI while you're in your 50s or early 60s. But don't procrastinate: premiums rise considerably after age 62, and pre-existing health problems could disqualify you.

What to Look for
Purchasing LTCI can be daunting. The terminology and the choices can be confusing. You need to weigh key variables, as well as optional features, in terms of your own needs, your general health, and your financial resources.

  • Choose a daily benefit amount. Typically between $50 and $250 per day. Check the cost of care in your area to make sure the coverage you choose is adequate.
  • Choose a benefit period. Typically expressed in number of years ranging from two to lifetime. According to the Long-Term Care Insurance National Advisory Council, the average nursing home stay is two and a half to three years.
  • Choose a deductible. Typically expressed in number of days, from zero to 100, before the insurance kicks in.
  • Consider inflation protection. This can raise your daily benefit level to keep pace with rising costs. Your premium will also rise.
  • Consider adding home health care benefits. Although this option will increase your premium, home health care is often the best choice for couples who want to ensure that they can remain together even though one may no longer be physically strong enough to care for the other.
  • Consider a tax-qualified policy. This means your premiums will be tax-deductible and any benefits you receive down the road will be income-tax free. Tax-qualified policies must conform to federal guidelines that impose rigid definitions of what's covered and what's not, but the tax protection is worth it.