If you’re approaching retirement, it’s likely that you’ll have to plan for a long-term care need at some point in your lifetime. According to the U.S. Department of Health and Human Services, today’s 65-year-olds have a 70 percent chance of needing long-term care.1
Long-term care is extended assistance with basic daily living activities such as mobility and bathing. It’s often provided in a facility, but it can also be offered in the home via a private nurse or home health aide.
Regardless of where care is provided, it’s usually a costly service. According to a 2017 Genworth study, the average cost of a room in an assisted living facility is $3,750 per month. In-home care may actually be more expensive. The average monthly cost of a full-time home health aide is more than $4,000 per month.2 If long-term care is needed over many months or several years, it can become a sizable drain on one’s retirement assets.
Unfortunately, long-term care usually isn’t covered by Medicare. It’s true that Medicare Part A covers skilled nursing care and nursing home care. However, those services are only covered temporarily and only if the care is related to a specific ailment that was treated in a hospital. Medicare doesn’t cover long-term assistance services.
Fortunately, you have options available. If you plan ahead, you can develop and implement a strategy to fund your long-term care needs. It may make sense to include a fixed indexed annuity as part of those plans. Below are a few ways in which a fixed indexed annuity can help you pay for long-term care:
Nursing Home Waiver
Fixed indexed annuities are often criticized for being illiquid because of their surrender charge component. A surrender charge is a penalty you pay if you withdraw more than a certain amount from your contract in any given year. Surrender penalties are usually only in place for the first several years of a contract. After that period is up, there are no more surrender charges.
However, many fixed indexed annuities offer something called a nursing home waiver to help you avoid penalties in the event of an emergency. This feature gives you the opportunity to access your contract without paying a surrender penalty if you have to stay in a nursing home or an assisted living facility. You gain instant access to your contract so you can use your funds to cover your long-term care needs.
Guaranteed lifetime income is one of the most attractive benefits of a fixed indexed annuity contract. This income is generated through a process known as annuitization. Essentially, the fixed indexed annuity provider converts your assets into an income stream that’s guaranteed for life. You can annuitize your policy either when you purchase it or at a later date.
Your annuitization payment is based on several factors, including amount of assets annuitized, your life expectancy and current interest rates. It will then pay you a fixed amount every month for the rest of your life. The payment is guaranteed, no matter how long you live and no matter what happens in the financial markets.
Income certainty is helpful for any retiree, but it can be especially useful if you require long-term care. You can move into a facility or hire a home health aide with the confidence that you will receive a regular, consistent income payment every month. That could help you budget for long-term care services.
There are also instances in which annuitized income doesn’t count as a Medicaid asset. That means you may be able to receive your fixed indexed annuity income and also receive Medicaid benefits to pay for your care. However, these rules are complex. It’s wise to consult with a financial professional before embarking on this strategy.
Many annuity providers have altered their policies to reflect the growing demand for long-term care strategies. The result is new policies that blend long-term care insurance and fixed indexed annuity income.
You fund the policy with a lump sum, just like you would with any other fixed indexed annuity contract. If you ever need care, the long-term care component can be utilized. It pays for some or all of your care, depending on the terms of your policy. If you don’t need care, you can use the fixed indexed annuity to provide retirement income or as a legacy for your beneficiaries.
Ready to develop your long-term care strategy? Let’s talk about it. Contact us today at Carstens Financial Group. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or fixed indexed annuiy product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
Fixed indexed annuities are insurance products backed by the claims-paying ability of the issuing company; they are not FDIC insured; are not obligations or deposits of, and are not guaranteed or underwritten by any bank, savings and loan or credit union or its affiliates; are unrelated to and not a condition of the provision or term of any banking service or activity
Guaranteed lifetime income available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged. Fixed indexed annuities are long-term, tax-deferred vehicles designed for retirement and contain some limitations.
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