Efficient Funding of Long-term Care Insurance
Efficient Funding of Long-term Care Insurance
Over the next 20 years, the number of Americans age 65 years and older will more than double to 71 million, comprising roughly 20% of the U.S. population.
Greater longevity among the Baby Boom generation will also contribute to increased demand for long-term care services; those surviving to age 65 years can expect to live an average of 20 more years. As Baby Boomers live longer, their chance of needing some form of long-term care services will rise as well. Roughly 70% of people over the age of 65 years require some form of long-term care, and more than 30% will receive some nursing home care in their lifetime.
Long-term care is expensive, and the cost is rising every year. Currently, the average annual cost of a one-year stay in a private room at a nursing home in a Virginia metropolitan area is $77,380. Future long-term care will be even more expensive. If costs rise at just 3% annually (a conservative estimate), then 20 years from now a one-year stay in a nursing home will cost approximately $139,757. It’s easy to see how long-term care expenses can threaten or even wipe out your retirement savings and jeopardize any assets you had planned to leave your loved ones.
With the Standard & Poor’s (S&P 500) index returning an average of only 2.72%2 a year for the last ten years and a one-year certificate of deposit returning an average of under 1.0%, it may seem like an insurmountable task to save enough money to fund a retirement and potential long-term care costs.
The experienced attorneys at The Estate Planning & Elder Law Firm can help you come up with creative options to help plan for your family’s future long-term care costs. Let’s take a look at one of the innovative funding solutions someone might want to consider.
Let’s assume that Cheryl, age 56 years and Frank, age 58 years, are a married, working couple with assets in excess of $500,000, mostly in certificates of deposits. Cheryl’s mother has Alzheimer’s disease and has been in a nursing home for the past six years. Cheryl and Frank have seen first-hand how her mother’s nursing home expenses have decimated her parents’ retirement nest egg. To avoid this from happening to them, Cheryl and Frank want to plan ahead for their own retirement.
Cheryl and Frank can purchase a shared long-term care insurance policy that will cost them roughly $4,000 annually if they are in good health. Cheryl and Frank can then take $75,000 from one of their certificates of deposit that is maturing and purchase a Single Premium Immediate Annuity (SPIA) with a “Life with Cash Refund” payout option.
SPIA income payments with specific life insurance companies can be set up to automatically pay the long-term care insurance premiums each year to ensure the policy stays in force for life. Also, beginning in 2010 (thanks to the Pension Protection Act), income payments from a SPIA can fund a long-term care insurance policy. If set up properly, these income payments can be federal income tax free. Thus, using a SPIA to fund long-term care insurance premiums creates not only a tax-efficient funding solution, but also a convenient way to help protect Cheryl and Frank’s lifestyle and portfolio from the high costs of long-term care.
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Over the next 20 years, the number of Americans age 65 years and older will more than double to 71 million, comprising roughly 20% of the U.S. population.
Greater longevity among the Baby Boom generation will also contribute to increased demand for long-term care services; those surviving to age 65 years can expect to live an average of 20 more years. As Baby Boomers live longer, their chance of needing some form of long-term care services will rise as well. Roughly 70% of people over the age of 65 years require some form of long-term care, and more than 30% will receive some nursing home care in their lifetime.
Long-term care is expensive, and the cost is rising every year. Currently, the average annual cost of a one-year stay in a private room at a nursing home in a Virginia metropolitan area is $77,380. Future long-term care will be even more expensive. If costs rise at just 3% annually (a conservative estimate), then 20 years from now a one-year stay in a nursing home will cost approximately $139,757. It’s easy to see how long-term care expenses can threaten or even wipe out your retirement savings and jeopardize any assets you had planned to leave your loved ones.
With the Standard & Poor’s (S&P 500) index returning an average of only 2.72%2 a year for the last ten years and a one-year certificate of deposit returning an average of under 1.0%, it may seem like an insurmountable task to save enough money to fund a retirement and potential long-term care costs.
The experienced attorneys at The Estate Planning & Elder Law Firm can help you come up with creative options to help plan for your family’s future long-term care costs. Let’s take a look at one of the innovative funding solutions someone might want to consider.
Let’s assume that Cheryl, age 56 years and Frank, age 58 years, are a married, working couple with assets in excess of $500,000, mostly in certificates of deposits. Cheryl’s mother has Alzheimer’s disease and has been in a nursing home for the past six years. Cheryl and Frank have seen first-hand how her mother’s nursing home expenses have decimated her parents’ retirement nest egg. To avoid this from happening to them, Cheryl and Frank want to plan ahead for their own retirement.
Cheryl and Frank can purchase a shared long-term care insurance policy that will cost them roughly $4,000 annually if they are in good health. Cheryl and Frank can then take $75,000 from one of their certificates of deposit that is maturing and purchase a Single Premium Immediate Annuity (SPIA) with a “Life with Cash Refund” payout option.
SPIA income payments with specific life insurance companies can be set up to automatically pay the long-term care insurance premiums each year to ensure the policy stays in force for life. Also, beginning in 2010 (thanks to the Pension Protection Act), income payments from a SPIA can fund a long-term care insurance policy. If set up properly, these income payments can be federal income tax free. Thus, using a SPIA to fund long-term care insurance premiums creates not only a tax-efficient funding solution, but also a convenient way to help protect Cheryl and Frank’s lifestyle and portfolio from the high costs of long-term care.
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