Can You Future-Proof Your Retirement Nest Egg?

You have a paid-off mortgage and a smartly invested nest egg you’ve spent a lifetime accumulating, but is it enough to fund the retirement lifestyle you want?

For some, it’s the completely unexpected expenses that leave them scrambling: a spouse that passes away too soon, an economic downturn, memory care for dementia that could last for decades, the health crisis forcing retirement before they’re ready, or even a scam they’re ashamed to admit. Life rarely follows our carefully laid plans, or what we imagine for our future.

Several years ago, Fidelity Investments predicted a 65-year old couple would need $240,000 to cover future health care costs, a number that has remained fairly steady. This estimate includes health insurance premiums, deductibles, copays and prescription costs, but does not include long-term care services. When compared to the average $172,000 savings of most retirees, these estimates can be intimidating.

Even wealthy retirees have concerns.     

And more worrisome than the estimates for out-of-pocket health care costs is the fact that many will need long-term care services they aren’t adequately prepared to pay for. “The U.S. Department of Health and Human Services states that 70 percent of people over the age of 65 will need some type of long-term care,” says Barbara Mason, executive director of Sun Health at Home, non-profit Sun Health’s new continuing care at home program.

Many assume that Medicare and Medicaid will cover their health care needs once they retire. Unfortunately, there are many cases where expenses aren’t covered or are limited. Long-term care is the perfect example. Medicare will typically only pay for approximately 100 days of skilled nursing services, but does not cover any other type of long-term care, such as in-home caregiver services, assisted living, memory care or skilled nursing facility visits lasting more than 100 days. This can be  problematic for many, considering that 20 percent of people typically stay in a long-term care facility for an average of five years or more. Even the most conscientious saver’s nest egg can be quickly wiped out.

Wondering how to avoid assisted living? This recent blog post might interest you.

“Because the costs of long-term care services continue to rise, without proper planning, the nest egg that someone may have built gets scrambled very quickly,” says Mason.

Unless you have unlimited money, is there an answer? Here are a few options to consider.

A LONG-TERM CARE INSURANCE POLICY

A long-term care insurance (LTCI) policy can help pay for long-term care over an extended amount of time, filling gaps not paid by health insurance.

It covers specific costs for a well-defined scope of services, such as skilled nursing care for recovering from a lengthy illness, memory care and assisted living facilities. Policies can also cover in-home caregiver services to assist with everyday activities of daily living, such as eating, bathing and dressing.

Costs can range from $1,764 to $5,637 annually, according to the American Association for Long-Term Care Insurance, typically based on the applicant’s age and varying by provider. Pre-existing conditions are often excluded and the policy may have a waiting period averaging 100 days before coverage begins.

Although a LTCI policy pays for some medical costs, it’s not a foolproof safety net. As with any insurance policy, exclusions and limitations apply. It requires a health screening to be eligible and ongoing monthly payments to keep the policy in force.

Additionally, LTCI policies have a cap on maximum coverage. Once those ceilings are hit, the insured is still open to unexpected medical costs that can wipe out assets. It makes sense to be aware of exactly what a policy will and will not cover before committing to the policy.

LTCI typically includes no costs beyond the monthly premiums, although some may charge a small application fee to cover the cost of a health screening.

A CONTINUING CARE AT HOME PLAN

Continuing care at home plans can act as another form of an insurance policy, designed as a cost-effective alternative or complement to long-term care insurance, but with a focus on helping the insured to maintain the highest possible level of independence.

Open to those 55 and older who are reasonably healthy and living independently, continuing care at home plans offer everything from wellness and fitness activities, events and social functions, medically-necessary transportation, and in-home caregiver services. If additional support is needed, such as assisted living, skilled care or memory care, these are included as part of the plan.

If you’re interested in learning more about continuing care at home and how it can protect your assets from future expenses, we invite you to attend one of our upcoming Discovery Seminars. To register for your closest Arizona location, click here.

Finally, in Arizona, continuing care at home plans are “Life Care” plans, which means  benefits will remain in place even if a member outlives their resources, or has a financial reversal due to medical issues.

Continuing care at home plans typically include an up-front cost to join and additional monthly fees that vary based on the plan purchased. Members must also pass a medical review prior to being invited to join the program.

Compare Sun Health at Home’s continuing care at home plan to long-term care here.

A TRUST

There are a variety of estate planning strategies to preserve your wealth and protect  assets. A trust can be established to specifically address medical care and expenses.  Trusts can successfully  hold real estate and property, monetary accounts and investments with the goal of protecting them from being  used to cover medical expenses.

A trust can even include a Planned Giving clause, donating all or a portion of your estate to a philanthropic cause of your choice.

To explore available trust options, it’s wise to speak with an estate planning attorney, wealth management firm or CPA. Leveraging expertise of the right financial team ensures a well-thought-out plan to protect your assets.

Do you have insight to share on protecting your retirement finances, or lessons learned? Please join us on Facebook, and chime in with a comment!

Information provided in this article is for general informational purposes only, and does not construe legal advice. Please seek appropriate legal or professional expertise before acting.