Protect Retirement Savings Against Long Term Care NeedsSubmitted by Miller Financial Group | Red Oak Iowa Financial Advisor on October 22nd, 2019
Protect Retirement Savings Against Long Term Care Needs
By: Daniel S. Miller, CFP®
Unfortunately, it’s a very real possibility that you or someone you love may need long term care at some point in their life. Current statistic show that ~ one-in-three people will utilize long-term care at some point in their lives. For many their retirement savings may have to go toward that care. If that is you, you will want to ensure that this money is protected. One good way to keep your retirement savings secure and protected, may be to look at long term disability protection. Probably in the form of a long-term care (LTC) insurance policy.
How LTC insurance Works
he benefits you receive from a LTC insurance policy are generally calculated as daily maximum benefits and may range anywhere from a $50 to $500 / day benefit. You select the level of benefits that you can afford and what is most appropriate for your personal needs. Once you have qualified for benefits, you may receive that specific amount each month no matter how many days you receive care in that month. LTC policies may also be bought with or without automatic annual inflation adjustments, or COLA riders to enhance your future benefits. The COLA rate is typically around 3 to 5 percent and may be compounded each year if provided for in the contract. However, it’s important to know that a COLA Rider compounding at a 5% rate will be more expensive than the same type of rider providing a lower COLA amount such as 3%. With most LTC policies, lower premiums usually correlates to reduced benefits. But because future long-term care expenses may be costly, it may be wise not to focus purely on cost savings. You must also consider the risk of not having the coverage versus the cost of trying to provide this type of care for yourself or a loved one for an extended period of time. Currently, most policies have waiting periods for starting benefits, aka Elimination Period, between 90 and 100 days. These are the most popular among policyholders. Benefit payout periods may range from two years up to a lifetime worth of coverage in some policies. However, most policies may contain specified benefit periods of three, four or five years. Based on current statistics, the average stay in a nursing home is around 2.5 years, not taking into account home health care.
When to Sign Up for LTC Insurance
This a personal decision that is often tough to make. No one wants to think they will ever end up in a LTC facility, and no one wants to pay premiums for a policy they hope they will never use! Herein lies the issue. It may be better to sign up for LTC insurance as soon as possible as premiums are established based on your age and overall health when you enroll. In other words, it may cost you more money to enroll when you’re 65 versus when you’re only 55. You must also be in overall good health when you apply or you may not be accepted no matter what your age. After you have LTC insurance, however, no matter what your health or age, you will be able to keep it as long as you pay your scheduled premiums.
Are LTC Insurance Benefits Tax-Free?
LTC insurance benefits are usually tax-free, which means you can get reimbursed for them under your annual tax returns. For this year, the tax-free amount for benefits comes to $370 per day. The cap is adjusted each year for inflation. Whenever you incur benefits throughout the year, the amount is reported to you on a Form 1099-LTC that’s typically received early in the next year.
Can You Deduct LTC Insurance Premiums?
You may be able to deduct LTC insurance premiums as your policy is considered health insurance for tax purposes. This allows the premiums to be itemized as medical expenses. At the same time, note that if your premiums go beyond the cap, you will only be able to count the capped amount as your expenses. You may also include coverage for your spouse or another dependent family member, if applicable. Providing protection against the potentially devasting effects of long-term care expenses should be a consideration in most financial planning scenarios. Protection now comes in many forms so it would be wise to check with a qualified, licensed LTC agent for professional guidance.
Daniel S. Miller, CFP® is President of Miller Financial Group, Inc. with offices located in Bellevue, NE and Red Oak, IA. Dan and his team serve clients throughout the country as they prepare for the next stages of their financial lives. Dan is a published author of the book “Retirement Built to Last: Planning for When the Paychecks Stop” and has had articles published in the Wall Street Journal, Financial Advisors IQ, Successful farming and The Hill. He is also a dedicated husband, father, and advocate for the financial planning process and financial education.
Dan Miller, David Eads, Kaleb Robuck, and Marcus Taylor are investment adviser representatives of and securities and advisory services are offered through, USA Financial Securities Corp. Member FINRA/SIPIC. A Registered Investment Advisor located at 6020 E Fulton St., Ada, MI 49301. Miller Financial Group is not affiliated with USA Financial Services.