PLANNING FOR QUALITY CARE AND INDEPENDENCE. Why you need to plan for long-term care assistance, and what funding options are available.

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1 PLANNING FOR QUALITY CARE AND INDEPENDENCE Why yu need t plan fr lng-term care assistance, and what funding ptins are available.

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3 PLANNING FOR QUALITY CARE AND INDEPENDENCE The value f planning ahead The eldest senirs tday thse frequently referred t as The Greatest Generatin lived thrugh a perid in which the gvernment and private emplyers launched, prudly prmted and then reduced funding prgrams t help Americans live cmfrtably during retirement. Back in 1935, when Scial Security was first intrduced, the average 65-yearld received benefits fr an average lifespan f 12 t 15 years. 1 Tday, hwever, at least ne member f a 65-year-ld cuple is likely t be alive at age And studies suggest that almst 70% f thse ver age 65 will need sme type f lng-term care fr three years, and 20% will need care fr mre than five years. 3 While many baby bmers are diligently saving and planning fr their retirement, it s imprtant t understand hw simply living a lnger life can impact yur incme, health and quality f life. Hw much des lng-term care cst? In 2012, the median annual cst fr care in an assisted living cmmunity was nearly $40,000 natinally. A private rm in a full-time skilled nursing care facility cst an average f $222 a day mre than $81,000 a year. 4 When yu cmbine the cst f tw spuses living in tw different husing situatins fr multiple years, yu can see that husing expenses alne wuld run quite high. S much s that they can drain a retirement accunt very quickly. Perhaps that s why 78% f retirees wh need lng-term care depend exclusively n family and friends. 5 1 ScialSecurity.gv. Life Expectancy fr Scial Security, Institutinal Retirement Incme Cuncil, The Prblem with Living T Lng, Natinal Clearinghuse fr Lng Term Care Infrmatin, Department f Health and Human Services, Genwrth Financial, Genwrth 2012 Cst f Care Survey, Natinal Alliance fr Caregiving in cllabratin with AARP; Caregiving in the United States, Nvember

4 Take charge f yur lng-term care plan Currently, gvernment prgrams prvide nly limited assistance which may even be reduced in the future. Medicare pays nly fr acute care assciated with a shrt-term illness r injury. Medicaid, the prgram designed t pay fr lng-term care, is available nly t lw-incme participants wh meet eligibility requirements fr necessary care. Peple wh qualify fr Medicaid assistance d nt typically get t select the facility that prvides their care. This is why yu shuld cnsider creating a specific funding plan fr the likelihd that ne r bth spuses will need lng-term care. There are several insurance ptins t help yu prepare fr this expense. It is imprtant t wrk with yur financial advisr t develp a plan fr yur situatin. Lng-term care funding ptins First, recgnize that mst health care insurance plicies d nt cver lng-term care. Like Medicare, they pay benefits fr nly shrt-term rehabilitative care. Fr a true lng-term care plan, yu need an insurance plan that ffers cverage fr years nt mnths. Tday there are different ways t plan fr lng-term care. Traditinal lng-term care insurance One f the ways that yu can prepare fr yur future is t buy a lng-term care insurance (LTCI) plicy. LTCI cvers csts that Medicare and ther health insurance plicies may nt cver, such as in-hme care, assisted living, adult daycare, and nursing hme care. Be aware that if yu purchase a plicy when yu re yung, yu may pay premiums fr decades f cverage befre even using the plan. Hwever, premium rates fr lng-term care plicies increase significantly as yu get lder. Many experts recmmend the sweet spt age t buy a plicy at lwer rates is mid-50s. Fr business funded plans, lng-term care premiums may be tax deductible. Traditinal lng-term care insurance is typically used when an individual des nt have a large lump sum t fund the single premium types f lng-term care. Life insurance with Lng-Term Care payut riders An alternative t the traditinal LTCI plicy is t purchase a universal life plicy that ffers a lng-term care insurance rider. Life insurance with a lng-term care payut rider is typically used when an individual s primary bjective is t leave mney t heirs. This allws yu t cver tw ptential needs. Life insurance prvides cash prceeds t beneficiaries taxfree when yu pass away. When yu add a lng-term care rider, shuld yu ever need t pay fr lng-term care, the plicy will pay accelerated death benefits t help cver thse csts. Fr example, yu can purchase a $300,000 life insurance plicy with a lng-term care rider. If yu need t file a lng-term care claim, the plicy will pay 2% per mnth f the life insurance amunt, $6,000, in benefits. Nte that these benefit payments will reduce the life insurance amunt n a dllar fr dllar basis. 2

5 PLANNING FOR QUALITY CARE AND INDEPENDENCE Asset-based lng-term care Asset-based lng-term care cntracts use the structure f either life insurance r annuities t prvide lng-term care benefits as needed. Assetbased plicies are typically purchased with a single sum premium. They prvide lng-term care benefits fr typically five t seven years, and the residual death benefit will be paid t beneficiaries upn yur death. Asset-based Lng-Term Care Life Insurance If the lng-term care benefit is nt used, the plicy prvides an incme tax free life insurance benefit t yur heirs. In additin, many prducts ffer a full mney back guarantee shuld yu change yur mind. Asset-based Lng-Term Care Annuities Asset-based annuity cntracts allw the initial premium t grw tax deferred until yu need t access the lng-term care benefit. Once withdrawals are made fr lng-term care purpses, they cme ut tax-free due t the Pensin Prtectin Act f HYPOTHETICAL CASE STUDY Lrelei, age 60, has a sustainable retirement prtfli, but wuld like t be prepared nw fr lng-term care if she needs it. She has a CD with a value f $100,000 that she sells t purchase an asset-based lng-term care life plicy that ffers a 6-year lng-term care benefit perid. Shuld she need mney fr eligible lng-term care expenses, Lrelei will have an incme-tax free ttal lng-term care benefit pl f $476,481, r a mnthly maximum f $6,618, fr qualified lng-term care reimbursements. If Lrelei des nt need lng-term care, she can either withdraw her $100,000 thrugh the mney-back guarantee r leave an incme tax-free death benefit fr her heirs f $158,827. 3

6 Lng-term care planning When yu cnsider tday s healthier and lnger living senirs, it s easy t see hw imprtant it is t create a lng-term care plan s that yu can enjy quality f life thrughut yur retirement. Funding yur wn lng-term care plan lets yu make yur wn chices while yu still can, and takes the burden ff f yur children s shulders. It is particularly critical t wrk with yur financial advisr t develp a lng-term care cntingency funding plan t ensure that, shuld the mst expensive scenari ccur, it wuld nt devastate yur retirement incme plan fr ne r bth spuses. T learn mre abut hw t fund yur lng-term care plan, speak with yur financial advisr tday. Lng-term care cverage checklist Review these tpics with yur advisr t help determine which apprach t lng-term care funding is best fr yu. Buy frm an issuing cmpany with an A r better insurance rating. A discunt may be available when bth spuses buy plicies at the same time. Tday s plicies typically cver a specific dllar amunt r a benefit perid f three t seven years. Des yur plicy ffer an inflatin prtectin rider t guarantee that benefits will reflect the rising cst f care later in life? Des the plicy ffer guaranteed renewal, which ensures that yu wn t be turned dwn when yu renew yur plicy? Des yur plicy ffer a nn-frfeiture benefit, guaranteeing yu will still get paid a prtin f yur benefit even if yu terminate yur plicy r let it lapse unintentinally? Des yur plicy require a wait perid? Chsing a lnger waiting perid may yield a less expensive premium, but during that length f time yu will have t pay fr lng-term care n yur wn. 4

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