Learn How to Avoid the Huge Financial Plan “Hole” that Can Have a Dramatic Impact on Retirement Income, Legacy, and Lives of Loved Ones
“I hope I die before I get old.” My Generation, The Who, 1965
Most Boomers were just coming of age when Pete Townsend wrote “My Generation.” Now, 50 years later, most boomers are still alive and likely will be for another 20, 30, or even 40 more years. That said, we may be living longer, but we are not necessarily living better. Despite the advances in medical technology and pharmaceuticals that are enabling us to live longer, lifestyle-related chronic health conditions certainly continue to take their toll.
The Huge “Hole” in Financial Plans
Nearly every American has a significant “hole” in his or her financial plan that can have a dramatic impact on retirement income, legacy, and the lives of loved ones. The lack of a long-term care (LTC) plan and a way to pay for it – even for those considered “high net worth” – invites chaos, uncertainty, and perhaps dread.
“Will I have enough?”
For many who are now living beyond their means, saving too little, or mortgaging their retirement to pay for college expenses, the answer is probably a resounding “No!” A lifetime of working and saving can easily disappear in just a year. Even those who have amassed millions of dollars run the risk of having their financial assets and savings compromised. And remember: this problem is not limited to seniors or the elderly! Surprisingly, 40 percent of long-term care events occur between the ages of 18 and 64.
When answering the question, “Will I have enough?” – the financial impact that a long-term care event may have on your retirement income is only one piece of the puzzle. Evaluating the emotional, physical, and logistical effects of a catastrophic event would have on family and friends is where making plans can become complicated – and is so daunting that many have failed to plan.
Where to Begin: LTC (Love, Trust, and Conversations)
In the insurance industry, “LTC” might traditionally stand for “Long-Term Care,” but we also say that it means “Love, Trust, Conversations.” Many of our clients first become interested in long-term care (LTC) planning because they care deeply about the people they love and want to avoid becoming a burden on them should they eventually require ongoing personal care.
Early in this planning process, most people require advice, and turn to someone they trust, typically their financial adviser. Although many financial advisers may be properly prepared to purchase insurance on your behalf, they may not be too comfortable talking about the realities and complexities of an LTC event and its many consequences on clients and their families. This discussion calls for candid conversations among you, your financial adviser, family members, and sometimes other advisers, such as tax accountants and estate planning attorneys.
What Is a Well-Designed Plan?
The process begins with a discussion of your family’s priorities. This demands introspection and conversations with your spouse or partner and your adult children, if they are in the picture. Consider your preferences regarding where you would receive long-term care and who would best provide it. Next, consult with an LTC planning specialist – such as our team – to discuss care costs and funding sources and options. Ideally, by now, your financial adviser is participating in this discussion. The plan is only complete after legal documents have been drafted, funding arrangements are in place, and the details of care coordination have been fully addressed.
Bottom line: there’s much more to building the right plan than simply purchasing an LTC insurance policy!
Funding the Plan
For decades, the overwhelming majority of expert advisers to the wealth management industry have held that LTC insurance is not right for wealthy clients, primarily because they can afford to self-insure. Consequently, many advisers have been known to tell clients with $2-3 million or more of invested assets that they do not need to worry about developing a strategy that includes insurance to fund the LTC risk, as these clients were believed to have more than enough money to cover this risk on their own.
Recently, however, this advice has been scrutinized – and modified. As fiduciaries, many fee-only advisers are now probing this rely-on-yourself assumption to determine whether it is in fact a prudent course. Yes, high-net-worth individuals may often live a fiscally conservative lifestyle and are able to self-insure, however, they may lack the liquidity necessary in a crisis. Consequently, fee-only advisors and their clients are beginning to understand that transferring a portion of their LTC risk to an insurance company makes good economic sense. They appreciate the leverage, tax advantages, instant liquidity, and professional care coordination that insurance affords them.
No Perfect Policy
In a world without limitations, most would prefer a single LTC policy that offers the following:
- Has no elimination (waiting) period
- Provides a choice or combination of cash and reimbursement benefits
- Has a guaranteed payoff – whether or not care is needed
- Has guaranteed premiums that will never increase and can be flexible
- Keeps pace with inflation
Unfortunately, such a single LTC policy does not exist. In many cases, the most effective solution will require a portfolio of policies that is individually tailored for your specific needs and preferences. This approach will provide you with the richest benefits to cover a broad range of potential claim scenarios.
A More Comprehensive Team – A More Secure Future
Most high-net-worth clients rely on their financial adviser, accountant, and attorney to collaborate on their behalf to keep them out of harm’s way and guide them toward achieving their financial goals. However, the addition of a LTC specialist to the team can greatly enhance this collaboration.
Consider the critical fact that most fee-only advisers lack a full understanding of LTC planning and insurance. When speaking candidly, many advisers will admit that they avoid discussing LTC with clients altogether because they feel that they have an inadequate understanding of the subject. And when these advisers do offer cash-flow projections that support self-funding, they often do so without considering their clients’ preferences and intentions for a specific financial lifestyle and lasting family legacy.
Don’t wait! Follow the steps below to avoid the long-term-care financial trap:
- Have the conversations you should with your immediate family and key professional advisers about Long Term Care.
- Work with a specialist in LTC insurance policies.
- Create a written LTC plan.
- Give copies of the plan to your advisers and loved ones to assist them in helping execute your estate planning intentions.
- Have your attorney draft the documents.
- Fund the plan!
And then, be sure to tell those you care about to do the same.