This is the first of a series of retirement planning articles based on the concept of Planning with Certainty. Two of the more troubling issues for individuals, whether related to retirement or not, are lack of control, and uncertainty as to the future. Too much planning today accepts that as normal, and asks those near retirement, and current retirees, to just “live with it.”
When you plan with certainty, it doesn’t have to be that way.
When planning for retirement, you need to realistically look at the three situations you will face late-in-retirement:
- alive and healthy,
- alive and in need of care or assistance, or,
To reduce the uncertainty of being “alive and in need of care,” I advocate insuring against this risk rather than letting your savings pay the bills. Often times, this period of care can be years or even decades.
Insurance for later life
Two financial products, a Qualified Longevity Annuity Contract (QLAC), and Long Term Care insurance (LTC), are both designed to protect you against late-in-life expenses. QLAC provides regular monthly payments for life starting at an age you select. LTC typically makes payments only if you’re eligible, which usually means you are no longer able to perform the policy-required number of activities of daily living, typically three or more.
Both of these financial products receive important tax benefits, with the government encouraging individuals to address these risks on their own.
The questions are:
- If you have one, do you need the other?
- If you purchase both, in what combination?
While all planning should be done on a personalized basis, let me address three scenarios.
QLAC is insurance against outliving your savings. You transfer a part of your rollover IRA/401(k) savings to a life insurance company before or shortly after you retire in exchange for monthly cash payments guaranteed every year for the rest of your life, starting at any age you choose, typically at 80 or 85. You can use the money for anything, but it provides a hedge against increasing or unexpected medical or health care expenses.
LTC pays a certain amount per day for care at home, and/or in a nursing facility, after the 90-or 180-day deductible period (depending on the contract you select), and continue until some maximum is reached.
With LTC, you address the risk of running through savings if you need years of long term care at home and/or in a nursing facility. Of course, you must pay the premiums each year for the insurance to stay in effect, unless and until you qualify for benefit payments. Most policies contact a designated person like a family member in case the policy might lapse for non-payment of premiums.
Combination of QLAC and LTC:
Together, each provides you protection and peace of mind knowing that they can address two things we try to avoid: losing our home and becoming a burden on our children.
Here are two specific ways they can work together.
- QLAC pays LTC premiums late-in-retirement. QLAC assures a source of premiums for your LTC insurance, which must be paid to ensure that you have coverage when you need it. It might be for the whole premium or for a specific dollar amount.
- QLAC and LTC together cover caregiver expenses. By splitting your purchase between QLAC and LTC, a portion of income will be tied to specific eligibility but a portion will not. So, you may have additional income if you’re alive and healthy.
Planning with Certainty is Reduces Risks and Stress
In summary, LTC and QLAC are insurance products that assist you in managing your risks.
Planning with Certainty allows you to help reduce your worries about running out of money – while you are still healthy enough to enjoy the retirement you want and deserve.
Visit Go2Income to get a better understanding of how your savings can best serve you in retirement.