Could This Drain Your Retirement Savings?

As you envision living out your retirement years, what comes to mind? Probably, like most people, you imagine being busy doing things like traveling, engaging in your hobbies, learning new skills, spending time with family and friends, etc. In fact, your vision for this chapter of your life isn’t a passing daydream, but something you’ve likely worked very hard for many years to achieve.

As you envision living out your retirement years, you probably don’t spend much time imagining scenes of being ill, disabled, or suffering from cognitive degeneration. While these topics aren’t necessarily pleasant to discuss, they are important to address – for both yourself, and your loved ones. Why so?

In this article, we’ll briefly discuss:

1. How long-term care expenses could significantly impact for the worse your retirement assets, retirement goals, and money you’d like to pass on to your loved ones.
2. Why women are especially vulnerable.
3. A financial strategy that is designed to safeguard your assets from this potential harm.

Long-Term Care – Expecting the Expected

Most retirees have spent many years saving and making life changes in order to set themselves up for the expectation of being able to stop working in their later years. In fact, it may be the life event that we spend the greatest amount of time planning for. For many, part of this planning involves saving up enough or ensuring enough life insurance coverage in case of the unexpected, such as the passing of a spouse.

But what about planning for the expected? Why do we consider long-term care as falling into that category? Consider this statistic of the U.S Dept. of Health and Human Services: Americans age 65+ will eventually require some form of long-term care at a rate of nearly 70%. Yes, 7/10 chances qualify for “the expected.”

If you eventually become one of the 7/10, what could be the effect on your retirement savings?

The Potential Drain on Your Retirement Savings

Long-term care (LTC) is generally defined according to the level of assistance one needs with the “ADLs”, or activities of daily living over an extended period. It could include assistance with cooking, dressing, taking medications, and supervision to ensure one’s safety, etc., or any combination thereof.

These needs could be due to a variety of different factors relating to both physical or mental illnesses or disabilities. These needs could be cared for at home, in assisted living facilities, or in full or partial-service nursing homes.

In a situation where someone needs such help, what are the associated costs? According to a survey conducted by Genworth, the national median annual costs in 2023 for long-term care are as follows:

1. Home health aide or homemaker services: $68,600-$75,500
2. Assisted living facility: $64,200
3. Nursing home; semi-private room: $104,000
4. Nursing home; private room: $116,800

And these costs are expected to continue to increase each year.

Even if the long-term care needs aren’t permanent, with the above costs in mind, it’s clear how even a relatively brief stint of needing assistance with the activities of daily living can create a significant dent in the assets you worked hard to save for retirement.

How Women Are Especially Vulnerable

The above statistics are sobering in and of themselves. However, women can be more susceptible to having to confront these significant expenses. Why so? A few factors play into this, but the primary culprit is life expectancy. It’s no secret that women tend to live longer than men.

Not only does this more often lead to women being the ones who are left to confront the emotional effects of losing their mate, it also means they are more often than not the ones who have to confront the financial effects. If a situation arises where they themselves require some form of LTC, they may be especially vulnerable because:

1. Even if they’re able to see an increase in their Social Security income through the Social Security Survivor Benefit program, they’ll still see an overall decrease in income.
2. Even though the loss of a spouse means lowered expenses, it still may not be proportionate to their overall expenses.
3. In a situation where long-term care needs arise for one spouse and both spouses are still alive, the one spouse can act as a “helper,” defraying some or even all of what would otherwise be a consequential LTC expense. In a similar situation, where only one spouse remains alive, this means that spouse is even less likely to have a “helper” and pay those expenses. Since men are more likely to pass first and, among comparable countries, men in the United States are the most likely to die an “avoidable death”, this means that women are disproportionately more likely to have to confront this negative potentiality.

Working in the financial industry primarily with retirees and those soon to retire, we sadly see these situations happen all too frequently. On average of about one instance per year, a situation occurs where one of our clients passes away far earlier than “expected,” sometimes within just a couple of years of retirement. More often than not, it’s the passing of a husband leaving his wife in the situation described above.

Single women can be especially vulnerable when taking these factors into consideration, not having that “helper” and not having an additional earner’s lifetime savings in the event of an LTC need.

Long-Term Care Insurance Can Safeguard Your Assets

Since many who’ve saved an appreciable nest egg for their later years won’t qualify for Medicaid’s LTC assistance, is there a way to safeguard that nest egg from being drained by the expenses detailed above? Many larger insurance companies across the nation offer a special type of life insurance designed to accomplish just that, called Long-Term Care Insurance.

Rather than having to dip into your savings and investments, LTC Insurance will cover a specified amount of those expenses. Some insurance companies also offer “hybrid” life insurance policies which combine the standard death benefit (payout amount) of a traditional life insurance policy with the ability to use some or all of that future payout amount to cover qualifying LTC and insurance needs.

Who Long-Term Care Insurance Suits Best

As with any type of life insurance, the costs rise with age and past health issues. Additionally, LTC insurance is more costly than standard life insurance. Therefore, it’s not for everyone.

Those who would benefit most from considering adding this type of insurance into their overall retirement plan are women who’ve saved up a nest egg for retirement and wouldn’t qualify for Medicaid assistance.

Plan For the Expected

In conclusion, when planning for the unexpected, don’t forget to plan for the expected. By doing so, you can gain peace of mind through safeguarding your quality of life in retirement, retirement savings, and assets you wish to pass on to your loved ones.

If you’d like to find out how LTC insurance would fit into your retirement plan or would simply like an LTC Insurance quote, CLICK HERE to schedule a complimentary consultation. A quick assessment will allow us to give you a professional opinion on whether or not LTC insurance is both feasible and recommended in the light of your age, goals, and financial position.

Let’s Have a Conversation:

Have you planned for both the unexpected and the expected needs you will have in your later years? Do you think you have neglected the expected needs?