Although most people are well aware that income is needed to pay living expenses in retirement, many are not so keen on considering the possibility of long-term care. Yet, according to government statistics, once someone reaches age 65, they have an almost 70% chance of requiring at least some amount of care – and regardless of where it is received, long-term care can be expensive. One way to help pay for it is through personal assets, or even with long-term care insurance. Another option is using an annuity to pay for long-term care.
Using an Annuity to Pay for Long-Term Care Costs
With an average monthly cost of a private room in a skilled care facility standing at over $8,500 (in 2019), many people would quickly deplete assets if this type of need arose. This is particularly the case if a patient has a spouse who still needs to pay every day living expenses at home, such as utilities, food, and transportation.
Even though traditional long-term care insurance policies have become much more flexible over the years – and they also cover a wide array of needs, including facility and home health care services – individuals and couples run the risk of paying thousands of dollars into a policy that they may or may not ever use.
Enter the annuity as a source of long-term care payment.
One way to avoid the “loss” of long-term care insurance premiums is by purchasing a long-term care annuity. This financial vehicle is essentially a deferred annuity that also includes a long-term care rider, meaning that your lump-sum deposit now can convert to future income payments in the future.
By including a long-term care rider on the plan, you can garner some added financial protection if you should need care services – and depending on the annuity, you might even see double or triple the amount of your initial investment overtime paid out as long-term care benefits.
So, for instance, if you initially made a deposit of $100,000, this could equate to $200,000 or $300,000 for care costs, typically paid out in monthly installments. Going this route can help you to truly leverage your assets and to double or triple the amount of your principal investment.
As with stand-alone long-term care policies, the benefits from the annuity would require you to meet a triggering event – which usually means that you need assistance with two “activities of daily living,” or that you have a cognitive impairment.
What happens if you remain healthy and never need long-term care?
In this case, you could still receive the income benefit that is paid out from the annuity.
There are some other potential benefits, too, if you purchase an annuity to help with funding long-term care needs. For instance, unlike stand-alone long-term care insurance policies, which typically require a review of your medical records – or even a full health exam – an annuity is much less likely to hinge on your medical history. So, even if you have applied for regular long-term care insurance in the past and been declined, you could still be approved for the long-term care annuity.
How to Set Up a Retirement Income and Long-Term Care Payment Plan
While annuities can certainly play a part in helping you to pay for long-term care expenses, it is important to note that these financial vehicles should not be considered as full a substitute for a stand-alone long-term care insurance policy.
As an example, if you are counting on income from the annuity as a key source of your incoming cash flow in retirement, this income could be lost if the funds are instead used for a long-term care need. With that in mind, it is important that you work with a retirement income/annuity specialist before you commit to this type of annuity.
That’s where Annuity Gator comes in!
At Annuity Gator, our mission is to educate consumers and financial professionals about how annuities work, as well as to determine whether or not they are the right fit. So, if you’ve got questions about annuities and/or an annuity with long-term care benefits, feel free to contact us and chat with one of our annuity specialists.