Personal Finance

Don't Let Health Care and Long-Term Care Costs Consume Your Retirement Savings

You’ve worked incredibly hard to build the nest egg that you’re heading into retirement with, so why not do what you can help protect that nest egg against one of the largest retirement risks you’re likely to face—health care and long-term care expenditures.


When it comes to people making large one-time purchases, like the purchase of a home, we frequently hear folks say that they plan to leverage some type of debt in order to make that purchase. In those situations, if we ask, “Why not pay cash?”, we frequently receive several responses along the lines of:

  • “It doesn’t make sense with interest rates so low.”
  • “There are tax benefits associated with the loan.”
  • “I like to leverage ‘other people’s money’ to grow my wealth.”

When we pose the same question about how people intend to fund their long-term care (LTC) needs, the response is often: “We should have enough to cover it.” While that may be true, I would also pose this question back to you: “Why would you want to cover 100% of that expense with your dollars when alternatives exist?” It’s a similar type of conversation to that of purchasing a new home. You’ve worked incredibly hard to build the nest egg that you’re heading into retirement with, so why not allow our advisors to help you protect that nest egg against one of the largest retirement risks you’ll likely face— health care and long-term care expenditures.

Health care and long-term care costs are likely to be one of the largest expenses retirees will face during the later years of their lives. Estimates on lifetime out-of-pocket health care expenditures are often seen in excess of $250,000-$300,000 depending upon the report, while long-term care costs can easily exceed $200,000. Many people fall into the trap of looking at the average costs for retirees. This can be particularly dangerous in the event someone falls outside of the average and has a long-term need due to Alzheimer’s or Dementia or a persistent medical issue needing ongoing treatment.

The concept of self funding is typically discussed in conversations between advisors and clients. Clients with ample retirement assets may decide that self funding is their preferred option, but we would encourage them to consider the alternatives when thinking about how to fund their future care needs.

Why consider alternatives to self funding?

Keep your options open. One of the main misconceptions about long-term care insurance is that you can only use it if you enter a long-term care facility. This is simply incorrect. There are many policies on the market today that will provide benefits if you need care at home, and may even provide income that could go to a family member who is providing you care. When you purchase a long-term care policy, you’re making sure that all of your options stay on the table without you and your family having a difficult conversation about whether or not you’re going to deplete your assets in order to obtain your preferred level and method of care. This way, the focus stays where it should be—on you and your health.

Leverage other people’s money to provide portfolio protection. Leverage is one of the main reasons individuals consider purchasing a long-term care policy to assist with future care needs. Why risk spending over $200,000 out-of-pocket in the future if you could take a much smaller portion of your assets now and put it on the sidelines to help cover the costs when they arise? When many people think about long-term care policies, they are most familiar with traditional “use it or lose it” type policies. Traditional LTC policies did not offer cash accumulation or death benefits to the policyholder or their family. If you didn’t need the coverage, there were little to no benefits for the cost incurred to maintain the policy over the years. However, the marketplace has changed. There are several hybrid products on the market that do accumulate cash, allow you to take your premium back if you decide to terminate the policy, and/or provide a death benefit. Speak to your Janney Financial Advisor about which type of policy may best meet your needs.

Help your family make the necessary choices. Many long-term care insurance policies now come with care coordinator benefits that provide a free service to the policy owner’s family members when they’re making difficult decisions. These types of services will help the family talk through their options and understand how to use the policy. It can be an emotionally trying time whenever someone needs to make important medical decisions for another person. These services provide support to your loved ones so they can continue to support you.

Avoid becoming a financial burden. The average woman loses $650,000 in lost wages and benefits for providing care for an aging loved one.¹ This can be a taxing financial drain on those you love. Purchasing a long-term care policy allows you to make sure that if your family wants to provide you care personally, they are able to be there to support you without jeopardizing their own financial goals. Make sure to consider a policy that provides benefits that will give income to a family member providing care if you know one of your loved ones plan to care for you.

Asset protection. Depending on the rules of your state and the policy you choose, your policy may be considered a “Partnership Policy.” The Long-Term Care Partnership Program is a joint federal-state policy that was put into effect in order to promote the purchase of long-term care insurance. Essentially, if you purchase a policy that is a partnership policy, you receive $1 of asset protection for every $1 of insurance you have. For example, if you had $200,000 in insurance benefits, you could be able to keep $200,000 of assets above the level you would have otherwise had in order to be eligible for Medicaid.

Tax considerations. Premiums for “qualified” long-term care policies may be tax deductible if they, along with your other unreimbursed medical expenses, exceed 10% of your AGI (2017). Speak to your accountant about whether this deduction might apply to you.

The long-term care and health care conversation is important for everyone approaching retirement. By doing the necessary planning, you can benefit by keeping all of your care options open, make the experience easier on your loved ones, and protect the wealth you’ve worked so hard to grow. Contact us to learn more about your options today!

¹“Value Your Independence? Make Time to Make Long-Term Care Plans.” Minnesota Women’s Press (November 2013).

Jessica Landis, CFP®, ChFC®
Director of Financial Planning

Jessica Landis is Janney’s Director of Financial Planning. In this role, she is responsible for the day-to-day management and operations of the internal Wealth Planning team. In addition, she plays a critical role in process improvement initiatives focused on enhancing Janney’s financial planning offerings.

Jessica joined Janney after serving as a financial advisor with Legacy Planning Partners. During her seven-year tenure at Legacy, she was part of an advisory team with a focus on comprehensive financial planning. Her role included designing financial plans, determining product solutions, and educating clients on the most suitable options. She specialized in working with pre-retirees and on multi-generational plans, with a focus on strengthening the customer relationship through the financial planning process.

Jessica graduated West Chester University with a Bachelor of Arts in Communication Studies and a Bachelor of Science in Finance. She holds her Series 7, 66, and Life Accident and Health licenses.

This is for informative purposes only and in no event should be construed as a representation by us or as an offer to sell, or solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable, but is not guaranteed by us as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed within. 

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