Questions to Ask Your Financial Advisor About Long Term Care Funding

Many of you have financial advisors. We love our financial advisors, but sometimes they are on a different page when it comes to long-term care planning and may guide people to self-fund for long-term care. Although the intent may be good, it may not be sound advice if the financial planner isn’t up-to-speed about LTC.

Before you take their word for it and make self-funding your strategy, ask your financial planner the questions below about how much of your savings he or she has allocated to long-term care. They should be able to tell you which part of your portfolio can fund the cost of long-term care. Using long-term care insurance may provide far more benefit dollars for every dollar you spend in premium.
Then the question becomes is there a more cost-effective way to generate this amount of money besides funding it dollar-for-dollar out of your retirement savings?

Checklist: Financial Advisor Questions

How long have you estimated I might need care?
If the answer is a couple of years, that’s the average time people need nursing home care, but most care is not in a nursing home. The average for people who need care longer than a year is 4.5 years and that’s for home care as well as for care in an assisted living facility or nursing home.

What is the current cost of care you are using?
You can use the area in which you plan to live when you retire. You can look up the cost of care here. Add $1500 to the monthly cost of an assisted living facility to get the current cost of a nice facility or about eight hours a day of home care.

What inflation factor are you using to determine the future cost of care?
Given the shortage of quality caregivers, inflation on the cost of care has been greater than 5% in recent years. At 5%, the cost of care would double every 15 years. For example, if you are 50 years old, the cost of care will double twice by the time you are 80.

After putting this information together, what is the specific amount you are allocating for LTC?
If you are 50 years old and the current cost is $6,000 a month, the financial planner might project $24,000 a month by the time you are 80. If you don’t have Alzheimer’s in your immediate family, your financial planner could allocate four years at $25,000 a month to allow for inflation during the four years. $25,000/month x 48 months = $1,200,000. This amount could easily be double or more if you were to get Alzheimer’s.

What will I do if I need care for more than four years?
Your financial planner should ask if Alzheimer’s runs in your family with your parents or siblings. That average is eight years but could be much longer. You don’t have to have a family history to get it though. You could just live a long life. The greatest predictor of dementia is age itself. A severe stroke with paralysis is another common reason for needing many years of long-term care.

Is there a chance that my self-funding account could lose money or not grow when I need care? 
Paying for LTC out of your savings at $15-$25,000 a month is like a bear market that won’t go away. Your account value may drop every month, and that money may not grow back.

Will I have to pay taxes on the money I use for care?
Paying out of your savings means paying after taxes and investment fees. LTC insurance may be more efficient when the LTC benefits are tax-free. There are certain tax deductions as well with some policies. Ask your agent to share those with you.

Anyone can have an accident or develop a disabling condition at any age. Long-term care insurance can provide guaranteed benefits the day you get the policy. Self-insuring can mean you have to wait for your savings to grow.

A BuddyIns long-term care specialist can be a great partner in your long-term care planning process. Reach out and we will introduce you to a specialist who can facilitate a plan that will bring you and your family peace of mind.


For more information when weighing self-funding and insuring your long term care, check out our webinar So, You Think You Can Self-Fund LTC?


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