By Matthew J. Knee, a Specialist at New Hampshire Financial Services, LLC
Most people believe that the most expensive time in their retirement will be in their first 10 year. This is the time where they’re active, traveling, vacationing, going on cruises, and doting on the grand-kids. Most believe that their expenses will tapper down as their energy levels follow suit.
Quite the opposite is true.
Generally, there is a lull as people settle into their retirement lifestyle, but the most expensive part of retirement is taking care of long-term care needs.
No one likes talking or even thinking about the prospect of becoming older and needing to address long-term care needs. Yet the reality is that most people who make it to retirement will have a long-term care need at some point in their life.
If I were 65 and there were three of us standing in a group, two of us are going to have a long-term care need. My vote wouldn’t be for me, but we don’t get a say in the matter. The statistics, according to the U.S. Health and Human Services Department show that north of 60% of those who have made it to age 65 will have a long-term care issue. This may include a nursing home, assisted living, or in-home care.
These issues are expensive!
Think of your parents and the situations that they find themselves in. I think of my grandmother, Denise. She’s currently at the Merrimack County Nursing Home in Boscawen, NH where we spend approximately $10,000 each month just on living and housing expenses. This doesn’t include additional medical care or the like.
It’s important not to wait to get your coverage once you have identified a need. Not only are life insurance premiums determined by your health and age and go up each year – but long-term care specifically is looking at a premium hike industry wide. For example, Genworth Financial received approval to increase premiums on its LTS insurance business. The weighted average rate increase was 45%.
Because of the rising premiums, some may opt for self-insurance, which means saving a pool of money that is designated solely for future long-term care needs. There are government programs available through Medicaid, which is a means-based program, meaning that there are stringent eligibility requirements. Essentially, you need to spend down your assets before getting benefits from these programs.
The giant unknown when it comes to retirement planning is health. The chances of being able to qualify for coverage at age 60 is dramatically different than someone applying for coverage at age 40 or 50. The general rule of thumb when looking to buy long-term care is to purchase it by age 55. However, it will always depend on your own personal situation.
The core question you want to ask yourself is how you want to pay for the likely event of a long-term care need. Do you want to pay for the care with your nest-egg or do you want to pay the premiums on the policy?
When buying any insurance product, there are two types of people who provide insurance solutions. There are agents and there are brokers. Agents are aligned with a specific company such as New York Life, Northwestern Mutual, Mass Mutual, or Guardian to name a few. They are employees of these companies. They are provided incentives to sell products in their company’s product line.
Agents come in many forms, whether they are transparent about their alignment or not. An agent could even be your financial advisor. Many advisors in fact align themselves with a specific insurance or investment company and are then agents of that company.
For example, we look at Joe Schmo’s Financial Advisors and Associates. Their name and marketing materials give no indication of their back-office alignments and affiliation. Yet, when asked, they are legally required to disclose that they have a relationship with a specific investment or insurance. These companies can be Ameriprise, Voya, Northwestern Mutual, Guardian, Mass Mutual, or any other large institution that has a footprint in the industry.
These advisors and companies aren’t independent as their names suggest. They receive back-office support and financial incentives from the respective relationship. This fundamentally shifts Joe Schmo's allegiance away from their client and to the planning process and centers it around selling products.
Sure, they may do good work. But whose interests do they represent?
Brokers, on the other hand, are completely independent and represent you through the marketplace and the planning process. They can work with any company in the marketplace but aren’t provided financial incentives or otherwise to recommend a certain product over another.
At a fundamental level, a broker’s allegiance is to their client. Their focus is always on planning with the best available tools from a variety of sources, never to sell.
It’s important to inform yourself about the alignments of who you work with.
As always, I hope you find my words informative and educational. If you are looking for more information, feel free to explore our website and browse our resources and blog section.
If you are looking for a more direct source of guidance, we also offer free no obligation consultations.