Planning for retirement can be tricky enough when choosing between investment vehicles such as IRAs, a 401(k), or an annuity, let alone the various options these come in. An unpleasant, but very real possibility, is that chronic health conditions will require paying for long-term care.
Traditional Health Insurance Is Too Risky for Seniors
With long-term care averaging just over $107k per year in 2024, a ruinously expensive cost for most seniors, you might consider purchasing health insurance if you don’t have it already. But although medical bills are so expensive, many people may also enjoy good health for most or all of their golden years.
Ironically, the money spent to guard against the risk of unforeseen expenses becomes a huge risk in itself. By diverting a significant chunk of one’s investments to insurance you may never use, you deprive yourself of higher payouts and better quality of life in retirement.
A Long-Term Care Annuity Keeps Your Options Open
It would be ideal if you could direct your finances toward an annuity that would:
- Pay out on the same regular, recurring basis as any other
- Fund a good standard of living after you have retired from the workforce
- Be used for long-term care if needed.
Such a thing exists. Insurers, noting the predicaments retirees face, have developed the long-term care annuity accordingly.
Although the details vary from insurer to insurer, a long-term care annuity is a type of deferred annuity. This means it begins paying out at a later date, typically when you reach your 65th birthday, and it carries a rider with the specific intent of making long-term care affordable for you.
As with most annuities, you can choose between the guaranteed income of a fixed annuity, or the higher risk but higher reward of a variable annuity.
The Benefits of Covering Your Bases
The most obvious benefit of a long-term care annuity is that you can prepare for your future, even if you have not yet developed a condition that would warrant intensive looking after, while not jeopardizing your financial circumstances if you remain well.
It is often more budget-friendly to finance long-term care this way, and it can even be easier to get approved for care than when financing it through a health insurance plan. Additionally, the numerous factors affecting insurance payments can make it difficult to budget.
The Downsides of This Annuity Option
A long-term care annuity is not exactly an ordinary annuity that can be converted to cover the cost of nursing facilities. Instead, the rider establishes a fund associated with the annuity, which exists specifically to cover such expenses.
As a result, the funds allocated to the rider act as a brake on the overall growth rate of the annuity.
These annuities are also typically funded by a single, substantial upfront payment. This lump sum can be a significant liquidity challenge for many people approaching retirement. But it does make budgeting easier.
Do You Qualify for a Long-Term Care Annuity?
If you have a pre-existing condition, such as Alzheimer’s or a mobility issue, which would necessitate caring facilities, it can be easier to get approval for a long-term care annuity.
Seek Professional Advice When Deciding Your Financial Future
As with any financial instrument, speak to a reliable and trustworthy professional when making decisions that affect your financial future.