Bob and Tom are twin brothers. They have done well in life and saved for retirement in an IRA. They each have $1,000,000, they are both married, and are now age 80. Oh, and Tom bought long-term care insurance at age 60, a benefit of $60/day for 10 years including 5% compound inflation on that benefit. Both Bob and Tom have just had a stroke. They each need an assisted living facility costing $5500/month or $66,000/year – increasing at 5% annually. Will Bob Go Broke without Long-Term Care Insurance?
Year one he takes out $66,000 leaving $934,000, but income taxes are due so he withdraws $81,500 to receive $66,000 and leaving $918,500 to grow back at 3% to $946,055 at year end.
Year 2 he starts with $946,055 and after income taxes (15% fed & 4% state) and care he has $860,455 which grows to $886,268
Year 3 he ends up with $820,156 after taxes, care, and growth
Year 4 he ends up with $747,631 after taxes, care, and growth
Year 5 he ends up with $668,089 after taxes, care, and growth
Year 6 he ends up with $581,011 after taxes, care, and growth
Year 6 he ends up with $485,965 after taxes, care, and growth
Year 7 he ends up with $382,505 after taxes, care, and growth
Year 8 he ends up with $269,865 after taxes, care, and growth
Year 9 he ends up with $151,682 after taxes, care, and growth
Actually he can apply for Medicaid (welfare) in year 9
Year 10 he ends up with $18,882 after taxes, care, and growth
Will Bob Go Broke without Long-Term Care Insurance after his Stroke?
Bob is broke and burned through $1,000,000 paying for Long-Term Care! Don’t be like Bob!
Tom bought long-term care insurance for he and his wife back when they were only 60 years old!
It cost Tom only $2960/year for the tax-deductible premium for Long-Term Care Insurance!
It started out at $60/day benefit ($1800/month) but with it’s built in 5% compound inflation the benefit by age 80 had grown to $159/day ($4770/month). It continues to get bigger every year by 5% of last year’s benefit.
Tom is now on claim, collecting from this insurance so he pays no more premium ($2960/year).
Tom collects 3% from his IRA and pays 15% fed & 4% state taxes, giving him $24,300/year or $2025/month.
His $2025/month income + $4770/month insurance benefit pays for his long-term care. The insurance benefit gets larger every year by 5% to keep up with increasing costs of care.
Tom keeps his $1,000,000 intact and does not go broke, does not gamble his $1,000,000 away by not buying Long-Term Care Insurance! Be like Tom!
Financial planners suggest this will probably work out even better than this simple comparison shows.
If you do not have $1,000,000 in savings, you need long-term care insurance even more.