A Retirement Riddle Answered, Or Not?

Last week a well known mutual fund company attempted to answer the question of why so many retirees die with significant savings left.  Is it because they wish to leave large amounts for family? Perhaps they are afraid to spend the last dime just before death?  This trend suggests many retirees don’t enjoy their final years as much as they could.

Few older folks seem interested in life income annuities, which could give them a guaranteed income for life with no worries, yet they keep the nest egg close at hand and don’t invade it.

The study seems to indicate that the reason is the fear of potential long term care costs that drives retirees to clip coupons, dine out at 4pm to catch the early bird special and forego expensive trips.  If  it comes down to it in the last year, and they had to choose between an uncomfortable year versus a comfortable year, they would choose to spend the money on making it more comfortable.

For the upper middle class, 75th percentile of wealth, health care was regarded as a necessity and bequests as a luxury.  It was also surprising that people are interested in assistance with daily living expenses, but are not interested in long term care (LTC) insurance.

Perhaps this is due to old beliefs that LTC insurance only covers nursing homes.  For many years now, such coverage is good for in-home care, adult day care, assisted living facilities or nursing homes.  Nearly all policies also cover “alternative plan of care” for locations or strategies that have not been invented yet, but may be in the future.

The most surprising thing about this study (to me at least) is that traditional LTC insurance can be purchased with just the interest on a portion of the savings people set aside to pay for care.  Instead of leaving a significant amount of assets set aside for care, the interest check from just part of that sum could provide the insurance coverage and leave the reminder that is unspent to be passed on to family.

Years ago, I was a representative from a LTC insurance company to a large bank chain in Wisconsin.  My job was to show the stockbrokers there how to address LTC funding.  I would attend teller meetings and ask if the tellers knew clients who withdrew $5000 or $7000 a month, every month.  Every hand went up.  My next question was what they spent it on and the answer in every case was a spouse needing LTC.  With today’s costs reaching or exceeding $9000 a month, the problem is even worse.

There are many strategies to deal with the costs of LTC, but the least expensive is LTC insurance with a built in 5% compound inflation factor on the amount available for care.   This will keep up with the costs of care over the years and frees up your life’s savings to experience life with – instead of waiting for that last year or two.  This coverage is, in most cases, less than is typically thought it would cost (if chosen appropriately).  For more information, visit www.TheLongTermCareGuy.com



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