The market’s decline highlighted a potential risk in clients’ retirement income plans. In a common scenario, clients planned on withdrawing a specified percentage of their assets each year for retirement income. Wealthier clients (and their advisors) usually assumed they could cover the cost of long-term care with their available cash flows.
But if the client’s assets are worth considerably less, can they still cover the expense of long-term care without depleting those assets too rapidly? If they can’t, it might make sense to consider adding long-term care insurance (LTC) to the retirement income plan. Although LTC has been around for years, it’s still an underdeveloped market: the American Association for Long-Term Care reports in its 2009 LTCI Sourcebook that only 8.25 million Americans — out of 78 million boomers — have LTC coverage.
Sunny Kurman, CLU, ChFC is a regional vice president and LTC specialist with Genworth Financial in Chicago, who works with LTC insurance producers. She believes LTC is the piece that holds the retirement plan together. “Those things that used to kill us, we survive now, so we are living longer,” she says. “What happens is that we save someone money for retirement and then assume that money will go to support our lifestyle. What we never anticipate is that we have a long-term care incident, and because those things that used to kill us we now survive, the only thing that’s going to pay for this extended health care incident, since it’s not covered by any other insurance, is either assets or income, which we’ve saved to pay for our lifestyle in retirement.”
Instead of approaching LTCI as a commodity, Kurman believes that financial advisors need to do long-term care planning for clients in the same manner they perform other planning. For example, if the average monthly cost of care in the advisor’s area is $6,000, it’s not sufficient to tell the client they should buy $6,000 of monthly benefits, she argues. “I want to know all kinds of thing such as how does the client deal with their risks?” she says.