A Simple Way To Help Protect Clients' Retirement Assets

For 5 years of coverage at $300 a day, John would receive a maximum benefit of $547,500. The maximum value of his benefits is worth more than his initial income annuity purchase of $500,000. Note that because of the inflation rider, his maximum benefit could continue to increase each year. Moreover, even after diverting $691 a month to fund the LTC insurance, John still keeps $2,059 a month or about $24,702 annually after tax.

A second scenario

Now suppose John selects an unlimited LTC policy with $300 daily benefit or keeps the term of his policy at 5 years, but increases the daily benefit to $400 a day. These benefit selections would both potentially give him greater LTC benefits and would cost approximately $969 a month for the unlimited plan with $300 daily benefit or $921 a month for the 5-year plan and $400 daily benefit. After funding this from the lifetime income annuity, John still keeps approximately $1,781 a month with the unlimited plan or $1,828 a month with the 5-year $400/day plan, both on a post-tax basis.

By using a lifetime income annuity to fund a LTC insurance policy, you have also matched the duration of John’s expense burden with his income flow. As long as John is living, he will receive lifetime income annuity payouts and, therefore, will likely always be capable of funding the LTC premium. If John goes on claim for a LTC event, he would stop paying the premium and keep all of the income annuity’s payout.

In this situation, John’s lifetime income annuity was only for the duration of his life. If he passed away tomorrow, the value of that income annuity would go with him.

Scenario 3

Now let’s assume that John purchases a lifetime income annuity with a 30-year period certain, so if he passes away tomorrow, his estate would still receive income from the annuity. Switching from a life to a 30-year certain term changes the monthly payout to approximately $2,322 a month (pre-tax) or a guaranteed lifetime income of approximately $835,920 pre-tax.

John can still afford the LTC policies described above and receive all aforementioned benefits. Additionally, he is potentially passing on a larger inheritance to his estate (the remainder of the 30-year payouts under the lifetime income annuity minus cumulative LTC insurance premiums that had been paid).

Weighing the opportunity cost

Although LTC insurance is not typically thought of as an asset, its ownership can be exchanged for eligible LTC services. Even if your clients have the ability and risk tolerance to self-insure in today’s economic market, clients should consider the opportunity cost. In the absence of LTC insurance one might have to sell off assets or borrow from an investment or retirement account.

Rather than earmark a hefty amount of capital to support a possible LTC event in the future, clients can transfer the risk to the insurance company and use a lifetime income annuity to fund insurance premiums. By doing so, they reduce retirement portfolio risk and can use remaining income and assets to support a quality of life to which they are accustomed.

As one cannot predict if a LTC event will occur, it is extremely important for wealthy clients to complete the last step in their retirement plan: consider purchasing an LTC policy. There is no better time to be sure your clients’ retirement plans are complete.