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Longevity and a Long-Term Health Event: The X Factors in Retirement

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There are twin X factors that loom over all of your long-term care insurance (LTCI) prospects.

Setting the stage for an LTCI sale means addressing these factors, including:

  1. How do they intend to set up resources to provide a lifetime’s worth of income for themselves and their spouse or partner? and 
  2. How they will pay for the possibility of a long-term care event?

These are the two most important conversations you can have prior to a client’s retirement. Here’s why.

  1. Longevity puts pressure on your prospect to have sustainable assets for life.
  2. A serious chronic health event could upset the financial viability of their income and savings/investments/retirement accounts while they are receiving care and impact future assets available for their healthy spouse/partner.

Of course, the information provided here is my opinion and does not necessarily represent the opinions of the insurance companies whose products I market. The following is for financial professional use only. Not for use with the general public.

But, in my opinion, long-term care planning is an important of planning for longevity risk. With regard to longevity risks, there are several different tools that can be used to help reduce the chance prospects will outlive their assets.

The goal for most individuals and couples is to provide an income stream that is insured or guaranteed to cover those “essential” fixed expenses that are difficult to cut back. I.e., mortgage/rent, utilities, some insurance coverage, basic food and medical costs, etc.

In generations past, traditional defined benefit pensions and social security payments provided that kind of security and peace of mind. But with employers eliminating these kinds of pension plans and substituting them with 401k-like plans, the risk in retirement gets transferred over to the employee in most cases.

Beyond CDs and treasury securities, you might suggest to your prospects that they look at immediate annuities and variable annuities with living benefit guarantees to help address the desire for income.

For the critical issue of how they might pay for long term care, you may suggest long term care insurance as one of their best options.

You will need to guide them to consider their own health history, family history and current and expected financial assets and income sources. For those who have the luxury of being “ready to retire” with ample assets, self-insurance is a possibility, though you will want to suggest they look carefully at what the potential tax consequences are for them, as well as the questions about how much of a legacy they want to leave.

Equally important is whether there would be enough assets left after their death to support a healthy surviving spouse/partner.

Giving away assets beforehand was formerly a common strategy but gifting requires time now—at least 5 years in most cases.

And, if your prospect is considering giving away assets, they lose control and their gifts to another could affect the recipient’s financial situation negatively in terms of qualifying for financial aid, benefit entitlements, and the financial settlement of messy marriages.

As life expectancies extend, financial plans must now deal with the twin X factors of saving enough for an extended retirement and saving enough to pay for long term care. A bump in funding for either factor can surprise even the most astute financial plans. The sooner your prospects deal with these twin X factors before their retirement “D Day” the better.


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