"I hope I die before I get old." -My Generation- The Who, 1965
Most Boomers were just coming of age when Pete Townsend wrote "My Generation." Now, 50 years later, most boomers are still alive and likely will be for another 20, 30, or even 40 more years. That said, we may be living longer, but we are not necessarily living better. Despite the advances in medical technology and pharmaceuticals that are enabling us to live longer, lifestyle-related chronic health conditions certainly continue to take their toll.
The Huge Hole
Nearly every American has a huge hole in his or her financial plan that can have a dramatic impact on retirement income, legacy, and the lives of loved ones. The lack of a long-term care (LTC) plan and a way to pay for it, even for those considered high net worth, invites chaos, uncertainty, and perhaps dread.
"Will I have enough?"
For many who are now living beyond their means, saving too little, or mortgaging their retirement to pay for college expenses, the answer is probably a resounding "no." A lifetime of working and saving can easily disappear in just a year. Even those who have amassed millions of dollars run the risk of having their financial assets and savings compromised. Moreover, this problem is not limited to seniors or the elderly. Surprisingly, 40 percent of long-term care insurance claimants are between 18 and 64.
What to Consider?
When filling the huge hole, addressing the financial impact that a long-term care event may have on your retirement income composes only one piece of the puzzle. Evaluating the emotional, physical, and logistical effects that such an event would have on family and friends is where making plans can become complicated, and this may in fact be the more daunting and real reason that so many have failed to plan.
LTC - Love, Trust, and Conversations
Reasonable people understand that they are more than likely to live long lives, and if so, will probably need help with daily living activities. Astute people attend to long-term care (LTC) planning because they love someone and would never want to be a burden to others by relying on them for this care.
Early in the planning process, most people require advice and as such rely on someone they trust, typically their financial adviser. However, although many financial advisers may be properly prepared to purchase insurance on your behalf, they may not be too comfortable talking about the realities and complexities of an LTC event and its myriad consequences on clients and their families. This discussion calls for candid conversations between you, your financial adviser, family members, and sometimes other advisers such as tax accountants and estate planning attorneys.
What Is a Well-Designed Plan?
The process begins with a discussion of your family's priorities. This demands introspection and conversations with your spouse or partner and your adult children, if they are in the picture. Consider your preferences regarding where you would receive long-term care and who would best provide it. Next, consult with an LTC planning specialist to discuss care costs and funding sources and options. Ideally, by now, your financial adviser would be participating in this discussion. The plan is only complete after legal documents have been drafted, funding arrangements are in place, and the details of care coordination have been fully addressed. As you can see, purchasing an LTC insurance policy in and of itself does not constitute a plan.
Funding the Plan
For decades, the overwhelming majority of expert advisers to the wealth management industry have held that LTC insurance is not right for wealthy clients, primarily because they can afford to self-insure. Consequently, many advisers have been known to tell clients with $2 million to $3 million or more of invested assets that they do not need to worry about developing a strategy that includes insurance to fund a LTC risk, as these clients were believed to have more than enough money to cover this risk on their own.
Recently, however, this advice has begun being scrutinized and has changed for some. As fiduciaries, many fee-only advisers are now probing this rely-on-yourself assumption to determine whether it is in fact a prudent course. They and their clients are beginning to understand that transferring a portion of their LTC risk to an insurance company makes good economic sense. They appreciate the leverage, tax advantages, instant liquidity, and professional care coordination that insurance affords them.
No Perfect Policy
In a world without limitations, most would prefer a single LTC policy that offers the following:
- Has no elimination (waiting) period
- Provides a choice or combination of cash and reimbursement benefits
- Has a guaranteed payoff whether or not care is needed
- Has guaranteed premiums that will never increase and can be flexible
- Keeps pace with inflation
Unfortunately, such a single LTC policy does not exist. In many cases, the most effective solution will require a portfolio of policies that is individually tailored for your specific needs and preferences. This approach will provide you with the richest benefits to cover a broad range of potential claim scenarios.
Collaboration
Most high-net-worth clients rely on their financial adviser, accountant, and attorney to collaborate on their behalf to keep them out of harm's way and guide them toward achieving their financial goals.
Whereas fee-only advisers are fiduciaries with a legal obligation to do only what is in their clients' best interests, most of these advisers unfortunately lack a full understanding of LTC planning and insurance. In fact, I've had candid discussions with some advisers who have admitted that they avoid discussing LTC with clients altogether because they feel that they have an inadequate understanding of the subject. And when these advisers do offer cash-flow projections that support self-funding, they often do so without considering their clients' preferences and intentions for a specific financial lifestyle and lasting family legacy.
Taking the Steps to Secure a More Certain Future
Many high-net-worth individuals are in that position because of a fiscally conservative lifestyle. Those who are able to self-insure may lack liquidity. Follow the steps that will help you avoid the long-term-care financial trap:
- Have the conversations you need to with your immediate family and key professional advisers about Long Term Care
- Work with a specialist in LTC insurance policies
- Create a written LTC plan
- Give copies of the plan to your advisers and loved ones to assist them in helping execute your estate planning intentions
- Have your attorney draft the documents
- Fund that plan
Then be sure to tell those you care about to do the same.
About The Author:
Bill Borton is Managing Principal of W.R. Borton & Associates, a specialist in asset protection strategies and extended-care solutions for high net-worth clients. Bill's firm develops individually tailored solutions in coordination with each client's financial, tax and estate planning advisors to transfer this long-term care risk using a wide range of available insurance products. Bill can be contacted by phone at 856.817.6100, by email at info@wrborton.com or through the online form on his website.
This article originally appeared on Core Compass.
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