Filling The Income Gap Created by Long-Term CareSubmitted by Reby Advisors | Certified Financial Planners | Danbury, CT on February 27th, 2019
By Devone McLeod, CFP®, February 27, 2019
What is your goal when you’re climbing a mountain? Is it to make it to the top? Or is it to successfully make your way down? In life, we can relate this very same situation to preparing for the future, and growing old when we may need long-term care.
Today, many Baby Boomers have reached the top. Many have completed what we call the “accumulation phase” when they are saving and investing in retirement accounts, and are now entering the “distribution phase” when they will be taking withdrawals from those retirement accounts to generate the income they need to sustain their lifestyles. In other words, they’ve made their way up the mountain and are currently planning their trek back down it.
The trek down is considered successful if the individual or couple can generate enough income to pay for their lifestyle needs without ever running out of money.
The "Income Gap" Problem
It’s fairly straightforward to plan for retirement income needs if nothing ever goes wrong. As you know, unfortunately, that’s not how life works. Risks are a part of life and one of the most serious risks retirees face today is requiring long-term care.
The astronomical cost of extended care often creates a need for additional income that most couples simply cannot afford. They are forced into one of several unappealing options, including burdening loved ones with their care, accepting a lesser lifestyle or even depleting all of their retirement assets.
The statistics speak for themselves. Nearly 70% of people over the age of 65 will need care at some point in their future, and one in five will require long-term care services for 5 years or more! The real problem lies in the fact that most people are unaware that they actually lie within that 70%.
It’s easy to see that those who falsely assume that they’re in the 30% will face tremendous financial consequences at some point in the future. The real consequence is that once they start paying for long-term care, their retirement assets can no longer produce enough income to support their lifestyle and pay for the care that they need.
Below is a graph illustrating the income gap of a couple who could comfortably afford a $100,000 per year lifestyle, until one faced health issues at age 75 and the other was diagnosed with Alzheimer’s at age 80.
Their income needs skyrocketed to well over $190,000 per year. This may cause them to run out of money, forgo the lifestyle they were previously enjoying or spend the money they had planned to leave to their children.
So, when it comes to considering the income gap, it’s best to begin having a conversation with those in your life who you believe will be making decisions with you or for you on your behalf once you reach that age. Be clear in your intentions, in the type of care that you’d like, and if you’d like them to be your primary caregivers. Then, meet with a financial planner to help you determine the right pathway towards ensuring that you have enough money saved for this part of your life.
Your goal in all of this is to give yourself and your loved ones options. Once you have those options, you can make an informed decision on how to address the risk that you may one day require long-term care.
If you would like to learn more about your options, please do not hesitate to call Reby Advisors at (203) 790-4949.
You may also sign up for our upcoming long-term care seminar at www.rebyadvisors.com/ltc