Last month’s newsletter discussed the importance of cash flow diversification in retirement. But many still worry, in the back of their minds, that no matter how much they have saved, invested and planned, they will run out of money. We’ve also had questions from someone whose parents have run out of money and need care. They are afraid they will use up their own savings taking care of their loved ones.
It is true that most people underestimate the cost of longevity. And Social Security and Medicare don’t completely take care of all people’s needs in older age; Medicare doesn’t cover long-term care expenses.
- If there is no Long-Term Care insurance or enough savings to cover expenses, there are ways to help lessen the problem. Here are some ideas:
- If there is whole life insurance, you may be able to borrow against it.
- If you’re in your sixties or seventies, you could use a part of your assets to buy a longevity-annuity that starts paying out when you are in your eighties.
- This can also be done from your IRA, a Qualified Longevity Annuity Contract (QLAC). This can help reduce your Required Minimum Distributions and pay you guaranteed income after age 85. There are a lot of rules and pros and cons about buying such an annuity which we would be happy to discuss with you.
- Tap into your home to generate income (or your children’s, if they want to help you):
- Use the Equity in the Home to get a loan or you might get a reverse mortgage
- You can downsize and sell your home
- Rent you home or a room in your house and use the rent for the cost of care
- Sell assets, such as art works, jewelry, car, collectibles, be creative
- Spend your savings down enough to qualify for Medicaid. This is how most people fund long term care. Medicaid is the primary payer for long term care. It covers 60% of all nursing home residents.
- Rely on family:
Be cautious about planning for help from your family, as this might cause a burden on your relatives and cause problems after your death, unless you structure it well, legally.- To get an intra-family loan that would be repaid upon your death
- To provide a mortgage that would be paid off by your estate to get care
The best strategy is to review your financial plan annually to be sure that you are saving and investing enough for your spending throughout your retirement and plan in advance for your end of life challenges. When you are already in the retirement phase, review annually you are not spending more than you can afford in the long term.
