A medical crisis can derail a senior’s best-laid retirement plan. Here are five ways to defend against a costly long-term care event.
In the sports world, it’s called being a two-way player: someone with the skill to play strong defense to complement a good offensive game.
Having a strong two-way game is important for any advisor, but defensive skills—namely, wealth preservation expertise—are particularly important for advisors who serve senior clients. For many clients in or nearing retirement, preserving assets is fundamental to a wisely planned retirement, one that accounts not only for a person’s income needs for life and a desire to leave a financial legacy to heirs, but also one that protects an individual’s nest egg from one of the biggest threats to living a comfortable lifestyle during retirement: an asset-draining health-care event or medical crisis.
“When the discussion with a 60-plus client turns to the things that could blow up a retirement plan, the first thing we usually talk about is an unexpected health-care crisis,” says Nolan Baker, CSA, an advisor at Retirement Specialists of Northwest Ohio, Maumee, Ohio.
There’s a strong likelihood unforeseen health and medical issues will affect some, if not many, of your senior clients. The onus thus is on you to take the necessary defensive steps to protect those clients on the health-care/medical front. Taking those steps with clients might not seem as glamorous as hitting a home run on an investment pick, for example, but playing good defense has its own rewards, says Baker. “In my opinion, it’s an absolute game-changer. You are making a difference for your clients and their families. And in doing so, it could change your business financially.”
1. Assist them with long-term care planning. As valuable as it can be as an asset-protection vehicle for seniors during retirement, traditional long-term care insurance (LTCI) remains a tough sell, due largely to its relatively high cost. Rather than discussing LTCI as a way to cover potentially high nursing home costs, Baker takes a different approach. “People really don’t want to hear or think about them slowing down and eventually going into a nursing home,” he says. “So I say, ‘Let’s develop a plan to keep you out of a nursing home and to maintain your independence during retirement.’ ”
To that end, Baker says two options stand out as solid alternatives to traditional LTCI. One is an indemnity-type LTCI policy that distributes benefits as disability income, in cash, based on the policyholder’s health condition, with full discretion as to how that cash is spent. “It’s extremely comparable in cost to traditional [LTCI], but it’s much less restrictive and it’s flexible. To make it affordable, you don’t have to go for the big, $7,000 or $8,000 per month cash benefit. Something in the $1,000 to $2,000 range can go a long way.”
For clients who balk at the prospect of paying for a LTCI policy they may never use, Baker also likes a hybrid life insurance product that includes optional asset-based LTCI protection. Not only do these so-called linked benefit life-plus-LTC policies allow policyholders to tap the policy to cover long-term care (LTC) costs (on a tax-favored basis, no less), if they never need to use the policy’s LTC feature, that money stays inside the policy, ready to eventually be passed on to beneficiaries, notes Baker. “The client or their family is going to get something out of it one way or another.”
2. Build inflation protection into the client’s portfolio. Inflation on a macroeconomic scale is relatively low these days, but according to Thomas F. Scanlon, CFP, CPA, a Raymond James- affiliated advisor in Manchester, Conn., “it’s a real issue” for health-care and medical-related costs, with double-digit year-to-year health insurance premium and cost-of-care increases the norm for many clients.
Increases of that magnitude can wreak havoc on a senior’s retirement nest egg. So according to Scanlon, it might be worthwhile to consider building an inflation hedge into a client’s investment portfolio, using investments such as real estate and commodities that historically have provided a solid counter to inflation.
Another way to protect the nest egg is by purchasing an LTCI policy with some kind of inflation-protection rider.
“When the discussion with a 60-plus client turns to the things that could blow up a retirement plan, the first thing we usually talk about is an unexpected health-care crisis.” ~Nolan Baker, Retirement Specialists of Northwest Ohio
3. Help them with Medicare and Medicaid planning. Bureaucratic behemoths that they are, Medicare and Medicaid programs are confounding and confusing for many seniors. With so many variables and moving parts, questions about eligibility, access, benefit levels and the need for Medigap (supplemental) insurance abound. What’s more, observes Baker, access to Medicaid benefits has become increasingly restrictive.
All of which makes an advisor’s ability to offer Medicare and Medicaid planning invaluable to clients. For example, an advisor who has a strong grasp of Medicaid qualification requirements can help a client position assets in order to qualify for Medicaid benefits. In some cases, says Baker, accessing those benefits is the key to preserving a client’s nest egg. So having a firm handle on which assets are “countable” and which aren’t for the purposes of determining Medicaid eligibility can be a difference-maker.
4. Show them how to take full advantage of the benefits to which they’re entitled. Imagine the good will you might generate by telling a client they’re eligible for a little-known federal program that could cover as much as $24,000 a year of their long-term care costs. According to Baker, that’s exactly what certain qualified military veterans may be entitled to under an often-overlooked benefit available to vets (and their widowed spouses) who served at least 90 days of active duty during wartime, were honorably discharged from service, and who are over age 65 and/or permanently disabled.
The tax code is full of these kinds of tax breaks. For example, notes Scanlon, provisions enacted in 2010 make distributions from qualified combination life (and combination annuity) contracts tax-free when used to cover the cost of long-term care. Advisors who make the effort to learn about provisions like these put themselves in position to spring some very pleasant surprises on clients.
5% of Medicare enrollees were living in LTC facilities in 2007, up from 4.5% in 2006.
Source: CDC, Allison Bell, LifeHealthPro.com
5. Be a go-to resource on health-care/medical insurance issues. Few issues concern senior clients more than health care. It may fall into the category of “above and beyond the call of duty,” but advisors who have an ability to explain to clients the health insurance options that strike the right balance between coverage needs and cost give themselves a solid way to differentiate themselves from the crowd.
Follow that advice with a referral to a knowledgeable, trustworthy health insurance agent who can walk the client through the policy purchase process, and you’re well on the way to creating another reason for that client to trust you with more business and to recommend you to others. Sometimes the best offense is indeed a good defense.