The scariest part of retirement is the need for long-term, non-skilled health care — a cost that can easily wipe out all your retirement savings in just a few short years.
Just check out the prices for nursing homes and home health aides at Caregiverlist.com, and you'll see how quickly you can run through your retirement savings, leaving nothing for a surviving spouse or as a college fund for your grandchildren.
But, there is a new way to plan for the need for custodial care: by using combination products that use life insurance or annuities to fund long-term care costs. If you have retirement savings that are now invested conservatively in bank CDs and money funds (earning basically nothing currently), now may be the time to “reposition” some of those retirement assets to do “double duty” as a source of funding for long-term care, just in case.
These fast-growing products are based on either a life insurance policy or an annuity, which allow your money to grow tax-deferred. This pool of money inside the insurance contract can be used to pay for long-term care if it is needed. But if you don't use some or all of the money for that purpose, it remains an asset that can be left to your heirs.
There's no “use it or lose it” feature with these combo policies. And there's no worry about rising premiums as there would be with a straight LTC policy. Plus, unless the money used to pay for the policy comes from an IRA, all withdrawals to pay for care come out tax-free.