Terry Savage: Funding long-term care insurance

Terry Savage, Tribune Content Agency on

The most unexpected and costly expense of retirement is the need to pay for long-term custodial care — a burden that is not covered by Medicare or supplements. No one wants to think about needing help to eat or shower or do the basic activities of daily living. But you ignore the possibility at your peril.

For 2024, the projected national average cost of assisted living is $5,665 per month, and far higher in major cities. The cost of in-home care — even part-time — could nearly double that amount.

Once you retire, the odds of needing that care increase dramatically. According to the Department of Health and Human Services, “70% of adults who survive to age 65 develop severe (long-term services and supports) needs before they die and 48% receive some paid care over their lifetime.”

My apology for scaring you with this reality check comes with a solution — a relatively new way to pay for long-term care insurance.

Long-term care insurance is expensive — and traditional policies are subject to increases in premiums. That’s led to more interest in a “combo” policy, which combines long-term care benefits with life insurance, so if you don’t need care, your beneficiary gets a death benefit.

The latest twist is a creative way to pay those premiums: You can use your IRA to purchase this policy, pay for it in full over 10 years, get your long-term care benefits tax-free — and have a death benefit if the care portion is not used.


Even better, this policy makes great sense for married couples, who get a big discount on the cost since it covers TWO lives!

Read this section carefully. It revolves around doing a tax-free rollover of a portion of your IRA retirement money into an annuity. (Note: this is NOT the investment annuities I’ve advised you to avoid.) Instead this annuity is designed to pay out once a year for 10 years to directly pay the premium on a life insurance policy that contains a long-term care insurance rider.

That annual distribution to pay the premium is taxable to you, so you’ll receive a 1099 for the annual amount. It can count as part of your RMD if you’re over 73. You don’t actually get the money, since it goes into the life policy, which pays for the long-term care insurance coverage. Once the 10 year payment is completed, there will be no further premiums.

You need a qualified expert in long-term care insurance to work the numbers for you. I turned to Brian Gordon, of Gordon Associates, whose agency specializes in only LTC insurance. He ran some numbers on the costs on the OneAmerica Asset Care policy described above for two scenarios.


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