Use leverage to protect your assets and family
Written by Nolan Baker Mark Clair | | letters@toledofreepress.comOne of the biggest concerns we see when folks come into our office for advice is protecting life savings from a health care crisis. As we get older we all realize that time flies by quickly; the clock is ticking on our lives and it is only a matter of time until our health declines and we face our own mortality. I (Mark) turned 50 this year and it seems like yesterday that I graduated from college, got married and had an entire life ahead of me. Fast-forward 28 years and here I am, contemplating the third and fourth quarters of life (if I’m lucky).
My family has both a questionable health history and longevity on my dad’s side and I am hoping I get more of the longevity part. My Grandma Nellie had a heart attack at age 54, survived it and had another 10 years later that she did not survive. All of her brothers and sisters died of heart attacks and her sons — my dad and uncle — succumbed to the same problems. On the other hand, my Grandfather David amazed me by living to the ripe age of 92. Fortunately for many of us, we are living in an age when modern medicine has improved enough to deal with high cholesterol, high blood pressure, etc. As a result, many of us will live to older ages than our parents and grandparents. That does not mean that we will experience perfect health.
According to the Wall Street Journal, a couple turning 65 has a 70 percent chance that one of them will need long-term care. Whether we can believe the statistics or not, many are facing this reality in their own families. My other grandmother lived in a nursing home for six years. My Uncle Don had three strokes and a heart attack all within a year. He stayed in a nursing home for six years and passed away at age 58. This is scary, seeing your loved ones go through this, and it makes you wonder how your own health situation will play out.
When folks come into our office they want to know what magic pill to take to protect all of their assets from a nursing home spenddown. They think they can press a button and preserve their life savings and have the government pay their way if they need care that currently can cost $6,000 to $8,000 per month. Unfortunately, it does not work this way. The government will pay your way, but only after you have used your money first. There are laws that have been put in place that make it very difficult to transfer assets to your children and get government assistance.
Is this type of planning hopeless? No, it is not. The issue is, if you need long-term health care, how will you pay for it? There are basically three ways: out of your pocket, insurance or the government. The drawback to insurance is that it is perceived to be very expensive. Secondly, you have to be healthy enough to get it. Third, what if you never have to use it? Are you needlessly paying for something that is very expensive that you will never need?
Here is an idea: leverage. The definition of leverage is to improve or enhance, the power to accomplish something, a strategic advantage or to add as a supplement to what seems insufficient.” We look at what assets our clients have and determine if we can leverage a portion of those assets to create substantial benefits that they do not currently have. Many times our clients have sufficient income and do not need to draw from their savings and investments. If we carve out some income from savings, we may be able to reposition it into a plan that will provide the benefits we may need later.
Here is an example. Let’s say that there is $500,000 in savings, retirement accounts, etc. A family could take a 1 to 3 percent withdrawal and deposit it into a life insurance policy that has long-term care benefits. We have done this in many cases and have created in some cases another $500,000 of benefits that could be used for long-term care.
And guess what? We all know that death is certain, and if these benefits aren’t used for long-term care, they will pay out in the form of a death benefit to your loved ones. If the numbers make sense, this can be a strategy in which there are very few drawbacks. Of course, this may not be appropriate for everyone and so a thorough analysis should be done first. The Retirement Guys wish you good health and happiness. Protect yourself by not delaying planning until it is too late.
For more information about The Retirement Guys, tune in every Saturday at 1 p.m. on 1370 WSPD or visit www.retirementguysradio.com. Securities and Investment Advisory Services are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group, Inc. nor its representatives provide tax advice. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. (419) 842-0550.
