The worst-case scenario for most investors is that they outlive their assets and become a burden to their family. When you work with a financial planner to create a plan, run projections to determine how long your assets might last, taking into consideration what a long-term care event might do to your nest egg.

Health care costs generally have an inflation rate around 5% — well above what we’ve seen in general inflation in recent years, which adds to the reason that health care expenses are often higher than anticipated in retirement. While health care, assisted living, or nursing home care might seem like an idyllic way to spend down your nest egg, most investors prefer to transfer their hard-earned assets to their heirs upon their death.

To preserve your assets, at around the age of 50, you should begin looking at long-term care insurance as a tool to help offset the risk that a serious health event could deplete your retirement assets, leave your spouse in a financially tight position paying for both your mortgage and a nursing home facility, and pass on nearly nothing to your eventual heirs.

An average long-term care event lasts around two and a half years. The cost can vary widely depending on what type of care you require and where you live. A home health aide, with a nationwide average of $4,400 a month, can be far less expensive than a nursing home, which averages $8,500 a month for a private room. Likewise, long-term care costs in Miami — $11,250 per month for a private room in a nursing home — are much different than they are in Atlanta—$8,700 comparatively.

A long-term care analysis in your financial plan should consider your current age and the possible age for a long-term care event, your total assets and the liquidity of those assets, and the kind and level of care you desire. Run projections using a set of assumptions to determine what your assets would look like with and without insurance policies in place. For investors who are well off and could mathematically manage a long-term health care event with the assets they have, the question becomes, “What is the most efficient way to manage this potential cost?”

Often investors have existing insurance policies such as life insurance or annuities, that can be repurposed to diminish the financial risk a long-term care event brings. About 50% of the long-term care policies I see are hybrid options that cover a portion of the long-term care needs. If the long-term care feature is never tapped, the polices retain a payout to the insured’s heirs. The popularity of hybrid policies also reduces the risk of buying insurance that is a use-it-or-lose-it transaction.

Long-term care costs are significant and have the potential to drain your resources for retirement and the legacy you want to leave. The additional stress such an event can place on your surviving family can be exceedingly high should your funding run out. A trusted, independent insurance adviser can help guide you through the options that may work best for you.

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William G. Lako, Jr., CFP®, is an Executive in Residence at Kennesaw State University’s Coles College of Business and a principal at Henssler Financial and a co-host on Atlanta’s longest running, most respected financial talk radio show “Money Talks” airing Saturdays at 10 a.m. on AM 920 The Answer. Mr. Lako is a CERTIFIED FINANCIAL PLANNER™ professional.

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