After a lifetime of accumulating money for a comfortable retirement, it would be a bitter pill to swallow if your plans were dashed because you or your spouse incurred high nursing-care bills. Yet the risk is real. There is a 49 percent possibility that you or your spouse will enter a nursing home after age 65.
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If you believe that paying $148,000 per year for nursing-home care (the estimated cost in 2020) would be difficult or maybe even impossible, consider these options.
Options to Insure Resources for Extended Care
A long-term-care (LTC) insurance policy can be used to help offset expenses stemming from custodial care in your home or round-the-clock care in a skilled nursing facility. The appropriate policy can go a long way toward protecting your financial situation from unexpected LTC expenses.
With a fixed annuity, an individual pays a premium either in a lump sum or over a period of time to an insurance company that agrees to pay a fixed return in the future. Keep in mind that most annuities have surrender charges that are assessed during the early years of the contract if the contract owner surrenders the annuity. Withdrawals other than periodic payments are fully taxable to the extent that they exceed contributions. In addition, withdrawals before age 59 ½ may be subject to a 10 percent federal income tax penalty. The guarantees of fixed annuity contracts are contingent on the claims-paying ability of the issuing insurance company. Contract owners can leave the money in the account until they need it for LTC expenses or any other reason. If it is never tapped, the money can be left to heirs.
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One way a Roth IRA differs from other retirement accumulation vehicles is that withdrawals are not required to begin when the owner reaches a certain age. The account is funded with after-tax money, and qualified withdrawals of earnings are free of federal income tax. Remember, to qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). The money can be used to help pay for LTC or emergency expenses, or for other reasons.
Considering Long-Term-Care Insurance Options
When evaluating your finances, keep in mind the huge potential cost of long-term care. Knowing that there are flexible options may help you better prepare for the possibility that you may someday be faced with this unpredictable expense.