By Alessandra Malito
Do you have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com
Dear MarketWatch,
We are truly fortunate to have an inflation-adjusted federal pension for life and Social Security of $200,000 per year. We are a 65 year old man and a 69 year old woman. Our income is approximately $125,000 and $75,000 respectively.
We didn’t take advantage of surviving spouse benefits when we retired years ago, which seemed like a good idea at the time. So our plan has always been to self-insure our long-term care and spousal survivorship needs. We would like some help planning for the future.
We also amassed $1.5 million, half in IRAs and savings plans and the other half, from the sale of our real estate assets, in a taxable brokerage account. Our financial advisor instructs us to earn a 5.5% return on the taxable account. We really don’t need or intend to draw on these funds, since our pensions more than cover our needs and allow us to travel three to six months a year. We have no debt or mortgage and pay off our credit cards monthly.
One of the biggest questions is: How much, if anything, should we spend on long-term care? Looking at long-term care policies of the past, the maximum payout was around $360,000. We thought that was the right amount to target.
We have a life insurance policy for 65 year olds for around $300,000 until 2036. Should we look for additional life insurance, or is it reasonable to depend on the nest egg above to cover the costs people with low retirement income? Spouse, since she is not entitled to my Social Security benefits?
See: I’m in my sixties and I own almost a million dollars. My house is paid for. I would like to move but I’m afraid of high prices elsewhere: “Is that okay?”
Dear reader,
It’s truly wonderful to have so much income in retirement from just your pension and Social Security. This will definitely help you in the years to come.
Calculating how much you will need for long-term care can be very difficult, as can trying to figure out how much you need to have saved for retirement in general. There’s no single number to give you, because what you should set aside depends on your health, the state you live in, and many other factors.
Insurance isn’t completely out of the question right now, either. It’s true that long-term care insurance can very easily cost much more than it would have if you had purchased it years ago, but depending on your health and the provider you you choose, you have the choice.
There are also other insurance options. For example, your life insurance policy, or another, might have long-term care riders, such as a death benefit that covers these expenses. “This can provide better tax benefits and secure an amount that is not exposed to market risks,” said Nicholas Bunio, a certified financial planner. Without an endorsement, the death benefit would only be paid upon death.
To determine how much you might need, you can check out Genworth’s Cost of Care Calculator, which helps you predict the cost based on year and time period (monthly, daily, hourly, and yearly). The calculator includes figures for home care, assisted living and nursing homes. Genworth, an insurance company specializing in long-term care, has been tracking these expenses across the country since 2004.
These projections can be a helpful start, said Brenna Baucum, a certified financial planner at Collective Wealth Planning. “The typical need for long-term health care is a little over three years,” she said. “With these two pieces of information, you can get an idea of how much you may need to spend on long-term care.”
But remember that this figure would only be an estimate. To be safe, Baucum recommends increasing projections or seeking additional funding sources if the family has a history of cognitive decline.
Your financial advisor might also be able to direct you to some resources or help you organize your finances so that some of your assets are safe should you need to pay for long-term care. You should also check – or triple check – that your spouse really isn’t eligible for Social Security benefits on your record. The Social Security Administration can explain more.
I’ll end with this: in addition to running the numbers, review – or create! — your important estate planning documents, like a will, health care power of attorney, and anything else you think your spouse should have. You’ve done a great job creating a nest egg and you’re working hard to preserve it. Make sure you have all the documents in place to allow you to take advantage of the hard work you’ve already done.
Readers: Do you have any suggestions for this reader? Add them in the comments below.
Do you have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com
-Alessandra Malito
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10/21/23 1516ET
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