The idea is to die young as late as possible – Ashley Montague

…and in between those years, particularly without a long-term care insurance (LTC) policy,  one must certainly make sure they’ll have the assets to cover nursing home or in-home care expenses!

But that’s a lot to ask of the portfolio nowadays, given the beating investments took during the 2008 economic debacle, and the paltry interest rates from bonds…not to mention the uncertainty of returns in the long-term.

Indeed, and speaking of ‘long term,’ investors today must take a long-view of the market if they want a decent chance of increasing their portfolios before retiring, or meeting other challenging goals like help send the kids to college or vocational school.

But what constitutes the ‘long term’ view?

Financial gurus say it needs to be “much longer than five years.” As an example, in the five years ending in 2012 the market gave us a “net loss.” But over the past five years, and ending in 2013, the rewards were double-digit annualized gains.

Investors may be swayed by mutual fund companies touting five-year gains in their marketing messages, and forgot about how they should not be expecting the same returns—or better—from those funds in the future.

Still, the stock market returns in that five-year duration have been impressive. For example, by the end of 2013 the market showed the following gains:

• Annualized five-year: 15.4 percent—without adding in dividends!
• Annualized five-year: 17.9 percent with dividends added in.

The best advice for the long-term investor, notes James W. Paulsen, chief investment strategist at Wells Capital Management, always comes back to “basic diversification and asset allocation.”

“If you follow the basics, that’s 80 percent of it,” he said. “Guys like me are trying to improve your returns for what’s left after that.”

In the meantime, it’s always prudent to develop an estate plan that will protect one’s portfolio, including any real estate, from liquidation to pay any future nursing home expense, or assisted living costs, for example.

Making an alternative ‘bet’ on long-term care coverage.

As such, investors looking to add a long-term care policy to their portfolio may have come across the news about the consolidation within this sector of the insurance industry, including the fact that a lot of companies are no longer offering LTC policies.

Moreover, those companies offering coverage today, like Genworth, have instituted huge premium increases to keep this part of their business profitable.

Of course, push-back is not uncommon among existing customers, and some opt to cut out a few of their policy features, such as future “inflation protection” in hopes of keeping premiums unchanged.

The debate about the need for insurance of any kind can be couched in the analogy akin to buying homeowners insurance: if your house doesn’t burn down, you’ll be hard-pressed to find a homeowner who regrets buying it in the first place.

No surprise, then, that some insurance companies have seen an opportunity to offer a type of hybrid-LTC (“combo”) using life insurance, or “retirement-income annuities.” The ‘annuity’ part of the equation is sold as a savings vehicle to lock-in a “lifetime stream of income.”

Generally, a buyer will purchase their “tax-advantage” annuity to fall back on it’s future value to cover care at home, or in a facility. The important thing is to understand that the benefits from these hybrid’ policies can vary enormously.

Yet another option…

Some insurance companies offer a product with “LTC acceleration,” which can provide an “advanced payment” if long-term costs incurred. This feature is used when the payment is close to the actual death benefit of the policy.

Contact us to discuss your estate planning needs, including your options for long-term care, power-of-attorney as well as guidance with veteran’s benefits.

 

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