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The Dilemma of Self-Insuring

Beyond the age of 50, LTC costs are difficult to self-insure.  As noted in Part One, the $673,416 LTC cost for a married couple is hard to offset with investing while appropriately saving for retirement.

Adequate growth is difficult to achieve as most people’s risk tolerance lowers/becomes more conservative as they mature.  This can reduce the upside of potential significant gains in a more aggressive portfolio.  Conversely, should a multi-purposed account be generated, the potential losses in an aggressive portfolio can have an adverse effect when a client’s time horizon is shorter.  Even if an investment account was able to remove volatility risk and maximize excellent returns, it still would lack the leverage of an insurance policy because an insurance policy’s full benefit is available after the first premium is paid.

A married couple at the age of 50 must invest $1,500 a month for 15 years to adequately self-insure their LTC needs. It’s a decent strategy knowing that the chances of requiring LTC becomes greater after 65. However, there are variables that the consumer is unable to control, such as:

  1. Market returns –A monthly investment of $1,500 for 180 months or 15 years will result in a balance of $696,038. This is adequate to cover senior facility expenses at today’s costs, but only if the portfolio returns 11% growth every year.

  1. Inflation – We cannot predict that today’s prices will remain the same. In fact, it is safe to say that LTC costs will rise in the future.  LTC costs have more than doubled in the past 2 years.

  1. Taxes – Retail investment accounts typically have annual tax liability.  Thus, a portion of the gains in the portfolio are going to the IRS.  Consult with your tax professional.

  1. Timing and duration – You cannot predict if or when you will need to stay at an LTC facility, nor can you predict that your stay will last three years.  Therefore, it is impossible to know when to start funding or how much to fund in a multi-use investment portfolio