Category: Financial Planning

Retirement planning starts with retirement spending. Ideally, retirees are mortgage-free and relatively debt-free before they leave the working life behind. In retirement, a key strategy is to maintain low monthly staple expenses.

Therefore, if you want to devise a financial plan that will allow you to retire early, consider cutting back your basic household expenses a year or more before your target retirement date. Some retirees choose to downsize their home, which also tends to reduce property taxes, homeowner’s insurance and maintenance costs.

Also, use that time to shop for cable, internet, or cell phone plans that may be cheaper and suit your needs in retirement. Be aware that seniors often get additional discounts they may not be aware of, so be sure to explore those options. By reducing your pre-retirement cost of living, you can reduce the amount of income you’ll need after you retire.

Build up Coffers

Another way to plan for retirement is to increase your savings while still earning income. You should have more than the typical emergency fund when you retire – so you won’t deplete it before you die. You also don’t want to have to take large, unscheduled withdrawals from retirement accounts because that would deplete your principal and potentially reduce the ongoing income you receive from those sources.

Social Security

Remember that if you start taking benefits before your official retirement age, you will lock into a lower payout level for the rest of your life. So even if you can afford to retire early, it’s generally a good idea to hold off tapping Social Security until full retirement age or even up until age 70, when you earn additional income credits. Factors to consider in making this decision include your health and life expectancy, needs for income, and other retirement assets. Remember, Social Security will last the rest of your life with cost-of-living increases and no investment market risk, so it is one income source you should wait to maximize as long as you can.

By establishing an account at the Social Security website, you can check your benefit amount at various ages based on current earnings; these projections are updated every year. If you are married, consider both spouses’ benefits as it might be better to start one early while allowing the other benefit to accrue.

Pension

If you expect a pension from your employer, you can request projected payouts to help devise your early retirement plan. If you have the option to receive either annuity payments or a lump-sum distribution, you might want to consult with a financial advisor to determine your best option within the context of your entire portfolio of assets.

Investment Accounts

If you have a 401(k), 403(b), or traditional IRA, remember that once you turn 73, you must begin required minimum distributions if you haven’t already. As a general rule, the common strategy for drawing down invested assets in retirement is to use taxable accounts first, tax-deferred accounts second, and tax-free accounts (e.g., Roth IRA) last. Roth IRAs do not require distributions at any age and can continue to grow throughout retirement.

Rule of 55

There is a legal strategy for tapping 401(k) or 403(b) retirement funds before the age of 59½ without incurring a penalty. The Rule of 55 enables you to make a series of substantially equal periodic payments from a former employer’s retirement plan (not a rollover account) between the ages of 55 (50 for a government defined-benefit plan) and 59½. While this strategy waives the 10 percent early withdrawal penalty, distributions are still subject to income taxes.

Health Insurance

If you wish to retire before age 65, consider your health insurance options.

• Employer-sponsored coverage through COBRA
• Health insurance marketplace plans at HealthCare.gov
• Joining your spouse’s health insurance plan
• Potential discounted coverage through membership organizations (e.g., AARP)

When you become eligible for Medicare, you must apply during the seven-month period that begins three months before you turn 65 and three months after your 65th birthday. If you do not apply during this enrollment period, you may face penalties.

Long-Term Care

If you’re thinking about early retirement, you may not be thinking much about nursing home expenses. However, long-term care can be quite expensive, so it’s important to plan for it early so you don’t run out of money when you need it most. Help from family can reduce the need for paid long-term care in your later years, so you may want to consider moving closer to them before or after you retire. Note that Medicare generally does not cover ongoing long-term care, although it may provide limited coverage for skilled nursing and rehabilitation services.  As a result, you’ll either need to self-fund, purchase some form of long-term care insurance, or spend down your assets in order to qualify for Medicaid long-term care assistance.

An early retirement plan usually involves a number of moving parts, so carefully consider withdrawal strategies and your specific tax situation in order to develop a plan that works best for your circumstances.

Financial windfalls are not uncommon. Every year, entrepreneurs who build their businesses from scratch sell them for millions in profit. In 2024 alone, state lotteries paid out a combined $70.2 billion to prize winners. Additionally, over the next 20 years, around $84.4 trillion in wealth transfers are expected to take place, with $72.6 trillion of this going to heirs and the other $11.9 trillion going to charities.

After scrimping and saving for years, a large windfall of money can seem like a dream come true. However, there are many factors to consider when receiving a substantial sum of money all at once. The key to making a windfall last beyond initial purchases is to think about what you want your money to do for you. If it’s enough to substantially change your life, then you should take some time to figure out what you want your new life to look like. The bigger the windfall, the more time and professionals you’ll need to consult to determine how to manage your assets going forward.

The first step is to answer three questions:

1. What are your short- and long-term financial goals? (And have they – or should they – change after learning about your windfall?)
2. Who should be involved in the financial decision-making? (e.g., spouse/family, financial advisor, tax expert, estate planning attorney)
3. What is the nature of the funds to be received? (e.g., cash, investments, property, a business, etc.)

Do not be rash with large sums of money. It can take three months or more to set up certain accounts, trusts, and various strategies for receiving and managing a windfall. Take plenty of time to make decisions and conduct transactions appropriately to ensure they minimize tax liability and meet your short- and long-term goals.

Speaking of which, start out by making a priority list. It’s a good idea to use a cash windfall to meet the first two goals in the list below before considering other options.

• If you don’t already have one, establish a three to six-month emergency fund in a high-yield, liquid account.
• Pay off debt such as credit cards, auto loans, medical bills, perhaps even your mortgage.
• Consider the merits of allocating funds toward a variety of expenses instead of spending it all in one place. For example, consider the impact of appropriating money to investments in your house, your children’s education and retirement. Spreading your windfall across multiple accounts allows those dollars to grow even if you do not continue contributing – getting started with a little is better than having nothing growing toward those goals.
• Consider how to use the money to make more money. For example, invest in a business or purchase property for rental income and/or equity growth.
• If you’re thinking of making charitable gifts, consider how you can honor your benefactor (assuming the windfall comes from an inheritance) by donating money in their name. You might be able to offset your own tax liability by transferring a portion of the windfall directly to the charitable entity. Also consider creating your own private foundation or directing a donor-advised fund to manage the assets and donate to specific charities; this tactic enables the assets to continue growing for future charitable donations.

Family Business

Should you inherit a family business or partnership, consult with an experienced tax advisor to decide whether to continue participating in the business interest or even use it as collateral for other investments. This strategy positions the asset for continued growth so you don’t have to cash out and pay taxes on gains in order to use the money.

Lottery or Structured Settlement

If you win big with the lottery, you’ll need to decide whether to receive the assets as a lump sum or an annuity. Be aware that when you take the prize money all at once, the IRS automatically withholds 24 percent of the winnings off the top. Furthermore, if your windfall tops $640,600 for a single filer or $768,700 for a married couple filing jointly (2026), it will be subject to federal income tax at the 37 percent top tax rate. That money also may be subject to state and municipal taxes based on local laws. In some high-income-tax states, that could mean you lose half of the winnings.

If you opt to receive money as an annuity (i.e., guaranteed income spread out over time, such as 30 years), the total payout might be cumulatively higher because it spreads out your tax liability. Depending on your long-term income trajectory, you could avoid the highest income tax bracket. Other windfalls that function like a lottery payout include structured settlements from civil lawsuits (e.g., personal injury, wrongful death)and retirement pension plans.

Depending on the amount of money coming your way, it is highly advisable to consult with financial planning professionals, because how fund transfers are conducted and how much money you withdraw each year can greatly influence your tax bill. It is important to solicit one or more opinions to ensure that your financial moves address both your current and future objectives.

If the IRS sends notice that you’re being audited, you’re likely to become anxious. However, not all audits mean you did something wrong. In most cases, it is simply a matter of verifying information on a tax return or perhaps correcting a minor error. Knowing what to expect – and how to respond – can help alleviate stress and make the audit more manageable.

An IRS audit (also referred to as an examination) is a review of your records to confirm that the information on your tax return was reported accurately and follows tax law. The best way to prepare for an audit is to respond on time, present organized and complete records, be cooperative, and communicate professionally.

Technically, most audits are triggered via an automated scoring system referred to as the DIF, which stands for Discriminant Information Function. The system flags something on your tax return that stood out. This could be inconsistencies, missing income, unusually high deductions, or inputs that don’t match information the IRS already has. Here are three key facts about IRS timing for audits:

• The IRS generally looks back three years based on the statute of limitations
• Most audits are related to returns filed within the past two years
• In cases of substantial errors, audits can extend up to the last six years, especially in cases where it is believed that more than 25 percent of gross income was omitted from the filing
• There is no statute of limitations in cases of fraud or failure to file

The Audit Process

Almost all IRS audits start with a letter stating that your return has been selected for examination. This notice will be sent by mail – not a phone call, text, or email. The letter will include the name of your assigned reviewer, his or her IRS identification number, and phone number. You should call the IRS directly to verify this information, as scammers are known to impersonate the IRS to steal money or personal data.

You may be asked to provide a variety of specific documents based on what issue(s) triggered the audit. Be sure to provide copies, not originals. Depending on your situation, the requested documents could include:

• Income records
• Investment statements
• Bank forms
• Receipts and bills
• Canceled checks
• Legal documents (such as divorce or custody agreements)
• Loan agreements and settlement statements
• Travel logs, diaries, or ticket stubs
• Medical and dental records
• Theft or loss of documentation (insurance claims, photos, police reports)
• Employment records
• Schedule K-1 forms for partnerships or S corporations

The following are the three types of IRS Audits:

Correspondence Audit – These are the least complex and are conducted entirely by mail. Sometimes the IRS simply identifies a math error or missing income and asks for payment or clarification. You can either pay the amount due or respond with documentation if you believe the IRS is incorrect.

Office Audit – An office audit requires you to visit an IRS office with the requested records. You will receive an Information Document Request (IDR) form detailing what to bring. Showing up with organized records can help resolve these audits quickly.

Field Audit – The field audit is the most extensive. An IRS agent will come to your home or business to review records. Although you will receive an IDR in advance, the agent may decide to escalate the review if he notices any “large, unusual or questionable” (LUQ) items.

The key points to remember are that poor recordkeeping and/or lack of cooperation tend to trigger a more detailed and time-consuming audit.

Once the Audit Is Complete

After the audit, the IRS will issue a report describing its findings. It may determine that no changes are necessary to your return; that you owe additional tax; or that you may be owed a refund. Should you disagree with the findings, you have options:

• Request to meet with an IRS manager
• Use mediation or alternative dispute resolution
• File an appeal with the IRS
• Take the case to court if necessary

If you agree with the audit findings, you’ll need to sign the examination report and choose from various payment options if you owe any taxes.

Hurricanes, floods, wildfires, tornadoes and earthquakes are becoming more severe and more frequent with each passing year. Without sufficient protection, these events can cause lasting financial disruption. While no one can prevent a natural disaster, preparing your finances in advance is one of the most practical forms of crisis readiness.

Build a Financial Safety Net

Save at least three to six months of essential living expenses in a liquid account that you can access quickly. This money can help cover temporary housing, food, transportation, or medical needs if your income is disrupted or your home becomes uninhabitable.

In addition to emergency savings, keep a small amount of cash on hand (e.g., $200 to $500 in small bills). Be aware that many businesses accept only cash in the immediate aftermath of a disaster, as power outages often disable ATMs and card readers.

Protect Important Documents

Organize key documents and store them in a waterproof file cabinet or container to help you quickly file insurance claims or request disaster assistance. It is a good idea to keep paper copies on hand since power or cellular outages may prevent access to cloud storage online. Other records to keep easily accessible include driver’s licenses, passports, Social Security cards, insurance policies, birth and marriage certificates, and military or medical documents. It is also wise to leave copies with a trusted family member or friend who lives outside your immediate area.

Document Your Home and Belongings

After a disaster, you can speed up insurance claims processing by proving what you owned and its pre-disaster condition. Take photos or videos of every room in your home, including closets, cabinets, and storage areas. Capture serial numbers, brand names, and high-value items. Remember to update this home inventory periodically – especially when you make major purchases. Store the documentation in the same secure location as your important records.

Review and Strengthen Insurance Coverage

You should review your homeowners or renters’ insurance regularly to confirm that coverage amounts reflect current replacement costs. Many times, homeowners and renters discover too late that there are gaps or exclusions in their coverage that will cost them thousands in out-of-pocket expenses. Be aware that standard policies often exclude damage from floods, earthquakes, and in some cases wildfires (although not as broadly excluded), depending on your location. Consider supplemental policies for these conditions if you live in a high-risk area. Also, check to see if your auto insurance covers damage by flooding or debris. Set aside enough money in your emergency savings account to pay for insurance deductibles, and keep your insurer’s contact information and policy numbers stored on your phone for easy access.

Guard Against Fraud and Financial Disruption

Disasters often attract scammers posing as contractors, insurance representatives, or aid organizations. Legitimate disaster assistance programs do not require advance fees, so be wary of anyone requesting upfront payment or your personal financial information. It’s a good idea to enable alerts and multifactor authentication on your banking and investment accounts for extra security.

Plan for Logistics and Communication

Financial preparedness extends beyond money and paperwork. Before a storm or evacuation, fill your vehicle’s gas tank and gather essential supplies, including medications. Charge phones and power banks, and consider portable battery chargers for small devices. Also, create a family communication plan so everyone knows how to check in if normal communication channels fail. Designate an out-of-area contact person who can relay information if local networks are overloaded.

Take Action After the Disaster

If a disaster affects your ability to pay bills, contact lenders and service providers immediately.. Some lenders may add a natural disaster code to your credit report or offer hardship accommodations, which can provide context to other lenders, but they do not automatically prevent credit-score damage. If necessary, register for federal disaster assistance as soon as possible. Timely applications can help cover housing, repairs, and other essential expenses.

Know Your Risk

Finally, understand the climate risks specific to where you live. While certain locations are more appealing, they may come with higher exposure to flooding, fires or storms. Being informed allows you to prepare and make better long-term financial decisions. With organization, preparation, and awareness, you can face emergencies with greater confidence and resilience.

When investors think about building a strong equity portfolio, U.S. stocks often dominate the conversation. The United States is home to many of the world’s most innovative, profitable, and well-known companies, and has a history of delivering strong long-term returns. However, the United States is not the only country with successful, growth-oriented businesses. In fact, nearly half of the global equity market is located outside the United States, offering investors a much broader opportunity than in domestic markets alone.

Despite this reality, many investors stick to a home country bias. This behavioral tendency means they prefer companies headquartered in their own country because they’re more familiar and feel safer. Unfortunately, home country bias can unintentionally increase portfolio risk. A singular concentration of investments in one geographic region exposes investors to country-specific economic cycles, policy changes, and market disruptions, while limiting access to attractive opportunities elsewhere in the world.

Global investing offers the following benefits:

• Overall Diversification – Spreading investments across different markets, sectors, industries, companies and currencies in various countries improves opportunities for higher growth potential while balancing risk.
• Highly Regarded Brand Names – Investing internationally offers access to a larger universe of well-established global brands. Household names such as Toyota, Nestlé, and Samsung are headquartered outside the United States, yet they generate revenues throughout the world, boasting strong balance sheets, consistent cash flow, and favorable long-term prospects. International stocks offer investors exposure to global innovation and consumption trends beyond U.S. markets.
• Sector Diversification – In recent years, the U.S. stock market has become saturated with information technology and related industries – even among broad market index funds. While tech is a powerful growth driver, this concentration increases portfolio risk if the sector underperforms. International markets tend to have greater representation in other sectors, such as industrials, financials, materials, and consumer staples, so adding international stocks can help diversify overall sector exposure.
• Currency Diversification – International investing exposes U.S. investors to foreign currencies, which reflect the economic conditions of their respective countries. Because currencies do not always move in tandem, holding assets denominated in multiple currencies can help reduce overall portfolio volatility. For example, if the U.S. dollar weakens, gains from foreign currencies may partially offset losses in U.S. dollar-denominated investments. While currency movements can add risk in the short term, they may provide an additional layer of diversification over the long term.
• Country Diversification – International investing extends beyond developed markets to include emerging economies around the globe. Emerging markets are countries experiencing rapid economic growth, industrialization, and rising household incomes. Examples include India, Brazil, South Korea, and Taiwan. While emerging markets can offer higher growth potential, they also tend to be more volatile. For this reason, investors should consider allocating only a modest portion of their international exposure to emerging markets as part of a diversified strategy.

Diversify Risk Via Your Investment Vehicle

While international stocks offer diversification and growth potential, they also come with distinct risks, including regulatory differences, lower market liquidity, and political instability. Also note that international investments may involve higher transaction costs compared to domestic securities, especially when purchasing individual foreign stocks

Investors can help mitigate these risks by choosing inherently diversified investment vehicles, such as international mutual funds and exchange-traded funds (ETFs). Broad index-tracking funds are often the most cost-effective way to gain exposure, while professionally managed mutual funds can actively navigate changing global conditions.

International stocks provide access to companies, markets, and currencies that cannot be reached through domestic investments alone. When thoughtfully integrated into a portfolio, they may enhance diversification and improve long-term risk-adjusted returns.

Wiring money is like sending cash: Once you’ve sent it, it’s gone. It is very difficult to retrieve – in fact, more difficult than recovering physical dollar bills.

For businesses, always call the recipient to verify ACH details before sending; this is required by law in 50 states. This law does not require calling, but if the sender’s or recipient’s email is hacked, calling will help prevent the hacker from changing ACH details in a hacked email account.

If wire fraud takes place due to a security breach, such as a hacker infiltrating your account and initiating a wire transfer, you may have protection. Reputable financial institutions will generally cover your losses in the case of a cyber attack. Recoverability is dependent, however, on whether the wire was properly authorized or unauthorized and the payment type (wire vs. ACH).  However, if you fall for a scam and initiate the wire transfer yourself, you’re probably out of luck.

Another scenario is having an incorrect address or account number in your wire transfer instructions. For example, say you want to send a large sum of money to your lender to pay off your mortgage. It’s a good idea to contact the institution directly (by phone or in person) and ask them to tell you where to send your wire transfer to match it with the printed instructions you may have received. Always proofread the wire transfer instructions carefully.

Should you accidentally transpose the numbers in a wire transfer, you could lose that money. If you contact your bank immediately to report the error, they may be able to recall the funds. However, if the recipient has already accepted the transfer, particularly if they have transferred the money elsewhere, it is almost impossible to recover.

Remember, wire transfers settle quickly and are typically irreversible once accepted. That is why they are one of the prime targets for cybercriminals. If you are unfamiliar with the person or institution where you are wiring money, research them first to confirm their identity and see if there are any complaints or red flags associated with the entity. If you had no reason to initiate the wire transfer before being contacted, you should be especially suspicious.  Be extremely skeptical of unsolicited urgent requests, especially when instructions change, or you can’t verify independently

The following are some common scams perpetuated today.

Bank Fraud

Your bank or investment firm calls you directly to alert you to a possible scam; someone is attempting to hack into your account and steal your money. They may even verify your account with details they have obtained – such as your name, address, and perhaps even your Social Security and account numbers. Rather than an affirmation of their legitimacy, this should be a red flag. First of all, no legitimate financial institution or government agency would relay this information over the phone. Second, a fraudster may tell you the best way to block the potential hack is to open a new account and transfer your money there. This is a red flag. Third, the scammer may insist that time is of the essence – you must act immediately before your money is stolen.

If you get a call like this, hang up and either call (the number on your statement or debit/credit card) or visit your local bank branch to inquire about the call. Chances are good that the bank will confirm there is no breach and that your account is safe.

Dating Apps

Dating apps are the 21st-century version of blind dates. According to Statista, more than 60 million Americans used dating apps in 2024. Instead of meeting organically in a bar or at a party, users peruse dating profiles to find a prospective mate. Unfortunately, these platforms are rife with money-seeking predators – and they can be very patient.

Many online relationship predators interact for months before the scammer mentions that he or she is having money trouble. They may even wait for their paramour to offer money to help them out. Remember that the red flags apply – you didn’t initiate the need. The need for funds should never be immediate. You should research and verify the legitimacy of any person who would agree to accept money from someone they met online. Remember, once you send money, you may never hear from that person again. Or they may continue to interact, but you could get another request for funds a little further down the road.

One way to detect a dating app fraudster is by noticing clues that they are not who they claim to be. For example, many scammers live in other countries. They may not be familiar with common local interests in the town or city where they say they are from. Or, you may notice unusual grammar or phrasing in their communications, indicating English is not their native language.

The Friend or Relative Scam

One of the most heart-rending scams is when a person – often a senior citizen – is asked by a struggling friend or family member to send money. For example, a grandchild away at college who says she doesn’t want her parents to know she needs money. Pulling at the heartstrings, paired with aging cognitive decline, is a recipe for wire transfer fraud. It’s a good idea to establish a “family password” with which to verify proof of identity for suspicious scenarios. Also, call the family member or friend back at a known number for verification before sending money.

Investment Scam

The too-good-to-be-true investment opportunity is an old scam still used today, often to entice the purchase of cryptocurrency with cash. As with all these potential scams, do your due diligence and confirm the legitimacy of the receiver and their details.

The best way to prevent money wire fraud is to stay up to date with the latest scams and trust your gut: Do not act until you have thoroughly researched the details.

Campaign messaging would have you believe retirees just scored a major victory. The talking point is everywhere: Social Security benefits are now tax-free. But anyone who reads the One Big Beautiful Bill Act will discover something different. The legislation contains nothing that removes Social Security from federal taxation. Zero provisions. The tax structure that has applied to benefits for over four decades remains fully intact.

So, what did pass? A new deduction aimed at older Americans. And through some rhetorical gymnastics, that deduction is being sold as something it fundamentally is not.

A Deduction Is Not an Exemption

The OBBBA creates an additional deduction exclusively for seniors. Single filers get $6,000 while married couples receive $12,000. This stacks on top of what they already claim through the standard deduction, lowering their overall taxable income.

For retirees whose financial situation falls in a particular range, this extra write-off might be enough to cancel out whatever portion of their Social Security would normally face taxation. But here’s the catch: the deduction applies to all income equally. It doesn’t single out retirement benefits for protection. If your earnings came entirely from investments or a workplace pension, the math would work identically.

Decades of Unchanged Rules

Federal taxation of Social Security benefits dates back to 1983. President Reagan signed that change with support from both parties, making up to half of benefits taxable for seniors with higher earnings. Then in 1993, Congress and President Clinton pushed the ceiling higher. Under current rules, as much as 85 percent of benefits can count toward taxable income for upper-income retirees.

None of that changed with this bill.

The thresholds determining who pays what have remained frozen since the Clinton era. Single filers earning under $25,000 and couples under $32,000 owe nothing on their benefits. Those in the middle tier face taxes on up to half. And couples bringing in more than $44,000 can see 85 percent of their Social Security added to their taxable total.

Because these cutoffs have never adjusted for inflation, more retirees get pulled into taxable categories every single year. The OBBBA leaves this problem completely unaddressed.

Looking at the Administration’s Own Math

Treasury Department calculations highlighted by the White House reveal how limited the benefit truly is. Picture a single retiree receiving $40,000 annually from Social Security alongside another $40,000 from retirement accounts like an IRA or 401(k). Current law would put their 2026 tax bill at $7,190. Under the new legislation, the amount drops to $5,685, a reduction of roughly $1,500. The senior deduction accounts for approximately $900 of those savings.

Helpful? Sure. But this person still owes thousands in federal taxes. Their Social Security benefits remain part of the calculation. The deduction simply chips away at overall liability without treating retirement benefits any differently than other income sources.

Temporary Relief with Built-In Limits

Unlike corporate tax provisions and cuts benefiting wealthy taxpayers, which received permanent status in the bill, the senior deduction disappears after 2028. It was written with an expiration date from the start.

Income limits further narrow who benefits. Single filers with earnings above $75,000 and married couples exceeding $150,000 see the deduction phase-out entirely. Ironically, these higher-earning retirees facing the steepest Social Security taxation are exactly the ones shut out from this supposed fix.

Conclusion and Why This Framing Succeeds

Announcing a supplemental deduction for older taxpayers generates little excitement. Declaring that Social Security taxation has ended makes waves. Political strategists understand that most people absorb information through headlines rather than legislative analysis. Few voters examine IRS guidance or compare statutory language.

The outcome is clever stagecraft masquerading as meaningful reform. Benefits remain taxable under the same formulas established decades ago. Inflation continues to drag more retirees across taxation thresholds, and this temporary, income-restricted deduction is merely wrapped in revolutionary packaging.

In 2024, the median household income in the United States was $83,730. However, the national average annual cost of 24-hour paid long-term care (LTC) for a retiree age 65 and older was more than $125,000, according to the Department of Health and Human Services. Moreover, one in five seniors will require care for more than five years.

Obviously, the math varies by household, but the reality is that the majority of older Americans who rely on paid caregiving will use much of their retirement savings and investments to pay for it. When considering insurance, there are presently two options: Long Term Care Insurance (LTCi) and Hybrid Life Insurance with an LTC component. Be aware that each policy offers a throng of variations and exclusions, so it is important to dig into the details of individual policies before making a decision.

Long Term Care Insurance

Purchasing a long-term care insurance policy can help offset the cost of caregiving for either in-home care (in some cases, even payouts for family caregivers) or care outside the home (e.g., adult daycare services, assisted living, memory care, nursing home). However, it’s important to understand the following about LTCi.

It can be quite expensive.

Premiums can range from $2,000 a year for a man in his 50s to more than $12,000 a year for a woman in her 70s. Furthermore, premiums increase annually until benefits begin (premiums cease while benefits are paid).

It may not cover the full cost of care.

Unless care is needed for only a few hours a day, long-term care policies generally do not cover the full cost of paid caregiving. For example, let’s say a policy pays $150 a day, but the owner needs care for eight hours a day. His in-home caregiver charges $30 an hour. That means his cost is $240 a day, so he’ll have to pay the additional $90 a day out of his own pocket. That’s

up to $2,790 a month or $32,850 a year. So, while LTCi can help defray the cost, someone who needs extensive care must have other assets to cover the rest of the cost. For an elderly person who needs 24-hour home care, the cost can be exponential.

Many new policies cover only a handful of years.

When you purchase an LTCi policy, you choose from various options that increase or decrease your premium. For example, coverage periods may range from two years to five years to life. You may also select a waiting period before coverage begins after purchase, which could range from 30 days to 365 days. The longer the wait period, the lower the premium. If you have an immediate need for coverage, you might be denied coverage altogether. That is why it’s best to purchase coverage when you are younger (50s) and presumably healthy.

You don’t get to choose when to start benefits.

LTCi coverage doesn’t kick in until you qualify, which generally means you are no longer able to independently conduct some or all of the prescribed daily living activities. The five primary qualifiers are bathing, going to the toilet, dressing yourself, feeding yourself, and the ability to move from bed to chair/wheelchair. Qualification to begin taking LTCi benefits usually requires physician verification.

The downside of a standalone LTCi policy is that it is a “use-it-or-lose-it” type of contract, much like auto or homeowner’s insurance. In other words, you may pay for it for decades but never actually use it, so all the premiums paid are lost.

Hybrid Life/Long Term Care Insurance

On the other hand, a hybrid insurance policy will pay out some portion of unused proceeds to beneficiaries upon the death of the policyowner. A hybrid policy is basically a life insurance policy with an LTCi rider or an accelerated benefit clause, which, either way, means it will cost more.

First and foremost, it works just like life insurance – once the owner passes away, the beneficiary receives a payout. However, if the owner needs money to pay for long-term care while he is still alive, he can tap the rider or life insurance payout to pay for the care. Then, when he passes away, his heirs receive any amount of the unused proceeds. With this type of policy, the owner doesn’t pay for LTCi coverage he does not need, but it’s available if he does need it.

Premiums for a hybrid policy, like any life insurance, depend on the age, gender, health, and amount of insurance proceeds desired, as well as any additional charge for the LTCi rider. Some policies include LTC benefits as a standard feature.

Employer-Sponsored Benefit

If your employer offers long-term care insurance as a voluntary benefit, it’s worth considering because group rates are generally cheaper than on the individual market. However, while employer-sponsored LTCi policies are usually portable – meaning you can keep paying for it after you leave your employer – your premiums may increase when no longer part of the group policy.

As always, reach out to a professional when it comes to planning for you and your family’s future care.