Long-Term Care Planning Month

You’ve got your investment portfolio on track, tax-reduction strategies in place, and a nest egg ready to weather market fluctuations. But there’s one hidden cost that could derail your carefully made plans. Can you guess what it is? Let’s dive in and see if your retirement planning is truly bulletproof.

Did you guess correctly? October is recognized as Long-Term Care Planning Month, making it the perfect time to focus on one of the biggest hidden costs Iowa retirees can’t afford to overlook—long-term care.

While many nearing retirement concentrate on building a secure financial future, few adequately plan for these unexpected and significant expenses. These costs can not only impact one’s quality of life but also rapidly deplete retirement savings.

At Johnson Wealth and Income Management, we understand these complexities and the potential strain these costs can impose on a retirement plan.

In this blog, we’ll explore the importance of long-term care planning, debunk common misconceptions, and explain how our team can help you prepare for these often unexpected expenses, helping ensure your financial future remains secure.

Why Long-Term Care Matters for Wealthy Iowans

When planning for retirement, many high-net-worth individuals underestimate how much long-term care can cost and how those costs can erode even a well-built retirement portfolio. According to the U.S. Department of Health and Human Services, approximately 70% of individuals over age 65 will need some form of long-term care services during their lifetime. While this statistic is sobering for everyone, it poses a unique challenge for HNWIs.

Even though HNWIs may be in a better financial position than most, the high costs of quality long-term care can still substantially drain retirement savings if not properly planned for. In Iowa, the average annual cost for a private room in a nursing home is around $110,904, while assisted living costs can range from $30,000 – $80,000 per year. Home healthcare services, although preferable for many, also average $32/hour for basic support services.

As lifespans continue to increase, wealthy retirees may find themselves needing care for many years, if not decades. Without careful long-term care planning, these costs could derail retirement goals and limit the ability to leave a lasting legacy for future generations.

The Rising Costs of Long-Term Care

It’s no secret that healthcare costs are on the rise, and long-term care is no exception. According to Genworth’s Cost of Care Survey, long-term care costs have been steadily increasing at a rate of 3-5% annually, and there’s little indication this trend will slow down anytime soon. For high-net-worth retirees who plan on maintaining a high standard of care in the future, it’s imperative to account for the growing expenses in their retirement strategies.

In Iowa, long-term care facilities that cater to more affluent clientele are often in high demand, driving up costs even further. Premium retirement communities and specialized care facilities that offer concierge-level services come at a premium, but failing to plan for these escalating costs could mean having to settle for less-than-ideal options when the time comes.

Common Misconceptions About Long-Term Care and Costs

While long-term care is a crucial component of retirement planning, it’s frequently misunderstood. Here are some of the most common misconceptions:

Medicare Will Cover Long-Term Care: One of the biggest myths surrounding long-term care is that Medicare will cover all related costs. In reality, Medicare provides limited coverage for specific types of short-term care, like rehabilitation after surgery, but it does not cover the majority of long-term care services, including nursing home stays and in-home care.
My Family Will Take Care of Me: While family members often hope to take on caregiving roles, they may not fully understand the emotional, physical, and financial toll of long-term care. For high-net-worth retirees, placing this burden on family members can be overwhelming and can strain family relationships.
I Have Enough Savings to Cover It: Many wealthy retirees believe they can self-insure against the costs of long-term care. However, without a strategic plan in place, the compounding costs could easily deplete even the most well-structured portfolio.
Long-Term Care Insurance Isn’t Worth It: Traditional long-term care insurance (LTCI) policies have evolved in recent years. Today, there are hybrid products that combine life insurance with long-term care coverage, providing more flexibility and value for retirees.

Other Common Unexpected Expenses in Retirement

In retirement, many individuals encounter unexpected expenses that can significantly impact their financial stability. Here are some of the most common and potentially substantial costs retirees should be prepared for:

Unexpected Repairs and Maintenance: Aging homes require more upkeep. Major expenses can arise from roof replacements, plumbing issues, or electrical upgrades. Modifying homes for accessibility can also involve significant renovations.
Transportation Costs: Older vehicles may need more frequent repairs, and retirees will eventually need to replace them. For those who choose not to drive, costs associated with public transportation or rideshare services can add up over time.
Hidden Taxes: Withdrawals from retirement accounts like 401(k)s and traditional IRAs are taxable. Many retirees underestimate the tax implications of these withdrawals, and rising property taxes can strain monthly budgets.
Insurance Premiums: Insurance transfers the financial risk of life’s events to an insurance company. A sound insurance strategy can help protect your family from the financial consequences of those events. A strategy can include personal insurance, liability insurance, and life insurance. Health insurance and long-term care insurance premiums may also rise over time, potentially adding unexpected expenses as you age.

Preparing for Unexpected Expenses in Retirement

Iowans approaching retirement, especially high-net-worth individuals, can take several proactive steps to plan for long-term care while keeping their retirement income intact. Here are some effective strategies to help safeguard your retirement income:

Create a Detailed Budget: Start by developing a detailed budget that accounts for both expected and unexpected expenses in retirement. This should include everyday living costs, healthcare, travel, and potential long-term care needs. A well-planned budget can help you allocate your resources effectively and anticipate future financial demands.
Incorporate Long-Term Care Insurance (LTCI): Purchasing long-term care insurance can help cover the cost of services such as nursing home care, assisted living, or in-home care. This can help protect your savings and income from being depleted by healthcare costs. You may also want to consider hybrid insurance products that combine life insurance or annuities with long-term care benefits. These products provide flexibility by offering long-term care coverage while also maintaining a death benefit or income stream if care isn’t needed.
Set Up a Health Savings Account (HSA): If you’re enrolled in a high-deductible health plan (HDHP), consider contributing to a Health Savings Account (HSA). HSAs offer tax advantages that allow you to save for future medical expenses, including long-term care, on a tax-free basis. The funds roll over year to year, and withdrawals for qualifying medical expenses, such as long-term care services, are tax-free.
Consider Annuities: Consider incorporating certain annuities into your retirement portfolio. The right annuity can provide a steady income stream while offering options to cover unexpected healthcare costs. Be sure to consult with a fiduciary advisor to assess the risks and benefits of different annuity products to find the right fit for your financial situation.
Create a Long-Term Savings Strategy: Consider setting aside funds specifically for future long-term needs. Building a separate reserve or savings account for unexpected expenses helps ensure that your primary retirement savings, such as your 401(k), IRAs, or other investment portfolios, remain intact.
Explore Family Caregiver Options: Some families may choose to set up a family caregiving agreement, where family members are paid for providing care. This can be a cost-effective way to manage care needs while keeping some care within the family, rather than relying on expensive external facilities. However, this strategy must be balanced with the potential physical and emotional toll on family members.
Consider Continuing Care Retirement Communities (CCRCs): Moving into a Continuing Care Retirement Community (CCRC) is a way to pre-plan for long-term care. These communities offer a range of care options, from independent living to full-time nursing care, allowing residents to transition as their needs change. Planning for this early helps ensure that you have a secure living environment in place.
Medicaid Planning: If long-term care expenses are likely to exceed your retirement income, consider Medicaid planning. Though Medicaid is a needs-based program, it can help cover long-term care costs for those who qualify. However, planning must be done years in advance (due to Medicaid’s five-year look-back period) to avoid penalties.
Regularly Review and Adjust Your Plan: Periodically review your budget, savings, and investment strategies to ensure they align with your current financial situation and future goals. Adjust your plan as needed to respond to changing circumstances.
Diversify Your Income Sources: Invest in a diversified portfolio that includes various asset classes (stocks, bonds, real estate) to create multiple income streams, reducing reliance on any single source.
Consult with a Fiduciary Advisor: Work with a fiduciary advisor who can help you develop a comprehensive retirement plan tailored to your needs, including strategies for managing unexpected expenses, insurance options, and more.

How Johnson Wealth and Income Management Can Help

At Johnson Wealth and Income Management,

we understand that retirement planning extends beyond simply accumulating savings; it involves preparing for unexpected and often significant expenses that can arise during your retirement years. Our dedicated team is committed to helping you navigate these challenges and helping to ensure that you are financially equipped for a comfortable retirement.

Here are key ways we assist our clients:

Retirement Planning: We take a holistic approach to retirement planning, assessing your entire financial picture to identify potential risks and opportunities. This includes analyzing your income sources, expenses, investments, and savings to create a tailored plan that addresses both anticipated and unforeseen costs.
Insurance Planning: We assist clients in understanding which insurance products best suit their financial situation and retirement goals. We help you evaluate all options, including traditional LTCI, hybrid life insurance policies, and annuities with long-term care riders.
Investment Management: Our investment strategies focus on achieving growth while managing risk, helping to protect your portfolio against market volatility. We regularly review and adjust your investment allocations to ensure that your assets align with your long-term goals and provide a safety net for unexpected costs.
Tax Planning: We understand that taxes can significantly impact your retirement income. Our advisors will help you develop a tax-efficient withdrawal strategy to minimize your tax burden and maximize your income, ensuring you can better manage unexpected expenses without depleting your savings.
Personalized Support: Our fiduciary advisors are dedicated to your best interests. We take the time to listen to your concerns, understand your goals, and develop a customized plan that aligns with your unique situation. Whether you have questions about long-term care, investment strategies, or other financial matters, we are here to provide guidance and support every step of the way.
Education and Resources: At Johnson Wealth and Income Management, we believe in empowering our clients with knowledge. We offer an array of resources to help you get more clarity on the state of your retirement, and what the future might hold. Be sure to check out our:

Final Thoughts

By understanding the hidden costs of retirement and proactively implementing strategic measures—such as budgeting, considering long-term care insurance, and consulting with fiduciary financial advisors like those at Johnson Wealth and Income Management—retirees can better safeguard their financial future.

As you prepare for retirement, don’t overlook the importance of long-term care planning. Contact Johnson Wealth and Income Management today to learn how we can help you create a solid plan to protect your wealth, health, and family’s future.

Visit us at johnsonwim.com to get started.

Common Retirement Planning FAQs

1. What are the main expenses I should plan for in retirement?

Common expenses include housing costs (mortgage or rent), healthcare and insurance premiums, daily living expenses (food, utilities, transportation), taxes, long-term care, and discretionary spending (travel, hobbies).

2. How much money will I need to retire comfortably?

A general rule of thumb is to aim for 70-80% of your pre-retirement income to maintain your standard of living. However, this can vary based on individual circumstances, lifestyle choices, and retirement plans.

3. Will Social Security cover my retirement expenses?

Social Security can provide a portion of your retirement income, but it may not cover all your expenses. It’s advisable to have additional savings, such as a 401(k) or IRA, to supplement your income.

4. What happens if I outlive my savings?

To mitigate the risk of outliving your savings, consider creating a diversified investment portfolio, delaying Social Security benefits, and having a plan for potential long-term care needs. Regularly reviewing your financial plan with a fiduciary advisor can also help ensure your resources last throughout retirement.

5. What role do taxes play in retirement expenses?

Taxes can significantly affect your retirement income. Withdrawals from traditional retirement accounts are typically taxable, so it’s essential to plan tax-efficient withdrawal strategies to minimize your tax burden.

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