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Jim Lentini: Economic reality and retirement planning

Business Commentary

Posted: July 13, 2010 4:55 a.m.
Updated: July 13, 2010 4:55 a.m.

American workers are reconsidering how they save for retirement and gauge their interest in simpler and more automatic savings plans, such as workplace savings and insurance plans.

Eighty-four percent of Americans would eagerly embrace a fresh approach to the structure of their workplace retirement plans, especially plans that are "automatically" taken from their paychecks, such as supplemental benefits and 401(k) pension plans. This is spurred today in large part by the recent economic crisis, but also by the ongoing struggles Americans face in making the right decisions about how best to manage their retirement programs.

Another important area of a sound financial plan is the gap of providing long-term care insurance. Most retirees are not aware that Medicare only provides a limited 100 days of LTC. A study by the Department of Health and Human Services found that at least 70 percent of those over age 65 will need some form of LTC at some point in their lives. This overwhelming statistic demonstrates the clear need that most Americans have for long-term care coverage.

The numbers become staggering when you combine the high probability of needing care with the costs for nursing home care.

According to most estimates, the average nursing home costs about $200 a day, and the average stay is about 30 months. (This figure has not changed in many years.)

When those costs are added up, about 70 percent of those receiving benefits will incur a bill of more than $180,000. This figure can be significantly higher in metropolitan areas such as Los Angeles. Even with all the data available, many consumers choose not to purchase LTC policies. Reason being, it is expensive, and the older you are, the more expensive it is, like life insurance.

One of the options to be considered that can be less expensive than an individual LTC contract is a LTC rider to a life-insurance contract. The most common structure of these riders is in the form of an accelerated benefit that provides a specific percentage of the death benefit each month to offset the cost of long-term care.

To qualify for benefits, the rider's requirements are the same as a normal LTC plan, in that you need assistance with two out of the six activities of daily living.

Since LTC coverage has many variable and benefit options, most people don't understand the benefits or value of LTC. It is most important to discuss this option and need with your financial advisor. This benefit can have a serious effect on your retirement assets and future plans.

Long-term care needs to be a part of a sound and complete financial plan, and the variables and options discussed and evaluated as part of your future planning.

Jim Lentini, CLU, ChFC, IAR is president of Lentini Insurance & Investments Inc. His column reflects his own views and not necessarily those of The Signal.


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