This week I worked with a couple in their late 60's. It started out as a regular planning session (that is what I do) and we quickly narrowed in on their particular needs. They had saved up a substantial amount of money for their own retirement needs, but there were two things they still wanted to accomplish. They wanted to plan for the possibility of nursing home care and they wanted to know if they had enough money to save for their grandchild's potential educational needs, while still leaving them enough to live comfortably on.
Both of these are common needs for clients in retirement. The long term care needs are important because the cost of nursing homes is growing at a very high rate. It can cost upwards of $90,000 per year for private nursing homes. The cost of long term care can easily make inheritance by the next generation a no-go. This is a very important point. One of the most direct ways to tackle this issue is with GOOD long term care insurance. "Good" is in caps because there are many subpar long term care insurances out there. They may be cheaper than the good ones, but they also don't tell you that they may raise their rates in the future, so what seems like a good deal isn't one. We discussed three main options (which I may talk about in a future post )and they are deciding which best fits there situation. I will be meeting them again in 2 weeks to discuss again with them.
I provided 2 options for funding the grandchild's education and they immediately chose 1. The grandparents decided to fund a whole life policy on the child. This is one common method (the other is a 529 plan). There are advantages and disadvantages to both, but appealed the most was the certainty of the 10 year whole life policy. Cash values in whole life do not go down. After all, the policy is a contract. So when we provided an illustration that showed how monthly payments for 10 years would grow to provide for substantial educational needs, and still leave money left over to help the grandchild afford a down payment on a first home, their mind was pretty well made up.
They knew their kids (the grandchild's parents) could still start the 529 plan, and they liked the idea of having multiple funding sources for the grandchild's education. Finally, they liked that they could also likely help the grandchild put down a down payment on a house, an option they never had as young adults. They knew the benefits of home ownership, including: building equity, lower payments than renting, and lower rates for a larger down payment.
I will probably fill you in on the long term care option when I meed with the clients again.
Good night and good luck.
I am a Chicago-area financial adviser to young doctors & business owners.