Protecting Your Health and Wealth in Retirement Before It’s Too Late
By David Lundberg, MBA, MSCJ, RYT 200. Flat Fee Financial Planner
One of the most powerful health long term care lessons I have learned did not come from a textbook or insurance brochure. It came from conversations with real people; below are two common situations.
First, imagine a married couple where one spouse is 65, healthy, active, and excited about retirement. The other spouse is 70 and begins needing significant long-term care assistance. The healthy spouse may still have another 20 or 30 years ahead, but the retirement they planned together has changed. One spouse needs care while the other still needs income, housing, healthcare, and financial security.
Second, I have seen and heard situations where someone in their late 60s or 70s is trying to help a parent who is now 88, 92, or even 95 years old. The parent may be running low on money, struggling physically, experiencing cognitive decline, or simply no longer able to live independently. Suddenly, the adult child becomes part caregiver, part financial coordinator, and sometimes part source of funding.
In both situations, the lesson is similar: when there is no health long-term care plan, the financial and emotional burden does not disappear. It often shifts to the people we love most.
That is why this conversation needs to go beyond simply asking whether you should have some type of health long term care protection. There are multiple ways to prepare for this risk, including some financial strategies that are not often discussed and are frequently misunderstood. Certain strategies can potentially be incorporated using non-qualified assets, Traditional IRA assets, or Roth IRA assets, depending on the product and your individual circumstances. The objective is not to convince everyone to buy something. It is to understand your choices before a health event potentially takes some of those choices away.
As a yoga teacher myself, I also believe financial preparation is only one part of this conversation. Meditation, breathwork, yoga, movement, nutrition, and other holistic wellness practices can support our physical and mental well-being as we age. We cannot control every health outcome, but we can be intentional about caring for both our health and our wealth along the journey.
What Does Long Term Care Really Mean?
Long-term care can happen in your own home, assisted living, memory care, a nursing facility, or through assistance from family members. It often becomes necessary when someone can no longer independently perform certain Activities of Daily Living, or ADLs:
Eating
Bathing
Dressing
Toileting
Transferring
Continence
Many long-term care and insurance-related provisions use the inability to perform at least two ADLs as part of their qualification criteria, although definitions and requirements vary by contract.
Cognitive impairment is equally important. Someone with Alzheimer's disease or another form of dementia may still be physically capable of walking, eating, and dressing but may no longer be safe living independently. Long-term care is therefore about more than physical health. Memory, judgment, supervision, and personal safety can become equally important.
The Risk of Waiting Until You Need Help
When you are healthy at 55, 60, or 65, long-term care can feel far away. It is easy to decide you will deal with it later. Unfortunately, many insurance-based solutions and other protection strategies involve health qualifications or underwriting. Once certain diagnoses, cognitive changes, mobility problems, or other health conditions occur, some options may become more expensive, restricted, or unavailable.
This creates an unfortunate paradox: the health event that finally makes someone recognize the importance of long-term care planning can also reduce the number of solutions available to them. Planning early does not mean buying something today. It means knowing your options while you still have them.
The Financial Risk Can Be Significant
Home care, assisted living, memory care, and nursing facilities can cost thousands of dollars each month. Extended nursing-home care can exceed $100,000 annually in many areas (there are free tools online to review estimated costs in your state).
Medicare also does not generally pay for ongoing custodial long-term care. It may cover certain skilled nursing or rehabilitation services when specific requirements are met, but that is very different from paying for years of assistance with everyday living.
The important planning question is straightforward: If you or your spouse needed care for several years, where would the money come from?
An Often-Overlooked Option: Fixed Indexed Annuities With ADL Benefits
One strategy that is frequently misunderstood or overlooked is the use of certain fixed indexed annuities, or FIAs, that include an ADL-related rider or benefit. An FIA with an ADL feature is not automatically long-term care insurance. However, certain contracts can provide enhanced financial benefits when specified health or ADL requirements are satisfied.
Depending on the contract, a qualifying event (approved by a Medical Professional) may increase income payments, enhance qualifying withdrawals, provide access to an increased contractual benefit, or provide additional payments for a specified period. Some riders carry an annual internal charge, and qualification rules and benefit periods vary considerably among contracts. What makes this particularly interesting is that the money can still serve a broader retirement purpose.
FIAs generally offer a selection of interest-crediting strategies. Depending on the specific contract, these might include strategies linked to the S&P 500, various bond or multi-asset indexes, other market indexes, and fixed-interest options. The money is not directly invested in those indexes. Instead, the insurer uses the performance of the selected index, according to the contract's crediting formula, to determine how much interest, if any, is credited.
FIAs can therefore provide the potential for interest growth while protecting the contract's accumulation value from direct market-index losses, subject to the terms of the contract. They also have limitations. Caps, participation rates, spreads, surrender charges, rider fees, and other provisions can affect results.
This creates an interesting combination in certain contracts: potential interest growth, protection from direct market losses, retirement-income possibilities, and an additional ADL-related benefit if qualifying conditions are eventually met.
Another frequently overlooked consideration is the source of the money. Depending on the contract and individual circumstances, an FIA may potentially be funded with:
Non-qualified assets
Traditional IRA assets
Roth IRA assets
This does not mean everyone should move retirement money into an annuity. An FIA inside an IRA does not create additional tax deferral because the IRA already provides tax deferral. The annuity must earn its place in the financial plan through appropriate guarantees, income characteristics, ADL provisions, or other contractual benefits. An attractive ADL feature does not make an otherwise inappropriate annuity appropriate.
Not everyone needs an FIA. Not everyone needs an ADL rider. The important thing is knowing that these options exist.
Other ways to prepare may include traditional long-term care insurance, life insurance with qualifying long-term care or chronic illness benefits, dedicated savings and investments, HSA assets when appropriate, home equity, intentional self-funding, or a combination of several strategies.
What If You Can Afford to Self-Fund?
Some people have enough financial resources to intentionally self-fund long-term care, and that can be a completely reasonable strategy. However, there is a difference between saying, "I have enough money," and modeling what several years of care could actually do to your retirement.
If one spouse requires expensive care, the healthy spouse still needs housing, healthcare, income, transportation, and potentially decades of retirement. Large withdrawals from Traditional IRAs can also create tax consequences. Self-funding is a legitimate strategy. It should simply be an intentional strategy rather than the absence of one.
Your Home May Be Part of the Solution
Many retirees also have significant wealth tied up in their homes. That equity could potentially become part of a future care strategy through selling, downsizing, relocating, or, when appropriate, using a reverse mortgage.
A reverse mortgage may allow a qualifying older homeowner to access part of the home's equity while continuing to live there. There are important costs, eligibility requirements, and tradeoffs, including accumulating interest and fees, reduced home equity, continuing property obligations, and rules surrounding occupancy.
The point is not that everyone should use a reverse mortgage. It is simply another potential resource worth understanding.
Protecting the Healthy Spouse and Your Family
Return to the couple we discussed earlier. One spouse is 65 and healthy. The other is 70 and now needs significant care. Paying the care bill is only half of the problem. The healthy spouse may still need retirement income for another 20 or 30 years. They still have housing, healthcare, taxes, food, transportation, and their own potential future care needs.
The same issue appears across generations. If an elderly parent eventually runs short of money, adult children may contribute money, time, or both. They may coordinate caregivers, manage appointments, research facilities, handle finances, or alter their own lives to provide care.
There is nothing wrong with family helping family. The purpose of planning is to give the family more choices.
Money cannot make watching someone we love decline emotionally easy. It can, however, provide professional assistance, help someone remain at home longer, protect a healthy spouse, and allow adult children to spend more time simply being sons and daughters rather than becoming full-time caregivers. Long-term care planning is ultimately about more than protecting assets. It is about protecting people.
Put Long-Term Care Inside Your Financial and Tax Plan
Long-term care should not exist in its own planning box. A comprehensive financial and tax plan can help determine whether you are positioned to self-fund, use insurance, incorporate an annuity, access home equity, or combine several strategies. It can also help determine which accounts might fund care, how large IRA withdrawals could affect taxes, whether Roth assets could provide additional flexibility, and what several years of care could mean for the healthy spouse.
These are not simply insurance questions. They are retirement-planning questions.
None of us knows whether we will eventually need significant long-term care. The goal is not to predict the future perfectly. The goal is to understand the risks and available solutions before decisions become urgent. You may decide to purchase insurance. You may determine that an FIA with an ADL-related benefit fits naturally into your retirement strategy. You may intentionally self-fund. Your home may become part of the solution. You may combine several approaches.
You do not necessarily need long-term care insurance. You do need to understand what would happen if long-term care became part of your life.
Planning while you are still healthy can give you something that becomes increasingly valuable with age: choices about where you receive care, how you pay for it, how much responsibility falls on your spouse, and how much burden ultimately reaches your children.
Long-term care planning is not about being afraid of getting older. It is about protecting yourself and the people you love before the decisions become urgent. Just as we can be proactive with our finances, we can remain proactive with our well-being through movement, yoga, meditation, breathwork, nutrition, preventive care, and other healthy practices. We cannot guarantee what the future will bring, but we can take meaningful steps to care for our mind, body, health, and wealth along the way.
Frequently Asked Questions About Long-Term Care Planning
What are the six Activities of Daily Living, or ADLs?
The six commonly recognized Activities of Daily Living are eating, bathing, dressing, toileting, transferring, and continence. Certain insurance policies and annuity benefits may use the inability to perform two or more ADLs as part of their qualification requirements. Cognitive impairment may also qualify under some contracts. Definitions and requirements vary, so the specific policy or annuity contract should always be reviewed.
Does Medicare pay for long-term care?
Medicare generally does not pay for ongoing custodial long-term care simply because someone needs assistance with everyday activities. Medicare may cover certain skilled nursing, rehabilitation, home health, or medical services when its requirements are satisfied, but this is different from paying indefinitely for assisted living, memory care, or custodial care.
Can a fixed indexed annuity help with long-term care expenses?
Certain fixed indexed annuities offer ADL-related riders or contractual benefits that may provide increased income, enhanced withdrawals, or other additional benefits after qualifying health conditions are met. These features vary significantly by contract and should not automatically be considered substitutes for traditional long-term care insurance.
Can a fixed indexed annuity be held inside an IRA or Roth IRA?
Depending on the annuity contract, carrier requirements, and individual circumstances, a fixed indexed annuity may potentially be purchased with non-qualified assets, Traditional IRA assets, or Roth IRA assets. An annuity held inside an IRA does not provide additional tax deferral beyond the tax treatment the IRA already receives, so the annuity should make sense based on its guarantees, income features, protection benefits, and overall role in the retirement plan.
Can I self-fund my own long-term care?
Yes. Households with sufficient income, investments, retirement accounts, real estate, or other financial resources may intentionally choose to self-fund some or all of their potential long-term care expenses. The important consideration is whether a multi-year care event has actually been modeled, including its potential effect on taxes, the healthy spouse, future retirement income, and remaining assets.
Can home equity or a reverse mortgage help pay for long-term care?
Home equity can potentially be one component of a long-term care strategy. Depending on the circumstances, a homeowner may sell, downsize, relocate, or potentially access equity through a reverse mortgage. Reverse mortgages have eligibility requirements, costs, interest, occupancy rules, and other considerations, so they should be evaluated as part of the overall financial plan rather than viewed as a universal solution.
Important Disclosure
This article is for general educational purposes only and is not individualized investment, insurance, tax, legal, or long-term care advice. Insurance and annuity products vary significantly by insurer, state, contract, rider, health qualification, age, and other factors. Fixed indexed annuities are insurance products and are not direct investments in a securities index. Guarantees are subject to the financial strength and claims-paying ability of the issuing insurance company. Index-linked interest may be zero in some periods, and contract terms may include caps, participation rates, spreads, surrender charges, withdrawal restrictions, rider fees, tax consequences, and other limitations. ADL-related annuity benefits should not automatically be considered substitutes for comprehensive long-term care insurance. Consult appropriate financial, tax, legal, insurance, and healthcare professionals regarding your individual circumstances.
