No Heirs, Lots of Money… What to do?

Reader Question:  Do you have any advice for a 68 year-old widow who is contemplating purchasing a hybrid long-term care/life insurance policy?  The policy requires a one-time up-front deposit of $58,000 and will pay up to $3,000 a month for long-term care services (pays for up to 5 years).  If you die before using the long-term care part, it acts as a regular life insurance policy.  It seems like a lot of money to put down at one time.  I plan to retire at age 69 and my Social Security benefit will be $2,200 per month.  I am currently receiving $1,700 month in Social Security widow benefits.  I have no debt; have prepaid all burial costs; have approximately $700,000 in various retirement accounts including $350,000 of annuities; have $240,000 in personal CD’s and money markets, plus $50,000 in personal stock mutual funds and ETFs.  In addition, I own my home and car and have no debts.  I have no children or other close family members.  Are there other options available?

Answer:  Congratulations!  My quick math indicates that your total net worth exceeds $1 million!  Your facts suggest a number of things you should consider:

Long-Term Care insurance– Generally, I would not recommend a hybrid long-term care policy and life insurance unless there is a need for the life insurance.  In your case, since you have no children and few heirs, paying for life insurance is not a good fit.  Remember, there is a cost for the life insurance and the life insurance company is in the business of making money so don’t buy it unless you really need it.  Your alternatives are to self-insure or purchase a traditional long-term care policy.

  • Self-insure.  The average cost of nursing care is about $70,000 per year.  If you have around-the-clock in-home care, you can expect annual costs of $100,000.  The average nursing home stay is less than three years.  With your level of assets and income, you can afford to self-insure.  In the highly unlikely event that you ran through all of your assets, Medicaid would pay 100% of your nursing home costs.
  • Buy a LTC policy.  When you buy LTC insurance, what you are doing is buying a ‘block of money’…a policy that pays a daily benefit for a certain number of months.  Again, the insurance company has calculated the premium costs so that on the pool of policyholders, they will make a profit.  If you needed to protect assets for a surviving spouse (or children), buying a LTC policy might make perfect sense.  You can certainly afford to pay the premiums on a policy and for some people this provides peace of mind and, therefore, is worthwhile.

Power of Attorney– One thing I’d be concerned about is making sure that you have a Power of Attorney document where you have nominated someone to act as your agent for financial matters should you become incompetent due to an accident or sickness.  Be sure this document conforms to the new language passed by the Alabama legislature on January 1, 2012.

Advanced Directive for Healthcare– Similar to the power of attorney, the advanced directive for healthcare allows you to nominate someone to make healthcare decisions for you should you be incapable of doing so yourself.  It also allows you to indicate the level of care you desire such as feeding tubes, hydration, pain relief, etc.

Last Will & Testament– You didn’t mention having a will but I assume you do and that it reflects your current thoughts on how to distribute your assets at your death.  You have a wonderful opportunity to benefit one or more charities.  If you plan gifts to charities and individuals, use retirement accounts for charities and non-retirement assets for individuals in order to maximize tax efficiency.

Annuity in your retirement account– Typically I don’t advise purchasing a retirement annuity.  One of the primary advantages of an annuity is tax-deferred growth which you receive with or without the annuity inside an IRA.  The result is often increased and unnecessary expenses.  Review all of the expenses in your annuities and consider rolling your annuities over to your IRA account.  Be careful to avoid surrender charges that often last five to seven years from the date of purchase.

Delay taking Social Security– You indicated that you plan to begin taking Social Security based on your own earning at age sixty-nine.  If you wait until age seventy, your benefit amount will rise by 8%.  This is quite a nice boost for waiting one year, particularly considering the higher benefit will last the rest of your life!  Since you’re already receiving $1,700 per month in Social Security widow’s benefits (which you’ll give up), the lower amount for one year will likely not affect your lifestyle at all.