Why Annuities Offer Long Term Care Funding Flexibility


One risk that can derail even the best retirement plan is long term care. Most retirees will need some form of it during their lives. However, it is hard to determine how much care one will need, and how expensive the care will be. Perhaps most importantly: how will you fund it? Can annuities offer long term care funding?

Nearly 70% of all people who live to age 65 will require some sort of long term care in their lives. According to the Genworth 2016 Cost of Care Study, the national median cost of long term care in a semi-private nursing home is $82,125. That’s expected to increase by 3.12% per year over the next 5 years.

In order to help cover the costs of long term care, one should set up a long term care plan well in advance of retirement.

So how can annuities be used to help fund long term care needs? First, it is important to understand that there are a tremendous variety of annuities on the market. Not all of them are suitable for every situation. Additionally, not all of them fund long term care needs. Immediate annuities, while very useful in retirement, do not necessarily have any specific benefits to help fund long-term care costs.

You can strategically use annuities to help fund long term care expenditures. This is accomplished through deferred annuities, QLACs, 1035 exchanges, and hybrid long term care annuity products. One way to help fund long-term care expenditures is to stagger or layer on deferred annuities. This can enable the retiree to create various levels of income for different periods of retirement.

One specific type of deferred annuity offering funding for care is the QLAC. In 2014, the U.S. government adopted new rules allowing for the use of QLACs inside of 401(k)s and IRAs. These specialized, but limited, deferred annuities can help retirees avoid required minimum distributions at age 70½, increase their retirement income, provide a hedge against longevity risk, and offer long term care funding.

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