Averages … Leverage

Last week, I preached about averages and the risk that we run by ignoring true cost of being average.  As a reminder, in 20 years, assuming everything is average – you can expect that the average American will –   

• incur $210,033 of long term care support & services, and
• (on average) lost wages as a result of providing care will be $354,398, and
• that 14% will spend at least $173,724 out of pocket on care.

I also made the statement (which some of you disagreed with) – average care will cost a half million dollars. 

Let me explain my math on this.  Simply assuming $210,033 of long term care services are paid for and  $354,398 in lost wages are experienced, the combined cost is over a half million dollars ($564,431).  How that is paid is irrelevant therefore the $173,724 does not factor into the equation.

I closed by saying that I would share an idea to generate that half million dollar pool of money for care.  I can make it even better, I can make it even better by guaranteeing a half million dollars of tax free money for either spouse. 

There is one disclosure that I am making here … I plan for an average duration of care for one spouse plus a little extra.  In this case, we will look at 66 months for that couple. 

The strategy here is to utilize her IRA to fund their long term care benefits.  We will rollover $150,000 into our Annuity Funded Whole Life (Asset Care) and generate a half million dollars of LTC benefit for 20 years in the future.

Here is what that will buy …

The IRA rollover will be a tax-free transaction.  This will fund a OneAmerica deferred annuity which will be used as our funding vehicle for the strategy.  Upon receipt of the $150,000, OneAmerica will bonus $37,500 (or 25% of the deposit) to the account bringing the total up to $187,500.

Over a 10 year period of time in equal payments, $18,750 will be paid into the Asset Care policy  as premiums.  This will be taxed as ordinary income and a 1099 will be generated.

The $18,750 will purchase a participating survivorship whole life policy with a death benefit of $142,120 along with a continuation of benefits rider, 3% compound inflation rider for 20 years on that will produce 66 months of benefits.  At the end of year 20, the benefit pool will have grown to $513,374 payable up to $7,701 per month.

Here is the illustration to support the Asset Care idea.

Another solution would be to fund our Indexed Annuity Care policy using nonqualified money by either dumping in $150,000 or rolling over via 1035 exchange.  The net result of the annuity strategy is would be a similar pool of benefits available in year 20 – $552,198 pool of benefits; $7,557 per month for 60 months.

Here is the illustration to support the Indexed Annuity Care idea.

Being average does have a price.  In this case, it is $150,000. 

By turning that into a pool of a half million dollars or more, the financial impact to the family is reduced and the opportunity to execute their plan (as planned) lives on.

This is another opportunity where the million dollar annuity strategy can work. Learn more about it at  https://fridayswithfisher.com/million-dollar-annuity/. 

My “big ask” of you for the million dollar annuity strategy is to identify 3 or 4 annuity owners 75 or older who might be viable candidates for our leverage strategy then give us a call.

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