Morgan Stanley
Wealth Management

Why You Should Plan for Long-Term Care

Long-term care planning isn’t just about costs. It’s about protecting your finances, your family and the legacy you want to leave.

Author
Joe Toledano, Head of Insured Solutions, Wealth Management

Key Takeaways

  • Long-term care planning works well when it is part of your overall financial plan, helping you prepare for the ways a health event could affect income, investments and long-term goals.
  • Planning ahead can help protect your family from making rushed decisions by clarifying care preferences, decision-makers and how responsibilities will be handled if care is needed.
  • Today’s long-term care solutions can offer flexible ways to fund care while also supporting retirement income needs and helping preserve assets for heirs or charitable goals.

Health care costs in the U.S. have been rising for years, especially for people nearing or in retirement. But the need for long-term care represents a bigger issue than just its price tag. It is distinct in its potential to reshape your finances, your family life and the legacy you plan to leave behind.

 

The reality is that many people will need some level of care as they age, and extended day-to-day help often isn’t fully covered by major medical plans or Medicare. Even when you can afford care, the costs can strain retirement income, force you to sell assets and add stress for family members who may need to step in.

 

Building provisions for long-term care into your overall financial plan helps you make decisions ahead of time – so that you can protect your retirement and the wealth you want to pass on to beneficiaries. It also allows you to anticipate potential tax implications and clarify family roles and preferences before a potential crisis, instead of scrambling when one hits.

 

What is long-term care?

Long-term care includes a variety of both medical and personal services designed to help those who can no longer perform everyday activities on their own due to illness, disability or cognitive impairment. It can be provided at home, in an assisted living community or in a nursing home, often over an extended period.

i
The need for long-term care represents a bigger issue than just its price tag. It is distinct in its potential to reshape your finances, your family life and the legacy you plan to leave behind.

Why should I plan for long-term care?

Even if you can pay out of pocket, the need for care can create both financial and personal challenges: It may disrupt cash flow, change which assets you draw from (and when), affect your taxes, reduce what you leave behind and create stressful, time-sensitive family decisions. For example:

  1. 1
    You may need money for care at the wrong time.

    Care costs can arrive during a market decline, when raising cash may mean selling investments at a loss. And if much of your net worth is tied up in less liquid assets, like private investments, real estate or a business, accessing cash quickly can mean selling in a hurry or borrowing under pressure.
  2. 2
    Taxes can change the true cost.

    It matters what source you tap for the money to pay for long-term care. Withdrawals from taxable accounts, retirement accounts or insurance policy values can have different tax results – and the easiest source of cash isn’t always the most tax-efficient.
  3. 3
    Retirement income can be disrupted.

    A multi-year care need can force higher withdrawals sooner than planned, which can make it harder to stick to your long-term strategy and may increase the need for portfolio stability and ready cash.
  4. 4
    Plans for what you leave behind can shift.

    Without a plan, care costs may come from assets intended for children, other beneficiaries or philanthropy, reducing inheritances, changing the timing of gifts or limiting charitable goals.
  5. 5
    Family stress can be the biggest cost.

    Who coordinates care? Who communicates with providers? Who pays bills? Who has authority to act if you can’t? When these answers aren’t set in advance, decisions can be stressful and urgent.

How should I plan for long-term care needs?

Start by agreeing on the decisions you and your family would rather not make under pressure, such as where you’d prefer to receive care, who will make decisions if you can’t and whether health-care directives and powers of attorney are current.

 

Then, talk with your Financial Advisor and loved ones about how to cover potential care costs as part of your broader plan.

Long-Term Care Planning Questions

Here are some questions to consider as you plan.

Question 1

If care expenses arrive at a bad time, like during a market decline, what liquid funds can we access first – without forcing rushed sales of harder-to-sell assets?

Question 2

Which accounts or resources should we tap first, and what are the potential tax impacts of different funding sources?

Question 3

How can we help minimize the impact of care costs on retirement cash flow and our overall retirement strategy?

Question 4

Which assets are intended for lifestyle spending versus what we want to pass on – and how do we protect those goals if care costs rise?

How can I pay for long-term care?

Common approaches include standalone long-term care coverage, life-insurance- and annuity-based options, and paying from savings and investments. Some families combine strategies.

  1. 1
    Traditional standalone long-term care insurance

    Designed specifically to help cover long-term care costs. Premiums may increase over time and benefits may have limits.
  2. 2
    Permanent life insurance with chronic/terminal illness riders

    May allow you to accelerate part of the death benefit if certain health conditions occur, creating funds for care while still potentially leaving a remaining benefit.
  3. 3
    Hybrid life insurance and long-term care solutions

    A dual-purpose solution designed to provide tax-efficient funding for care if you need it – and a tax-free death benefit for your beneficiaries if care is not needed.
  4. 4
    Annuities with a long-term-care-focused rider

    Some annuities allow an optional rider that can increase payments for a period of time if you need qualified long-term care. If you don’t need care, the annuity can still support retirement income and may pay a benefit to beneficiaries, depending on the contract.
  5. 5
    Self-funding

    Paying with your own savings and investments, especially if you have sufficient access to cash.

If you’re considering withdrawals or loans from insurance policies or relying on annuity income, coordinate with your Financial Advisor and tax professional to understand trade-offs, including impacts on policy value, benefits and taxes.

How can my Financial Advisor help?

Your Financial Advisor, working with your tax advisor, can help you evaluate funding approaches to long-term care, understand potential tax consequences, and align a strategy with your family’s preferences and decision-making – so you’re making key choices with greater clarity and confidence.

Find a Financial Advisor, Branch and Private Wealth Advisor near you.

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