When it comes to planning for retirement, you might have heard about something called annuity long-term care riders. But what exactly is it? Simply put, a long-term care (LTC) rider is an additional benefit that comes with some income annuities. This rider can double your income payment if you ever need long-term care, such as being in a nursing home.

Key Features of a Long-Term Care Rider:

- Doubling of Income: If you qualify, your income payment can double.

- Qualification Requirements: Often requires confinement to a skilled nursing facility, but some riders also cover if you can’t perform two out of six daily activities (e.g., bathing, feeding, toileting, etc.). This rider sounds like a great deal, but there are some important things to consider before making your decision.

The Hidden Catch with Long-Term Care Riders

Although the long-term care rider often comes at no extra cost, the chances of actually using it are slim. Here’s why:

1. Account Value Requirement: For the LTC rider to kick in, your annuity must have remaining account value.
2. Typical Annuity Duration: Most annuities deplete the account value after 10 to 15 years on a guaranteed basis.
3. Timing Issue: Most people need long-term care around their mid-80s, but if your annuity was started at 65, it could run out of account value by your mid-70s.

Estimated Duration of Annuity Account Value:

Age When Annuity Starts	Estimated Duration	Likely Age When Account Value Depleted
65	10–15 years	Mid-70s

If there’s no money left in your annuity, the long-term care rider won’t be able to help.

Don’t Sacrifice Higher Income for a Long-Term Care Rider

Given the limitations of the annuity long-term care rider, it’s usually not a good idea to choose an annuity with a lower income just because it has this rider. Here’s a comparison:

Income Comparison (Per $100,000 Funded):

Annuity Type	Annual Income	Lost Income Over 30 Years
Without Long-Term Care Rider	$8,000	$0
With Long-Term Care Rider	$6,500	$45,000

Let’s say a 65-year-old couple funds their annuity with $300,000. Over 30 years, they would lose about $135,000 in income if they chose the annuity with the LTC rider. That’s a significant amount of money, especially when the chances of using the rider are so low.

Consider Long-Term Care Insurance Instead

If you’re genuinely concerned about needing long-term care in the future, a better solution might be long-term care insurance. Yes, it’s an expense, but it gives you substantial leverage if you ever need care. Plus, if you don’t end up using it, the money can go to your beneficiaries as a death benefit if you use an Asset-Based Long-Term Care Policy.

Benefits of Long-Term Care Insurance:

- High Leverage: Provides strong financial support when you need care.

- Beneficiary Protection: Unused funds can be passed on as a death benefit.

I’ve created several videos that explain how long-term care insurance works, covering different types and details. You can find them by clicking the link above, and I highly recommend watching them if you’re considering your options for long-term care.

What If You Don’t Qualify for Long-Term Care Insurance?

Now, you might be thinking, “What if I don’t qualify for long-term care insurance due to a medical condition?” That’s a valid concern, and it’s why some people consider taking the annuity long-term care rider. But even in this case, there might be better options.

Alternative Strategies for Long-Term Care Planning

Instead of sacrificing income, consider these strategies:

- Set Up a Separate Annuity: You could fund a separate annuity specifically for long-term care purposes.

- Save and Invest the Extra Income: If you choose the higher-paying annuity without the LTC rider, you can save the extra income.

Example: Saving the Extra Income from the $300,000 Example

Annual Extra Income	Interest Rate	Total Saved Over 20 Years
$4,500	3%	$125,000

For example, if a 65-year-old couple invests the extra $4,500 per year from their $300,000 annuity at a 3% interest rate, they could have nearly $125,000 saved by the time they might need long-term care in their mid-80s. That’s a substantial amount that could cover a lot of care costs.

In this week’s ATLAS Annuity Podcast episode, I go a bit deeper into these examples and show you how I would strategize protecting yourself for long-term care.

If you have any questions about long-term care and using annuities in retirement, make sure to click the schedule button and get on my calendar.

Episode 38: Annuity Long-Term Care Riders