Revisiting Long Term Care
By Amir Zaman
WEA Insurance
employee benefits specialist
November 1998
It can protect your life savings if you are disabled
Long term care insurance has been around for a number of years, but there’s
still immense ambiguity surrounding it. Most of the confusion appears to
be around the question of what it is and who needs it. Here’s some
information on the basics of long term care.
What is long term care?
Long term care refers to a broad range of services you might need if an
illness or injury leaves you unable to do everyday activities like feeding
yourself or being able to dress yourself. In these situations, you may need
help on a daily basis. Long term care insurance is designed to help pay
for this assistance so you don’t have to deplete you savings or retirement
funds.
Who might need long term care?
The majority of people (57%) who require long term care are the elderly.
However, a significant number (40%) are working-age adults, and 3% are children.
A person suffering from Alzheimer’s may need long term care, as may
a husband or wife who has suffered a stroke, or a worker disabled by an
accident. A child with cerebral palsy may also require long term care.
Why is long term care a concern?
The American population is growing older, and the older we get, the greater
the likelihood we may need long term care. Because women generally outlive
men by several years, their chance of requiring such care is almost 50%
higher.
More importantly, long term care services are expensive and are not covered
by your health insurance plan or your long term disability insurance. A
person can spend $4,000 or more a month on long term care services. Most
of us, of course, can’t afford such payments for a long time without
depleting our savings or retirement funds.
The government does help pay for these services through Medicaid, a program
designed to help the poor pay for health care services. Unfortunately, for
most us, getting help through Medicaid means first depleting most of our
assets. So, if you want to protect your assets and if you want to have any
say in where and how you receive your long term care, you need long term
care insurance.
What would long term care insurance do?
If you purchase insurance for long term care, it will help pay for assistance
with daily activities – such as eating, bathing, dressing, toileting,
and transferring in or out of a bed or chair – either at home or in
a nursing home or other facility. It may make it possible for you to stay
in your own home and receive such services.
What kind of long term care insurance is available?
If you are interested in long term care insurance, you can either purchase
an individual policy or see if your local can negotiate a group plan with
your district. WEA Insurance offers both group and individual plans for
members. The group plan is the most economical way for school employees
to get long term care coverage, and about 40 school districts have already
purchased group long term care protection for their employees through WEA
Insurance.
While the group plan covers you and your spouse and is less expensive than
an individual plan, a group plan must be bargained in your district by your
local. If you want more information on the group long term care plan, you
can call 1-800-279-4000.
For those who are retired or unable to get the group coverage, the WEAC
Member Benefit Trust offers an individual plan for WEAC members, their spouses,
and their parents. For more information on the individual plan, call 1-800-232-6632.
Converting to Roth IRA is easy
If you’re thinking of converting your tax-sheltered annuity (TSA)
account, or a regular IRA, to a Roth IRA, you can now turn to WEAC’s
own personal insurance program for assistance. The WEAC Member Benefit
Trust now offers members and their spouses the opportunity to convert
a TSA or a regular IRA to a Roth IRA.
For those of you who have looked into it, please remember that if
you make the conversion by December 31, 1998, you will be able to
take advantage of the four-year averaging tax advantage. There may
be other advantages for you as well.
To Roth or not to Roth?
Does it make sense for an individual to either move money out of a
TSA and put it into a Roth IRA, or to open a Roth IRA to complement
a TSA?
The biggest difference between a traditional IRA and the Roth IRA
is that you put after-tax money into the Roth IRA and you don’t
pay taxes on withdrawals if you take the money out in retirement (after
age 59½) and if the funds in the Roth IRA are held at least five
years.
If all else is equal (meaning same number of dollars are put into
identical underlying investments, and withdrawn as intended, without
penalties), you will enjoy higher cash flows in retirement from a
Roth account than from a TSA if your tax rate will be the same or
higher in retirement than it is while you’re working. The best
case for Roth IRAs occurs when a person is in the 15% federal income
tax bracket while contributing, and will be in the 28% or higher tax
bracket in retirement. If you are in the 28% or higher tax bracket
while contributing, and expect to be in the 15% tax bracket in retirement,
then the Roth IRA loses its appeal.
Another advantage you may have with a Roth IRA is that it does not
require you to withdraw a minimum amount when you reach a certain
age. Finally, while you can use almost any commercial company to set
up a Roth IRA, going with your union’s Trust program has a great
financial advantage. The guaranteed rate that you will get –
7% for next year – is one of the best available.
For more information call the WEA Tax Sheltered Annuity Trust at 1-800-279-4030. |
Posted October 19, 1998