Long-Term Care: Why an Annuity Could Make Sense in Your Funding Strategy

Long-term care. It’s the elephant in the room for many retirees. According to the U.S. Department of Health and Human Services, today’s 65-year-olds have a 70 percent chance of needing long-term care at some point in the future. That care is often needed for several years.

Long-term care

Long-term care is extended assistance with basic daily living activities, such as eating, bathing, dressing, and mobility. It’s often provided in a facility, but can also be offered in the home via a private nurse or home health aide.

As you might expect, long-term care can be costly. According to a 2017 Genworth study, the average cost of a room in an assisted living facility is $3,750 per month. In-home care may actually be more costly. The average monthly cost of a full-time home health aide is over $4,000 per month. If you aggregate those costs over several years, it’s easy to see how long-term care can quickly deplete your retirement assets.

Compounding the challenge is the fact that Medicare usually doesn’t cover long-term care costs. It may partially cover a stay in a facility that is related to a surgery or other medical procedure. However, that coverage is often very temporary. Medicaid will usually only cover long-term care if you have few assets and little income.

Fortunately, you have options available. If you plan ahead, you can develop and implement a strategy to fund your long-term care needs. It may make sense to include an annuity as part of those plans. Below are a few ways in which an annuity can help you pay for long-term care.

Nursing Home Waiver

One of the most prevalent criticisms of annuities is that they don’t offer liquidity to help pay for emergencies. This criticism is usually sparked by a surrender charges, which are a common element of annuity and life insurance contracts.

A surrender charge is a penalty that you pay if you withdraw more than a certain amount from your contract in any given year. Surrender penalties are only in place in the first few years of an annuity. Surrender periods often last between three and seven years. After that period is up, there are no more surrender periods.

However, many annuities offer something called a nursing home waiver. This feature gives you the opportunity to access your contract without paying a surrender penalty if you have to stay in a nursing home or assisted living facility. You gain instant access to your contract so you can use your funds to cover your long-term care needs.


One of the primary benefits of an annuity is that it can generate a reliable income stream that is guaranteed for life. This is done through a process called “annuitization.” Essentially, you ask the annuity company to convert your assets into a lifetime income stream. This can be done when you open the contract or after owning the policy for months or even years.

To calculate your payment amount, the annuity company will consider the amount of assets, your life expectancy, and other factors like prevailing interest rates. It will then pay you a fixed amount every month for the rest of your life. The payment is guaranteed, no matter how long you live.

This kind of income certainty can be helpful for any retiree, but it can be especially helpful if you need long-term care. The fixed payment gives you confidence that you can continue paying for your facility or your home health aide.

There are also instances in which annuitized income doesn’t count as a Medicaid asset. That means you may be able to receive your annuity income and also receive Medicaid benefits to pay for your care. However, these rules are complex. It’s wise to consult with a financial professional before embarking on this strategy.

Annuity-LTC Hybrids

Finally, many annuity providers have recognized the need for long-term care solutions. They have responded by introducing annuity-LTC hybrid policies. These contracts provide a blend of long-term care insurance and annuity income.

You fund the policy with a lump sum just like you would with any other annuity contract. If you ever need care, the LTC component will kick in. It pays for some or all of your care, depending on the terms of your policy. If you never need care, you can use the annuity to provide retirement income or as a legacy for your beneficiaries.

Ready to develop your long-term care strategy? Let’s talk about it. Contact us today at America’s Annuity. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.