Unsuring LTC: Risks to a Client's Retirement Portfolio When Relying Solely on Self-Funding
A good friend and colleague once put it simply: self-insuring is really “unsuring.” When you plan to use part of your income-generating portfolio to cover a future long-term care need, you're unsure of how long you'll need to save, unsure of your rate of return, and unsure of the other variables that can shift over time.
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$100K–$211K national average cost of a long-term care event in 20 years (Nationwide) |
$400K+ potential amount a four-year LTC claim could remove from a client's portfolio |
The Real Cost of Being “Unsure”
We've all heard the reasons a client might give for why they won't need long-term care: they're healthy, they have enough to self-insure, it won't happen to them. What rarely gets discussed is the consequence of not leveraging insurance to pay for a long-term care event — and the effect on a client's income-generating portfolio when they have to pull sizable amounts of income from it during a down market to cover care costs.
It's not just the client's standard of living at stake. An “unsured” LTC event can shrink the assets under management you help build and manage for a client, and erode the inheritance their beneficiaries were counting on.
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“You can help your clients mitigate unwanted outcomes by showing them a plan using LTC coverage to ‘self-assure’ with a guaranteed stream of leveraged benefits vs. ‘self-insuring’ with a dollar-for-dollar reduction from their portfolio.” |
A $2 Million Portfolio, Two LTC Events, and a Widow Left With Nothing
Consider a hypothetical couple with a $2 million retirement nest egg, conservative investors who want to leave something behind for their children and the charities they've supported. They start by drawing 4% a year in income, then freeze that draw at $85,000 when markets get choppy around age 78.
At 80, the husband has a long-term care event — a serious fall, a stroke — that requires professional care costing $120,000 a year for four years. With no other funding source in place, that extra $480,000 in expense comes straight out of the portfolio. By the time he passes away at 84, the couple's $2 million balance has fallen to $825,996.
A few years later, the widow has her own long-term care event. She reduces her income to $40,000 because she'll be moving to a facility, but the cost of her care is enough to exhaust what's left of the portfolio in just over three years — leaving nothing for her heirs, nothing for the charities they'd supported, and nothing for the financial professional to continue managing.
What Advisors Can Do Right Now
- Model a hypothetical long-term care event against a client's actual portfolio — a draw-down visual makes the risk concrete in a way conversation alone doesn't.
- Ask directly which resources a client would tap first for an extended-care need before assuming “self-funding” is a real, workable plan.
- Position LTC coverage as protecting the portfolio and your ongoing advisory relationship, not just protecting the client.
- Revisit the self-funding conversation after every market downturn — a bad sequence of returns makes an unprotected LTC event even more dangerous.
As a CLTC®-certified professional, you're equipped to walk clients through exactly this kind of scenario — replacing a vague sense that they can “self-fund” with a concrete picture of what an unprotected long-term care event could cost their portfolio, their spouse, and their legacy.