Repositioning Assets for Long-Term Care

Meet Monica and Peter

Monica and Peter are a married couple in their early 60s who had built a strong financial foundation heading into retirement. They had saved well and felt confident about their income plan, but one concern weighed on them: what would happen if one of them needed long term care? They had watched friends go through expensive care situations and knew it could derail even a solid retirement plan. Peter (who was older) didn’t want Monica to face the stress of managing his care while worrying about their finances.

Their Situation

Monica and Peter had a large non-qualified annuity they’d owned for years. It had grown significantly, but they didn’t really need it for income, since they had other assets for that. The problem was that if they withdrew money from the annuity, the gains would be taxed as ordinary income. They weren’t big fans of insurance products in general, but they also couldn’t ignore the risk that long-term care costs posed to everything they’d worked to build.

How We Helped

We started by reviewing the details of their existing annuity and any benefits they had through work to see if enough long-term care coverage was already in place. Unfortunately, it wasn’t. From there, we explored whether they could reposition part of their annuity into a product that included long-term care benefits without triggering an immediate tax bill.

We identified a strategy that would allow them to use part of their existing annuity to provide access to long-term care benefits as tax-free income. This was important because under their current setup, any withdrawal would be taxed at ordinary income rates. We worked with several carriers to help Monica and Peter understand the tradeoffs and choose the solution that made the most sense for their situation.

What Changed

Monica and Peter now had a plan that addressed their concern without forcing them to liquidate investments or pay unnecessary taxes. They gained peace of mind knowing that if either of them needed care, the policy would help cover it—and if they didn’t, the remaining value would still benefit their heirs. More than anything, they felt relieved that this major risk was now accounted for in a way that fit with the rest of their plan.

Insights for Your Own Plan

If you own a non-retirement annuity with big gains and are concerned about long-term care costs, this type of strategy may be worth exploring. You don’t have to move the entire annuity. Partial exchanges are often possible, though not all carriers allow them, so it’s important to understand the rules before moving forward.

Long-term care planning doesn’t necessarily have to mean buying a traditional policy or draining liquid assets. Sometimes the most effective solution is repositioning what you already have in a way that reduces taxes and manages risk at the same time. This is one example of how addressing a specific concern can, perhaps surprisingly, strengthen your overall financial wellbeing.