TL;DR
A Kiplinger report argues that retirees who plan to self-fund long-term care should account for taxes, Medicare limits, market risk and the burden care can place on family members. It describes one insurance-based strategy using IRA assets, but the example is not a universal recommendation and depends on eligibility, policy terms and individual circumstances.
A Kiplinger report is urging retirees to look beyond their savings balance when deciding whether to self-fund long-term care, citing potential tax costs, market risk and the demands care can place on spouses and adult children. The report also describes a hybrid long-term-care insurance strategy funded with IRA assets, while acknowledging that such coverage has limits and requires underwriting.
The report illustrates the potential cost of withdrawals with a hypothetical $10,000 monthly care bill. It says that, for someone withdrawing from a traditional IRA, which generally contains untaxed funds, taking out about $16,000 to $18,000 may be needed to leave $10,000 after taxes. The actual amount would depend on a person’s tax circumstances. Higher income may also affect Medicare premiums through income-related monthly adjustment amounts, or IRMAA, the report says.
Another risk is the timing of care costs. A health event can require spending even when markets are down, potentially forcing a retiree to sell investments at an unfavorable time. The report also emphasizes the family workload: relatives may end up coordinating or providing care and making financial decisions during a crisis. These are risks to weigh, not outcomes that every family will experience.
As an example, the report describes a hypothetical couple, Richard and Diane, and a possible transfer of $280,000 from an IRA to an IRA held at an insurance company to fund a hybrid policy over 10 years. In the report’s illustration, interest brings the amount to roughly $345,000. The described policy would provide a starting monthly care benefit slightly above $6,000, with a 3% annual increase for 20 years, and a death benefit if care is never needed. Those figures are specific to the illustration; the report does not establish that the same terms would be available to other buyers.
The Costs Reach Beyond Savings
The central point is that long-term-care planning affects more than the size of a retirement portfolio. Paying directly from savings may mean larger taxable withdrawals, potentially higher Medicare premiums and fewer options when investment values are down. A care plan can also affect a spouse’s financial security and the time and responsibilities adult children take on.
The insurance approach in the report is presented as one possible way to shift some of that risk, not as a guaranteed improvement over self-funding. A policy’s benefits, cost, inflation adjustments, eligibility rules and exclusions matter. Some expenses may remain uncovered, and care costs can rise. The relevant comparison is each household’s likely resources and needs against the actual contract terms and premiums available to them.
The report’s family example also highlights a nonfinancial consideration: relatives may have to manage care decisions and bills if no plan is in place. That does not mean self-funding necessarily leaves families unsupported. It means retirees may want to discuss who would coordinate care, what resources could be used and what limits they would set before a crisis occurs.
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Medicare and IRA Trade-Offs
The report challenges the assumption that Medicare will pay for long-term care. It says Medicare may cover a limited skilled-nursing-facility stay after a qualifying hospitalization, but generally does not serve as long-term coverage for ongoing custodial assistance. The exact coverage depends on the person’s circumstances and applicable Medicare rules. The report particularly points to prolonged support for conditions such as dementia as a situation in which families should not assume Medicare will pay the bills.
Its insurance example uses a custodian-to-custodian IRA transfer and says annual transfers may count toward required minimum distributions once the account holder reaches the applicable age. The source describes Richard as approaching RMDs and refers to age 73. IRA distribution rules and tax treatment can depend on the account and transaction, so readers should not treat the example as a substitute for advice from a tax professional or a review of policy documents.
The source frames the strategy as one option for retirees with untaxed IRA savings who qualify medically. It says the policy in the example has separate benefits for each spouse and a death benefit if neither needs care. Those features, and the amounts described, are claims about the illustrated product structure rather than independent confirmation of terms for a specific policy.
„“The real question was never whether you can pay for long-term care. It’s what happens to your spouse and your children while you do.”“
— Kiplinger report author
Policy Terms Vary by Household
The source does not provide a publication date, independent pricing data or a full policy contract. It is unclear which insurer or product is used in the example, what fees, exclusions or benefit triggers apply, and whether the reported projections include every cost. The stated benefit increases and potential tax treatment should be checked against actual policy documents and a person’s circumstances.
Eligibility is also unresolved for any individual reader. The report says long-term-care insurance requires underwriting and that health changes can affect qualification, but it does not give underwriting criteria or approval odds. The $10,000 monthly care figure and the $16,000-to-$18,000 withdrawal estimate are examples, not forecasts for every location, tax bracket or care arrangement. No comparison is supplied between the illustrated policy and other insurance or self-funding options.
Compare Costs Before Choosing
The report recommends that retirees estimate the after-tax cost of paying for care from their own assets, including possible Medicare premium effects, rather than comparing plans only with the care bill’s listed price. It also encourages people in their 60s to explore coverage while they are healthy, though eligibility and pricing cannot be guaranteed.
For anyone considering an IRA-funded policy, the next steps are to review the contract’s benefit triggers, exclusions, payment schedule, inflation provisions and death benefit; confirm the tax and RMD treatment with a qualified tax professional; and compare the policy with other ways to fund care. Families may also want to discuss who would manage care and finances if a health crisis occurs. The report does not announce a new regulation or product; it offers a planning argument and a specific illustrative strategy.
Key Questions
Does Medicare pay for long-term care?
Medicare coverage is limited and is not a general payment source for ongoing custodial care. The report says Medicare may cover a qualifying skilled-nursing-facility stay after hospitalization, but readers should check current Medicare rules for their situation.
How much might a $10,000 care bill cost from a traditional IRA?
The report estimates that a retiree might need to withdraw $16,000 to $18,000 to have $10,000 left after taxes. This is an illustration, not a personalized calculation; tax rates, filing status and other income can change the result.
What insurance strategy does the report describe?
It describes moving IRA assets through a custodian-to-custodian transfer to fund a hybrid long-term-care policy. The example includes care benefits and a death benefit, but terms and availability depend on the insurer, contract and applicant’s eligibility.
Does the illustrated policy cover every care expense?
No. The report explicitly says the policy may not cover every dollar of every care scenario and that costs can rise. A reader would need to examine the policy contract and compare its benefits with expected expenses.
What should retirees check before self-funding or buying coverage?
Compare likely after-tax withdrawals and possible Medicare premium effects with the actual cost and terms of coverage. Also review eligibility, benefit limits, exclusions, inflation provisions and how care planning could affect a spouse or family members. Consult qualified tax and insurance professionals for individual guidance.
Source: kiplinger.com
