By George McFadden
Long-term care (LTC) annuities have quickly become one of the most talked-about tools in retirement planning—and for good reason.
With long-term care costs rising and traditional LTC insurance falling short, these hybrid solutions offer what many retirees are looking for: protection, predictability, and peace of mind.
But not all long-term care annuities are created equal.
After 25 years in the financial services industry, I’ve seen firsthand that even the right product can underperform if structured the wrong way. It’s not enough to know what a long-term care annuity is; you need to know how to evaluate it, how to fund it, and how to determine if it truly fits into your overall plan.
Why Even Smart Retirees Make Costly LTC Mistakes
Most retirees I meet have done a great job saving and investing. But few have taken steps to shield those savings from the biggest financial threat they’re likely to face in their later years: extended care costs.
It’s not that they’re unaware. More often, it’s a combination of information overload, uncertainty about the options, and the lack of a reliable guide to help separate fact from marketing.
Long-term care annuities can be one of the most effective tools in retirement—but only when structured intentionally, with the right product and proper funding strategy.
5 Questions Every Retiree Should Ask Before Buying an LTC Annuity
If you’re considering using a portion of your savings for long-term care protection, these five questions help clarify whether the annuity you’re being offered is truly the right fit.
1. Does the Contract Offer True Long-Term Care Benefits—or Just a Marketing Gimmick?
Not every product that mentions “long-term care” offers actual tax-qualified LTC benefits.
Some annuities merely include a feature that increases income temporarily if care is needed, commonly referred to as an “income doubler.” While helpful in some situations, this is not the same as a true long-term care rider.
A properly structured LTC annuity should meet federal guidelines under the Pension Protection Act and provide:
- Tax-free withdrawals when used for qualified long-term care services
- Health-based underwriting (even if simplified)
- Clear definitions of benefit triggers based on activities of daily living (ADLs)
2. What’s the Multiplier, and How Long Do the Benefits Last?
Most LTC annuities offer a 2x or 3x multiplier on the initial investment if long-term care is needed. However, it’s important to look beyond the headline multiplier and ask:
- How long are benefits paid out?
- Is there a cap on monthly or lifetime benefits?
- Is the benefit guaranteed for life or just a limited number of years?
Example: A $100,000 deposit with a 2x multiplier may provide $200,000 in LTC benefits—distributed at $4,000/month for 50 months.
These details vary widely by product and can make a significant difference in how well the annuity performs when care is needed.
3. What Are the Health Requirements, and When Should the Application Be Completed?
One of the advantages of annuity-based LTC solutions is the simplified underwriting, typically a short health questionnaire rather than a full medical exam.
However, the window to qualify narrows with age or declining health.
The ideal time to explore long-term care annuities is between ages 55 and 70, when health is stable and options are abundant. Waiting too long can result in disqualification due to pre-existing conditions or limited contract availability.
If you’re healthy now, consider this your opportunity window.
4. What Type of Funds Will Be Used, and What’s the Tax Impact?
Long-term care annuities can be funded with:
- Non-qualified assets (bank savings, CDs, brokerage accounts)
- Qualified funds (401(k), IRA, or rollover assets)
The funding strategy determines how taxes will be handled, how income will be distributed, and whether any required minimum distributions (RMDs) can be satisfied.
For instance, it’s possible to use a Qualified Longevity Annuity Contract (QLAC) structure to delay RMDs and enhance LTC leverage with IRA dollars. Other cases call for a non-qualified strategy to maximize tax-free LTC distributions under the Pension Protection Act.
Each funding path has trade-offs that should be discussed with a retirement income professional who understands both tax law and annuity design.
5. How Strong Is the Insurance Company Backing the Annuity?
Every annuity is only as secure as the insurer behind it. For that reason, it’s critical to verify:
- Financial strength ratings from AM Best, Moody’s, or S&P
- The company’s history of claims-paying ability
- Their commitment to long-term care product lines
Personally, I only recommend products from insurers rated A or better, with a strong history in the annuity space and a proven LTC claims track record.
What Sets My Process Apart
There’s no shortage of people selling annuities; but most are focused on the sale, not the strategy.
My role is to help clients near or in retirement identify safe money solutions that protect income, preserve principal, and create clarity in uncertain times. Long-term care annuities are just one part of that.
When reviewing these solutions with clients, the process includes:
- Conducting an income-gap analysis to estimate potential care costs
- Evaluating existing coverage and savings vehicles
- Identifying the most tax-efficient funding method
- Comparing multiple product designs from independent carriers
- Explaining everything clearly—without pressure or confusion
The goal is simple: provide honest, customized recommendations that clients understand and feel good about.
Final Thoughts: A Better Way to Protect What You’ve Built
Long-term care planning is no longer optional. With 10,000 baby boomers turning 65 every day and care costs continuing to rise, the question isn’t if care will be needed—it’s whether the income plan will survive the expense.
The right long-term care annuity can:
- Provide tax-free benefits for qualified care
- Offer guaranteed income, care or no care
- Protect a spouse or family from financial strain
- Eliminate the burden of unpredictable premium increases
- Deliver peace of mind that lasts beyond a market cycle
The key is not rushing into the first option presented. It’s taking the time to evaluate what works for your unique needs—guided by someone who understands both the products and the people they serve.
Ready to Evaluate Your Options?
To explore whether a long-term care annuity fits your retirement strategy, schedule a no-pressure conversation with me directly. Schedule your free review today.
About George
George McFadden is the principal at Retirement Protection Solutions, a financial advisory firm in the Greater Cleveland area focused on guiding clients in the “Retirement Red Zone”—those nearing or entering retirement who need protection, reasonable growth, and guaranteed retirement income. With over 25 years of experience working alongside top financial advisors across the U.S., George saw a significant gap in traditional retirement planning. His mission is to fill that gap by helping clients protect their hard-earned savings and create a reliable retirement paycheck that lasts for life.
Many advisors offer a broad array of investment services that expose clients to market risk, often leaving those approaching retirement vulnerable. George’s value proposition is different: he emphasizes protection, ensuring clients don’t lose their principal, and offers guaranteed retirement income solutions to provide lasting confidence and peace. In partnership with Retirement Realized, George brings clients strategies that focus on safety and security, designed specifically for those who want to retire stress-free without relying on risky market-driven approaches. George is passionate about educating retirees on their income options, answering their questions, and separating fact from fiction. He believes the best benefit he provides to clients is a guaranteed retirement income that lets them sleep soundly at night.
Outside of the office, George enjoys golfing, biking, hiking, fly fishing, and boating. He is also deeply committed to supporting research for a cure for Type 1 Juvenile Diabetes, inspired by his daughter’s battle with the disease. To learn more about George, connect with him on LinkedIn.