InvestmentNews labeled Sen. Pat Toomey’s proposal to allow American consumers limited access to retirement savings to cover long-term care as one (among other) “ideas to raid retirement savings.” I don’t see it that way.
Long-term care insurance covers caregiving costs due to an inability to perform activities of daily living or cognitive loss. Most Americans who experience such a loss first need care during their golden years. Without long-term care coverage, the cost of that care can wipe out a lifetime of retirement savings in short order.
Long-term care insurance provides funds for caregiving that typically aren’t covered by Medicaid or Medicare. Recognizing the threat that long-term care events pose to Americans’ retirement security, Sen. Toomey’s proposal is, in fact, all about retirement security. It provides a lower-cost way for Americans to protect their retirement assets by purchasing long-term care coverage. His proposal would permit tax-free withdrawals of up to $2,000 a year from retirement savings plans to purchase long-term care insurance.
Purchasing long-term care insurance with retirement savings isn’t a “raid” on savings, as InvestmentNews asserts. Using retirement savings to buy long-term care insurance isn’t like using these funds to purchase a boat or pay for a fancy vacation. It’s using retirement funds to protect a retiree’s savings. And buying it earlier in life can lead to lower premium costs. In doing its math, InvestmentNews missed the value of this insurance in retirement and the lower cost of coverage when purchased before retirement.
The risk of long-term care expenses in retirement is a big challenge. We should not discourage policymakers from coming up with ideas to help Americans achieve retirement security.
While I’m not on board with InvestmentNews on Sen. Toomey’s proposal, they were right to criticize Sen. Rand Paul’s proposal to permit tax-free withdrawals to cover student loan payments. While Sen. Paul’s focus on student debt is admirable, encouraging Americans to drain retirement savings to cover that debt just doesn’t make sense. And, unlike Sen. Toomey’s proposal, it provides no meaningful security in retirement.
Jim Szostek is Vice President & Deputy, Retirement Security at the American Council of Life Insurers (ACLI). He helps guide ACLI policy on legislation and regulations affecting the U.S. retirement system. Prior to joining ACLI in 2008, he held positions at CIGNA and The Hartford.
