As a Money Coach, I encourage each client to invest two years worth of nursing home costs in I-Bonds. This separates retirement savings from Long Term Care/Medical Emergency costs. The goal is a minimum of $120,000 per person. I-Bonds are U.S. Government savings bonds; the interest rate on I-Bonds is changed every six months to keep pace with the rate of inflation. I-Bond purchase is limited to $10,000 per person, per year – $5000 online plus $5000 in paper bonds. Because of the purchase restrictions, yearly purchase should start when the client is in his/her 50’s and 60’s; 65 is not too late to start however.
The client controls and owns the I-Bonds; the money in I-Bonds is an investment, not an insurance premium expense. It is not tied up in annuities. The money can be used to supplement health insurance costs or for Long Term Care or both. The money also is available for other use, or it can be passed on to beneficiaries.
Knowing that money has been set aside for medical use provides additional peace of mind to the client. They know they have a bucket of money for unexpected medical expenses.
I-Bonds will match inflation and are not subject to stock market or interest rate risk.
I-Bonds are tax deferred and not subject to state tax when cashed in.
Health care costs most probably will continue to rise faster than inflation meaning additional purchases of I-Bonds might be necessary.
Clients are not happy with advisors who recommend investing their money at 0.74% (six month I-Bond rate beginning November 1, 2010; rates are adjusted every May and November).
Tax deferred may not be wise with higher taxes expected in the years ahead.
The use of I-Bonds for medical emergencies or Long Term Care may not be appropriate or possible for everyone. Everyone, however, should be aware that there is a definite need for extra money to address health care issues. We are living longer and the longer we live, the greater the possibility that health issues will drain our savings. The important thing is to have a plan in place to address these costs.