LTC Annuity
An annuity-based approach to long-term care planning: principal-protected, tax-deferred, funded with a lump sum from an IRA, 401(k), or CD, and paired with a benefit multiplier if care is ever needed — with no medical underwriting required.
What Is an LTC Annuity?
An LTC annuity is a deferred annuity — typically a fixed equity index annuity — with a long-term care rider that multiplies your benefit pool if you ever need care. It's funded with a single lump sum (commonly an IRA rollover, 401(k) rollover, or underperforming CD), grows tax-deferred, and protects your principal from market losses. If you never need care, it delivers guaranteed lifetime income and passes any remaining value to your beneficiaries — there is no “use it or lose it” risk.
To understand where an LTC annuity fits in a retirement plan, it helps to start with the Rule of 100: subtract your age from 100, and that's the percentage of your portfolio that should be in stocks. The rest belongs in principal-protected vehicles. In the short video below, Darrick Wilkins and Drew Nichols walk through the rule, the math of sequence-of-returns risk, and why fixed equity index annuities — including LTC annuities — are the highest-yielding vehicle you can use for the protected side of that allocation.
Key Takeaways From the Video
The four ideas Darrick and Drew keep coming back to when they talk with clients approaching retirement.
The formula: 100 − your age
At 60, you want roughly 40% in stocks and 60% in principal-protected assets. At 65 it's 35/65. Most 50- and 60-somethings are running 80–90% in equities right now — the opposite of what the rule calls for, because a long bull market quietly drifted their allocation.
A 50% drop needs a 100% gain
If a $1M portfolio gets cut to $500K, it takes a 100% return — not 50% — just to break even. The deeper the drawdown, the more asymmetric the recovery. This is the math most investors underestimate until they live through it.
Sequence-of-returns risk
When a market crash lines up with the first years of retirement, it permanently damages the portfolio. Someone who retired in 2000 saw their stock allocation drop ~50%, clawed back to even by 2007, then lost another 57% in the financial crisis. Timing isn't a risk you can control — but you can control how exposed you are to it.
Fixed equity index annuities
The highest-yielding vehicle that still preserves principal. Your money is linked to an index (S&P 500, NASDAQ, or a synthetic index), participates in the upside, and locks in gains every year or two. If the market drops, you get a 0% return — not a negative one. CD-like returns or better, without the tax drag.
The Recovery Math: Why Drawdowns Are Asymmetric
Every drawdown needs a bigger recovery than the drop itself. The deeper you go, the more severe the asymmetry. This is the chart Darrick flags in the video as “the thing most people forget.”
To Break Even After a Loss, You Need…
| Portfolio drop | Required gain to recover | Historical example |
|---|---|---|
| −10% | +11.1% | Routine pullback |
| −25% | +33.3% | 2022 inflation bear market |
| −34% | +51.5% | COVID drop, March 2020 |
| −50% | +100% | Dot-com crash, 2000–2002 |
| −57% | +132.5% | Financial crisis, 2007–2009 |
The Uncle Don problem
Drew tells the story of his uncle, who inherited about $4M in 2006, put it all in stocks at the top, rode it down to $2M during the financial crisis, and then panic-sold to CDs at the bottom in 2009. For the next fifteen years, CDs paid 1–2%. The drawdown didn't ruin him — the emotional response to the drawdown did. A balanced portfolio lets you lean on the principal-protected side during a crash instead of selling equities at the worst possible time.
Where the LTC Annuity Fits
On the risk spectrum Darrick walks through, the fixed equity index annuity sits at the top of the “no risk to principal” band — the highest-yielding vehicle you can use for the below-the-line portion of your portfolio. An LTC annuity is a specific flavor of that vehicle: a deferred fixed or equity index annuity with a long-term care rider that multiplies your available pool — often 2–3x — if you ever need care.
Funded with a single lump-sum premium, it grows tax-deferred. If you never need long-term care, it functions as a standard deferred annuity: guaranteed lifetime income, with any remaining value passing to your beneficiaries. There is no “use it or lose it” risk. The tax code (Pension Protection Act of 2006) also lets LTC benefit payments come out tax-free up to IRS per diem limits — one of the most tax-efficient ways to fund care.
Key Benefits
Fixed index annuities with LTC riders bundle principal protection, tax-deferred growth, guaranteed income, and long-term care leverage into a single contract.
Principal Protection
Your original deposit is protected. You cannot lose money in the annuity even if the market drops 50%. In a down year, your index credit is 0% — never negative.
Index-Linked Upside
Money is tied to an index of your choice (S&P 500, NASDAQ, or a synthetic index from Fidelity, Morgan Stanley, Barclays, etc.) and captures gains — real clients have seen 6–13% annual credits in the past five years.
Tax-Deferred Growth
No 1099 every year like a CD. Your money compounds gross of tax until you withdraw it — and LTC distributions come out tax-free up to per diem limits.
Guaranteed Lifetime Income
Turn the annuity into an income stream you can't outlive. Income riders can guarantee 8–10% growth on the income base — at the cost of a modest (~1.25%) rider fee.
No Medical Underwriting
Every applicant qualifies regardless of health status — the key differentiator for those declined for traditional LTC or life-based hybrid policies.
IRA & 401(k) Rollover Eligible
Fund the annuity by rolling over an existing IRA, 401(k), or qualified retirement account with no tax event at funding. Underperforming CDs and bonds can also be repositioned.
How the Benefit Multiplier Works
When you fund an LTC annuity, your deposit creates an income base that grows through guaranteed interest and/or index credits. Gains are locked in every year or two — once captured, they become the new low-water mark. An LTC “doubler” benefit then doubles your available income for up to five years if you qualify for care.
Example: $500,000 Deposit
Day 1: $500K deposit receives a 10% premium bonus, creating a $600K income base immediately.
Growth: The income base grows via guaranteed interest and locked-in index credits over time. After 20 years, the guaranteed income base reaches approximately $1.55 million.
LTC Doubler: If long-term care is needed, the doubler benefit could provide $60,000+ per year for care expenses for up to five years.
Real-World Scenario
Margaret, Age 60
Margaret is 60 years old with $200,000 in an old IRA she wants to reposition. By the Rule of 100, her target equity allocation is 40% — but her IRA is 95% in stocks. She rolls the $200K into an LTC annuity and defers income for ten years.
Guaranteed income at age 70
If LTC is needed (doubler benefit for 5 years)
If Margaret never needs long-term care, she receives $30,000 per year in guaranteed income for life. If she does need care, the LTC doubler kicks in and she receives$60,000 per year for up to 5 years — up to $300,000 in LTC benefits from a $200,000 deposit.
Who This Is Ideal For
Tax Advantages
A major reason annuities look different than they did a decade ago: the tax code still gives them preferential treatment, and rates are now high enough to make that preference matter.
Pension Protection Act
The Pension Protection Act of 2006 enables tax-advantaged LTC distributions from annuities. LTC benefits are paid tax-free up to IRS per diem limits — one of the most tax-efficient ways to fund care.
Tax-Deferred Growth
All gains inside the annuity grow tax-deferred until withdrawn. Compare that to a CD, where you get a 1099 every year — when you factor in inflation and taxes, CDs produced a real negative return in 20 of the last 25 years.
Tax-Free LTC Benefits
LTC benefit payments from the annuity are received tax-free up to IRS per diem limits — so more of every dollar goes toward actual care rather than the IRS.
Pre-Tax Pension Benefits
Eligible groups — police, fire, state, and federal employees — may qualify for pre-tax pension contributions toward their LTC annuity, further reducing effective cost.
Going Further: Tax-Free Lifetime Income With Roth IRAs and Annuities
Once the principal-protected side of your portfolio is in place, the next question is how to turn it into income that the IRS can't claw back. This companion video walks through how Roth IRA conversions combine with annuity strategies to produce truly tax-free retirement income.
LTC Annuity vs. Life-Based Hybrid
| Feature | LTC Annuity | Life-Based Hybrid |
|---|---|---|
| Primary Focus | Guaranteed income + LTC protection | Death benefit + LTC protection |
| Funding | Single lump sum | Lump sum or annual premiums |
| Death Benefit | Remaining account value to beneficiaries | Full life insurance death benefit |
| Medical Underwriting | None — everyone qualifies | Required — health-based approval |
| Life Insurance Component | No | Yes |
| Best For | Income + LTC; those with health issues | Those needing life insurance + LTC |
No Medical Underwriting
This is the most important differentiator of the LTC annuity. Unlike traditional LTC insurance and life-based hybrid policies, there is no medical underwriting — every applicant qualifies regardless of health status.
If you've been declined for traditional long-term care insurance or a life-based hybrid policy due to health conditions such as diabetes, cardiac history, or other pre-existing conditions, an LTC annuity may be your best remaining path to LTC coverage.
Funding Sources
LTC annuities are funded with a single lump sum. Common sources, all of which Darrick and Drew see every week:
Roll over a traditional IRA directly into the annuity with no taxable event at funding.
Transfer old employer-sponsored 401(k) funds into an LTC annuity upon retirement or job change.
After-tax savings, brokerage accounts, or other non-retirement assets.
Reposition underperforming CDs or bonds into a vehicle with greater growth potential and LTC leverage.
1035 exchange an old, lower-rate annuity into a new contract. Many carriers will even pay a bonus to move.
Lump sums from inheritance or settlement that you want to protect while keeping growth potential.
Eligible police, fire, and government employees can direct pre-tax pension dollars into LTC annuities.
Proceeds from home sales, business sales, or other one-time liquidity events.
Frequently Asked Questions
The questions that come up most often when people first hear about the Rule of 100 and LTC annuities.
What is the Rule of 100 in investing?
The Rule of 100 is a financial-planning rule of thumb: subtract your age from 100, and that number is the maximum percentage of your portfolio that should be in stocks and other higher-risk assets. At age 60, that’s 40% in stocks; at 65, 35%. The remainder belongs in principal-protected assets — bonds, CDs, money markets, or fixed equity index annuities — to buffer against sequence-of-returns risk as you approach and enter retirement.
What is sequence-of-returns risk?
Sequence-of-returns risk is the danger that a market crash coincides with the early years of retirement, permanently damaging a portfolio that’s being drawn down. Two retirees can earn the identical average return over 30 years, but the one who hit a crash in year one can end up with less than half the wealth of the one who hit it in year 20. You can’t control timing — but you can control how much of your portfolio is exposed.
How do fixed equity index annuities work?
Your money is deposited with an insurance company that links your credited interest to the performance of an index (like the S&P 500 or a custom synthetic index). When the index rises, you earn a portion of that gain — often capped by a participation rate, cap, or spread. When the index falls, your credited interest is 0%, never negative. Gains lock in every year or two, and the locked-in value is the new floor going forward. The result is CD-like downside with higher long-run upside potential.
What’s the difference between a CD and a fixed index annuity?
Both protect principal. A CD pays a declared fixed rate and produces a 1099 every year — meaning you pay taxes annually whether you needed the income or not. A fixed index annuity grows tax-deferred, is linked to an index rather than a bank’s declared rate, and typically has a higher long-run return potential. The tradeoff: annuities have longer surrender periods (you can’t access the money as freely), and early withdrawals may carry surrender charges.
How much of my portfolio should be in stocks at age 60?
The Rule of 100 says roughly 40% (100 minus 60). That’s a guideline, not a mandate — your specific number depends on other income sources (pension, Social Security), total assets, essential vs. discretionary spending, and your own tolerance for drawdowns. But if you’re 60 and running 80–90% in equities, you’re materially out of balance relative to the rule and highly exposed to sequence-of-returns risk.
Can I lose money in an LTC annuity?
No. Your principal is protected. LTC annuities guarantee you’ll never receive less than your original deposit, regardless of market conditions. In a down market year, your index credit is 0% — not negative.
Is there medical underwriting?
No. Every applicant is accepted regardless of health status. This makes LTC annuities the ideal option for anyone who’s been declined for traditional LTC or a life-based hybrid policy.
Can I fund it with my IRA or 401(k)?
Yes. You can roll an existing IRA or 401(k) directly into an LTC annuity. The rollover itself is not a taxable event, and your money continues to grow tax-deferred inside the annuity.
I bought an annuity between 2010 and 2024 — should I refinance?
Probably worth a look. Annuities built when the 10-year Treasury was near zero are structurally much weaker than today’s contracts — and several carriers will even pay a bonus (a 1035 exchange bonus) to transfer you into a new, higher-yielding contract. Call us and we’ll run the numbers side-by-side.
What if I never need long-term care?
If you never need care, your annuity functions as a standard deferred annuity. You receive guaranteed lifetime income, and any remaining account value passes to your named beneficiaries.
What happens to the remaining value when I pass away?
Any remaining account value is paid to your designated beneficiaries. Unlike traditional LTC insurance, nothing is lost if you never use the LTC benefit.
Related Terms
A short glossary of the terms Darrick and Drew reference in the video and throughout this page.
The number of years until you begin drawing money from a portfolio. Shorter time horizons mean less room to recover from a drawdown, and therefore usually call for a more conservative allocation.
The period of retirement during which you are actively taking withdrawals from your portfolio rather than contributing to it. The early years of drawdown are the most exposed to sequence-of-returns risk.
An investment objective focused on protecting principal rather than maximizing return. Above roughly age 65, many planners argue capital preservation should be the default stance for most of a portfolio.
A proprietary index built by a bank or asset manager (Fidelity, Morgan Stanley, Barclays, etc.) specifically for use inside index annuities. Synthetic indexes target smoother returns by controlling volatility, trading some of the upside of the S&P 500 for more consistent year-to-year credits.
An optional add-on to an annuity that guarantees the income base grows at a contractually specified rate (often 8–10%) regardless of market performance. Income riders typically carry a fee (often ~1.25%) in exchange for the guarantee.
Money that is not held inside a tax-advantaged retirement account. Taxes have already been paid on the principal, but earnings on non-qualified money in a taxable account are typically reported to the IRS annually — which is why tax-deferred vehicles matter even for non-qualified dollars.
The yield on the 10-year U.S. Treasury bond. Insurance companies use this rate as a primary input when designing annuity products — when the 10-year yield is near zero (as it was from roughly 2008 to 2021) annuity products are structurally weaker; when it rises, annuity caps, participation rates, and bonuses expand.
An IRS provision that allows you to transfer one annuity contract directly into another without triggering a taxable event. Frequently used to refinance older, lower-rate annuities into today’s higher-rate contracts.
The mechanism by which an index annuity limits your share of index gains. A 70% participation rate means you earn 70% of the index’s gain that year; a 10% cap means your credit can never exceed 10% regardless of index performance.
A 2006 federal law that, among other things, allows LTC benefit payments from an annuity to be received tax-free up to IRS per diem limits — a major reason LTC annuities are so tax-efficient.
About the Hosts
Darrick and Drew are first cousins, co-presidents of LTC Tree, and the two voices you see in the videos on this page. Both are economists by training and both are licensed in all 50 states.
Darrick Wilkins
Founder & Co-President
Economics graduate of the University of Georgia and a veteran of John Hancock Financial. Darrick founded LTC Tree in 2001 as one of the first online-only long-term-care insurance agencies. Licensed in all 50 states, 20+ years in the industry.
Read Darrick's full bioDrew Nichols
Co-Founder & Co-President
Economics and Finance graduate of Clemson University. Drew founded ValueTech in 1995 — one of the first U.S. web-hosting companies — and merged it with LTC Tree in 2005. Over a decade in long-term-care planning and 20,000+ families helped. Licensed in all 50 states.
Read Drew's full bioSee If an LTC Annuity Fits Your Rule of 100
As independent brokers, we compare fixed equity index and LTC annuity options from top carriers and show you how each fits into the below-the-line portion of your portfolio. Whether you're repositioning an IRA, rolling over a 401(k), or evaluating whether an old annuity can be refinanced into today's higher rates, we can help.