One topic that almost universally inspires dread among the newly and nearly retired is paying for long-term care for themselves or family members. Why is it so vexing? It’s an intersection of unpleasant subjects with few easy answers.

Few of us like to contemplate a time when we can’t take care of ourselves or loved ones. Reading a long-term care insurance policy will introduce you to the cold language of incapacity. You can generally qualify for benefits if you cannot perform at least two of the six activities of daily living (including feeding yourself and getting dressed) or have severe enough dementia that you can’t take care of yourself.

If you or a family member needs help, the costs can be astronomical and have increased rapidly. According to the most recent Genworth Cost of Care Survey (genworth.com/aging-and-you/finances/cost-of-care), the average cost of assisted living in the Boulder Area is $4,600 per month. While there are many definitions of assisted living, generally it’s designed for those who need or want a residential situation that provides food, shelter and access to a moderate level of care. Home health aides were an average of $8,580 a month based on just over six hours of care a day. Full skilled nursing care in a private room was just under $12,000 a month.

With high costs and a nontrivial likelihood of needing long-term care, as we get older, it’s important to understand how to pay for it. Among the most common answers are “self-insurance,” having enough money saved to cover any costs that could arise; a classic long-term care insurance policy that, if you can qualify for it, will typically cost many thousands a year subject to increases and a limited duration of benefits; a hybrid long-term care annuity or life insurance policy usually with easier underwriting and fixed costs but a limited payout; the federal-state Medicaid program that requires impoverishment and a limited access to providers; and so-called Continuing Care Retirement Communities that offer a continuum of services with access available for a lump sum payment often in the high six figures and monthly fees.

After witnessing clients and their loved ones encountering issues with these approaches, I’ve thought about a different answer to help cover long-term care expenses. It’s called a Qualified Longevity Annuity Contract, or QLAC. While it’s not specifically designed for long-term care expenses, at its core, a QLAC pays a monthly benefit starting at a future age in exchange for a lump sum now. In general, I’m not a big supporter of annuities as a tool to improve your personal finances. The industry has been rife with huge commissions and expenses, conflicts of interest, churning of policies, complex contracts and “illustrations” with optimistic performance projections.

Perhaps a QLAC can best be explained with an example. Let’s imagine Mike and Laura, a 60-year-old couple concerned about paying for long-term care expenses. Mike could potentially purchase a QLAC for $200,000 that would start a monthly payment of $6,584 when he turns 80. Laura could also purchase a QLAC that would pay $5,923 a month, with a lower payout given that women have a longer life expectancy. Those payments would start at age 80 and continue as long as they individually live and are not subject to whether or not they need long-term care services. With the passage of the Secure 2.0 Act, retirees can use up to $200,000 of their IRA to purchase a QLAC. Monthly distributions would be taxable and would satisfy required minimum distribution rules.

This is not a perfect solution. While a monthly payout of $6,584 sounds substantial now, 20 years of 2.5% annual inflation would reduce its value to just over $4,000 in today’s dollars (and inflation could continue after payment begins). If you’re unlucky enough to die before the QLAC pays out (or soon after it begins payment), your survivors are out the money unless you pick a policy option with guarantees but also lower monthly payments. You also want to make sure that the insurance company is on extremely sound financial footing as you could be depending on it for the next 30 or 40 years. Finally, as with most insurance policies, on average, you end up behind the alternative of simply investing the money in a low-cost portfolio over time.

There’s also a lot to like. You don’t have to prove to the insurance company that you need long-term care services (and continue to substantiate it). You simply receive the payments once you reach the age in the policy. Also, you don’t need to submit pay your care bills and wait (hope?) for reimbursement from the insurance company.

Most who are considering a QLAC or another type of annuity should work with a certified financial planner who has a fiduciary obligation in all their dealings with you. If you want a quick quote for your situation, look at immediateannuities.com. Also, most thinking of a payout annuity should think carefully about delaying the start of their Social Security retirement benefits as for many it’s the cheapest inflation-adjusted annuity you can “buy.”

David Gardner is a Certified Financial Planner™ professional at Mercer Advisors practicing in Boulder County. Opinions expressed by the author are his own and are not intended to serve as specific financial, accounting, or tax advice. They reflect the judgment of the author as of the date of publication and are subject to change. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. The hypothetical examples above are for illustration purposes only. Actual investor results will vary. Every individual’s situation is unique, and you should consider your investment goals, risk tolerance, and time horizon before making any investment decisions. For financial planning advice specific to your circumstances, talk to a qualified professional. Mercer Global Advisors Inc. is registered with the Securities and Exchange Commission and delivers all investment-related services. Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services.