In this video, Pure’s Senior Financial Advisor, Kyle Stacey, CFP®, AIF®, breaks down the essential aspects of long-term care planning, including coverage options, insurance, substantial costs, qualification requirements, and strategic approaches to protect your retirement assets while ensuring quality care.
Outline
- 0:00 – Introduction
- 2:56 – Why Long-Term Care Matters
- 4:58 – Understanding the Costs
- 6:44 – Payment Options Overview
- 8:39 – Medicare Coverage & Limitations
- 9:42 – Medicaid Qualifications & Estate Recovery
- 16:37 – Long-Term Care Insurance
- 20:11 – Alternative Payment Strategies
- 32:30 – Financial Impact Case Study
- 37:31 – Action Steps & Planning Timeline
Transcription:
(NOTE: Transcriptions are an approximation and may not be entirely correct)
Kathryn Bowie, CFP®:
Hello everyone. Welcome to this long-term care webinar. We appreciate you being here. Sorry we didn’t have our fun music. We had a little technical di difficulties, but we’re happy that you’re here. We appreciate you. And my name is Katherine Bowie. I’ll be helping you out here. But our host today is Kyle Stacy, certified financial planner and a senior advisor here at Pure Financial Advisors.
We’re gonna go over a lot of did I lose him? Kyle, are you there? Oh. I think I might have lost him. We were having some technical difficulties this morning, but we’ll get it. We have a lot of information to go through, a lot of great information about long-term care, so as soon as he gets back on,
I guess I could do. A song and dance for you? No. I hope you’re all doing well. I could share the slides for you and, okay. All right. We’re we’re getting it all together. So regarding long-term care, we’re gonna go over a lot of different things about long-term care, but long-term care is one of the most important aspects of your financial plan.
We all need a, at least a plan of what we’re gonna do. Not all of us are going to need long-term care, but they say more than 56% of us will need long-term care. So if you’re one of those more than 50% who needs it, then you should have it in your plan. Now, whether or not that means long-term care insurance.
Is another story. You could have insurance and we’re gonna talk about that. But you could have all kinds of different aspects in your plan that help you cover long-term care if you need it, but not necessarily have long-term care insurance. You could have life insurance policies that will go over that have, riders to them in a way, or you could have done a really great job in your own personal retirement plans.
If you’re a client here at Pure Financial, we talk a lot about your taxes and where your investments live and how they are therefore taxed after that. So we’ll go into that as well, but. You have options, but that needs to be a part of your retirement plan. I think we have him. Hello. And this is Kyle Stacy.
He is a certified financial planner. Been with us at Pure for many years and he’s also one of our senior advisors. He is well-versed in the long-term care platform. So we have a great presentation for you and take it away. Kyle. How are you?
Kyle Stacey, CFP®, AIF®: I’m doing good. Thank you for the introduction. I think that’s the last two webinars.
We’ve had a little bit of a technical difficulty together, so look at us.
Kathryn Bowie, CFP®: It’s just, you know what part
Kyle Stacey, CFP®, AIF®: of the gig,
right?
Kathryn Bowie, CFP®: It just goes to show we are actually live and we’ll do
Kyle Stacey, CFP®, AIF®: it live.
Kathryn Bowie, CFP®: Yeah, we do it live and we go with the flow, so it’s all good. That’s it. We’re all humans,
Kyle Stacey, CFP®, AIF®: yep. Very
Kathryn Bowie, CFP®: good. Thank you Kyle.
Let’s get started and you can get into it.
Kyle Stacey, CFP®, AIF®: Yeah, you bet. This is, something that I was asked to do and I was really, I don’t wanna say excited, but it hit home a little bit. ’cause recently my grandmother started going through the long-term care process with everything going on, my mom’s taken over for that.
So this kind of hits near and dear to my heart. So I can tell you there’s no amount of planning that you can do to truly really be prepared for something like this. And a lot of you on this call are actually probably in that sandwich generation, where some of you may still be working. This is interesting to you, either because you’ve seen a loved one go through it, or you’re actually taking care of a loved one yourself.
The goal of today is really to give you as much information as we can. We’ll answer some questions, so for the next 30, 45 minutes or so, we’ll go through some planning ideas, how it works, things to consider, some ideas for you. So with that, let’s dive in what is long-term care?
Okay, so this is often sometimes confused with long-term disability. So sometimes when I meet with people I’ll ask them, Hey, do you have long-term care insurance? Have you looked into it? And they say, oh, I have some. It’s through my work. And that’s a disability policy that’s different than long-term care.
Long-term disability is essentially if you got hurt and you are injured for an extended period of time. But long-term care is essentially, if something happens to you where you can no longer use the restroom, get dressed, you’re cognitively impaired, and you need full-time care. That is different. Okay. So that is what obviously we’ll be talking about today.
So there’s these different daily activities of living as they call ’em, ADLs, that’s bathing, that’s dressing. Using the bathroom or as I said, severe cognitive impairments. This care can be provided in a number of different ways. It can be in a nursing home, which is where I think most people think this happens.
It generally ends up people take care of themselves at home or someone comes to their home. Most people want to be in their home when they, when this happens. It doesn’t even need to be full-time care either. It could just be someone coming through, a couple hours a day checking in. Or it could be the family coming in taking shifts.
Okay. And it can apply to any age. There’s no age restriction on long-term care. This can happen to a lot of people and we’ll go through some statistics today, but roughly 40% of people that are on long-term care or in some sort of long-term care qualification are actually under the age of 65.
And that percentage is only going up, unfortunately. Okay. So again, there’s different types of long-term care. It can be personal care, there’s home healthcare. It could just be adult daycare, right? Where maybe you just, you drop someone off for a little bit for the day, allows you to go to work, whatever that may be.
So many different types, different flavors. Again, it’s not just going into a nursing home type of situation. Okay? So why this matters, right? This is, these are some unfortunate statistics, but generally speaking, 70% of everybody out there at some point in their life will need some sort of long-term care coverage, okay?
And 20% of adults that are 65 will need that care for longer than five years. Okay? So the first thing that comes to mind with long-term care for many people is just how expensive it is. And trust me, we’ll go through some of the numbers. But the average long-term care situation or stay in a home is typically about two to two and a half years.
Women typically make it a little bit longer than men do, but for some people it lasts a really long time. And you can imagine five years what that could do financially. Put in a strain there. Okay. Obviously it’s expensive. And I think this is something that goes a little bit unnoticed as these last two points here is, not everyone has family support.
And that’s usually the first line of defense is okay, who’s gonna help mom? Who’s gonna help dad? Most of the time it’s the spouse helping the other one. Some people might not have access to family care, right? They might be alone, or they don’t have people there to come take care of ’em. And one of the things, and I want to emphasize this down here at the bottom, is like coverage and resources takes a while to get going.
It’s not like a snap of the fingers and all of a sudden you’ve got help and care. This stuff happens very suddenly. You can see it coming, but by the time you’re actually ready to tackle it, it’s already happened, right? So cognitive depa or impairment happens really quick. Physical impairment happens really quick.
So this stuff takes time to arrange and get ready for planning. So these are times where you want to at least start thinking about it and how you’re gonna handle this, whether it be for yourself a spouse or a family member, or your siblings if you’re planning to help your parents as they age out.
Okay? So again, the biggest thing costs, right? These are just some averages, right? I’ll give you some other numbers too. I’m here in San Diego, California. Believe it or not, it is not the most expensive place to have long-term care. So we’re focusing on long-term care here, but I wanted to just highlight this section right here.
This has nothing to do with long-term care. This $172,000, that’s actually just the cost of health coverage in general. So not long-term care, that’s about roughly the average it costs for, Medicare premiums, any out of pocket costs, one off health related expenses. So that’s just the health insurance type of stuff.
But if you look at like in-Home care, $234 here in San Diego, on average it’s about 200 bucks. You go down the line, look at the nursing home, it’s almost $400 a day. And I, I don’t know if you can all see this, but I was cracking up at this like little fine print. It says the daily cost for home care is based on six hours a day.
There’s 24 hours in a day, right? So if you’re looking at these are the costs for six hours, or you can imagine how this stuff racks up if someone needs full time care. And just a little fun fact, the most expensive state in the country for long-term care is actually Alaska. Okay. There’s a little bit of a supply and demand issue up there.
There’s not enough skilled nurses and there’s, a little bit more of a different demographic up there. And then as far as the least expensive states in the country is actually Louisiana, and I believe Missouri is the other two. So all my Louisianans and Missourians, maybe you luck out a little bit, but obviously super expensive.
So that begs the difference. I was like, how do you actually cover the costs of this stuff? So paying for it, there’s a number of ways to do it. Probably before even talking about cost, we just talked about the first line of defense is usually family help. I’ve even seen a situation where a daughter is helping out her mother and she’s also got kids that are in their teenage years, like their older teenage years, early twenties, still at home, and it’s a family affair.
They’re all going over there taking shifts, helping out grandma and her mom. That’s again, always first line of defense. But when it comes to actually pay for some of these services, the number one way people pay for this is actually through Medicaid. So we’ll spend some time on Medicaid. There are different factors in how you can actually start planning if you want to use Medicaid.
Medicare, it’s a little bit misleading because Medicare does not actually cover true long-term care costs. They will for a little bit, but not extenuated circumstances. And then obviously we talked about families paying out of pocket. There’s, for those that are lucky enough to have either purchased long-term care insurance or had it offered through work at some point, that’s obviously another one that we’ll touch on.
Okay. But I thought this was one of the most crazy statistics that I’ve read in a long time, is that by 2034, okay, it’s 2026, that’s only eight years away. The number of adults, 65 and older is going to be more than children under the age of 18 for the first time ever. So we have an aging population.
This is gonna become more and more prevalent.
Kathryn Bowie, CFP®: Okay?
Kyle Stacey, CFP®, AIF®: So Medicare coverage, let’s talk about Medicare. Medicare does. Or yeah, so Medicare does not pay for long-term care coverage, right? That’s where you typically, you’re paying your part B premium depending on your income, it might be higher or lower depending on what your income situation is looking like.
But Medicare only covers essentially coverage where you’re expected to get better. They call it convalescent car. Okay? So that’s essentially like you get hurt, you need maybe some physical therapy, occupational therapy or something, but they’re not covering you more than a hundred days, right? The first 20 days they got your back, they’re not, you’re not gonna pay anything the next 80 days.
It’s gonna cost you about $217 a day in whatever facility that you use. So just do the math on, that’s about $17,000, right? For about three months worth of care. That’s with Medicare. Okay. Anything over a hundred days, they proverbially kick you out. You’re done. You gotta go into either a Medicaid facility or figure it out on your own at that point.
So again, there is a bridge, there’s a gap where Medicare, if you’re on that, they will help you for a little bit, but it is not true long-term care coverage. Okay? Whereas Medicaid, very different. Medicaid’s, essentially the federal welfare program for long-term care. This is essentially the last resort.
Okay? So we’ll start from the bottom of the options and then go up to the top. What some of the qualifying criteria for Medicaid is essentially you have to pretty much qualify for three main things. There’s an income test, there’s an asset test, and there is a look back period. Okay? And that look back period.
Medicaid knows what they’re doing here because they understand how quickly this long-term care stuff happens to people. So we’re gonna spend some time on going through some of these. So as far as the asset limits for Medicaid, there are only so many things that you’re allowed to own, right? They’ll allow you to own maybe a car.
You’re allowed to have a couple thousand dollars to your name, but they don’t want you owning any other assets like retirement accounts, brokerage accounts, they typically probably don’t want you to have a coin collection, anything like that has of monetary value. Interestingly enough, though, you can still qualify for long-term care coverage if you own your home.
I think there’s some misconceptions out there. Your primary residence is often excluded from the qualifications of Medicaid. Okay? There are, it’s very state specific, so again, we’re not gonna go through all the states and their requirements, but generally speaking, you can have, anywhere from 700 to a million dollars of equity in your home and still qualify for Medicaid.
Okay? Yeah, again, you’re allowed to have a vehicle, some personal belongings, right? They’re not, I don’t think they’re gonna take your baseball card collection or anything like that. But this is important because these asset limits, the federal government has actually created a law that every state has to be able to come back if they pay for your Medicaid, and come back and actually claw back some of those expenses that they paid for you, often by going and trying to get the money from your house after you pass.
Okay? So Medicaid, again, does pay. Let’s talk a little bit about that lookback rule that I just mentioned. There is a five year period in which if you go into a facility through Medicaid, they will look back the previous five years and find a paper trail of what you’ve done with your assets. So the goal of this rule is they don’t want you giving away your assets on Monday and filing for Medicaid long-term care on Tuesday.
So again, this is why planning is really important. If you want to go down this route with Medicaid to get long-term care essentially for free this is a way to do it, but you’ve gotta set it up. Essentially, you cannot have anything in your name. So sometimes people will actually gift money a way.
They’ll change the title of their home, they’ll move money out of their name, into their spouse’s name. Again, I don’t know who can see it coming five years from now. Get this stuff happens so quick. And then if you do fall into that five year period where, let’s say you, you go into a Medicaid facility or you apply for it and they go and they find three years of a look back, there’s a divisors in there that they’ll actually use to calculate how long of a period you have to wait until you can use Medicaid’s long-term care services.
Okay? So this is a huge issue. This is a big deal. There’s a, an entire industry around ways to shelter assets and get money out of the estate or out of your name so that you can qualify for these in the future. We’re not gonna go down that rabbit hole today, but just know that there are companies and things out there that you can look at doing.
Kathryn Bowie, CFP®: Okay?
Kyle Stacey, CFP®, AIF®: So yeah, five-year look back, it’s essentially in, in most states they, this is where it gets a little bit, wild if you think about it, but estate recovery, okay? So let’s say you go into a Medicaid facility and Medicaid is paying for your long-term care costs and you’re there for three years.
I, let’s just make up a number. You’re there for three years. Every single state is required by law to try and recoup those expenses that Medicaid paid for you. And they are able to go after pretty much whatever they want, but most of the time. This is why they don’t qualify your house. It’s exempt from qualification.
They then look at your home and the home equity that you had. And certain states will actually go to the probate court if the house goes through probate, and they’ll try and recoup their share of those costs by either for selling or leaning on the home.
Kathryn Bowie, CFP®: Okay?
Kyle Stacey, CFP®, AIF®: So they’re trying to get their money back either way.
So that, again, that could be affecting your loved ones, your decedents, your beneficiaries. So again, a little bit more planning there. You wanna make sure that’s taken care of. So generally, the state you live in is going to define what is in an estate. So some of the states, like here in California, we are considered a non-probate state where essentially any asset you have that qualified you for Medicaid, if it’s not going through probate.
They technically aren’t gonna be able to go after it. So if you have a house in the name of a trust bypasses probate, okay? Generally speaking, California’s not gonna come after that because that house doesn’t go through probate. If you have other assets that go through probate, that’s where they’ll try and collect it.
But not every state is that way. Okay? It’s very state specific. So again some estates are exempt from that. And again, there’s ways that you can set up trusts and transfer assets into the trust that five year lookback role applies. And so you just gotta be a little bit careful and really know what your intentions are.
If you’re trying to use Medicaid for long-term care. Okay. I did a little bit of a deep dive on this in Medicaid and there’s varying opinions on it. Some people think that the Medicaid long-term care system is maybe not as robust as if you were getting care through a nursing home.
I can see the logic in that. So ideally, Medicaid is probably your last resort. They deal with understaffing issues. Maybe the care might not be as robust, less activities in those types of homes, things like that. Okay. So it’s probably not the Ritz, let’s put it that way. Okay. So that’s a little bit about a state recovery as it pertains to Medicaid.
Again, Medicare does not cover long-term care. So Medicaid will probably put a squash on that for a little bit. The other big one that ideally if you’re able to, would be looking at like insuring against it, right? Long-term care insurance is essentially a transfer of the risk that you pay for yourself.
You pay a premium every month, every year for the, hopefully you don’t need to use it, but if you do, they will pay for you because you paid them a premium or a policy. Okay? These are completely, I don’t wanna say phased out, but they are less and less popular because of how expensive they are. Okay? So back in like the early two thousands, the mid 2010s, these policies were getting underrated quite a bit and they were getting purchased quite a bit and they were making a ton of money, but a lot of those policies that were underwritten started coming due and they actually had to start paying out the benefits and they were underwritten so well with so many benefits.
That a lot of the insurance companies actually couldn’t make the payments on the long-term care costs because they didn’t realize how expensive those costs were gonna be 15, 20, or 30 years down the line. So it’s, you can still get traditional long-term care insurance, but man, it’s expensive. If you can afford long-term care insurance, you’re very likely, probably in a position where you could probably self-insure based on your assets.
Again, it’s a transfer of risk, it’s a personal decision. You might wanna preserve more of your assets for your beneficiaries, kids, loved ones decedents, whatever it be, and make sure that the insurance is a piece covering that. There’s a ton of different ways you can structure long-term care insurance as well.
Okay? So if you want the long-term care insurance provider to provide you a benefit that pays the facility, you can get it for a hundred dollars a day or up to $500 a day in a policy. The more robust the policy’s going to be, the more expensive it’s going to be though. As with anything, so some of these policies that were underwritten in the early two thousands, some of you on this call might actually have one of those policies where you get, $300 a day, it’s indexed for inflation at 5%.
It’s for indemnity, which means it’s for the rest of your life. It’s not for a specific timeframe. And so those policies are almost non-existent now because the underwriters and the insurance companies just can’t afford to pay out. And then what has also happened with long-term care insurances, a lot of these policies have weaseled their way through the fine print and they’ve found a way to either lower your benefits or raise your premiums for the exact same benefits.
So those letters start to go out usually around the summertime for some of these insurance companies. Okay. And then in order to actually utilize the long-term care insurance, you have to satisfy. Two of those six daily activity of life, right? Using the bathroom, getting up, eating, feeding yourself, things like that.
And in order to actually qualify for the insurance to pay out, you need to go to the doctor. You need to get diagnosed with the fact that you can’t do these things. That can be a challenge, right? Especially if there’s cognitive impairment. It’s really difficult to get an individual. To, who thinks they’re of sound mind and probably isn’t, to go to a doctor to have them say that person’s not of sound mind.
That’s a difficult doctor’s appointment to get somebody to but that’s usually what happens with long-term care insurance is you have to have a physician or a doctor write off that yes, this is what’s happening. And then what they do is they make you wait even longer. It’s called an elimination period.
With the insurance, you have to typically wait sometimes three to six months paying the costs on your own before the insurance will actually kick in. It’s called an elimination period, or a, it’s like a deductible, right? If you have a deductible, you pay a amount, but they use your time to do it.
Kathryn Bowie, CFP®: Okay.
Kyle Stacey, CFP®, AIF®: So different payment options, right? We talked a little bit about Medicaid, long-term care insurance. These are some of the other ones. So self-funding is obviously the most ideal. That means you’ve saved up enough money, whether it’s through liquidity, assets, real estate, whatever it may be. And you can fund that cost on your own without insurance, without family members.
And you can handle that self-funding. This is something with some of you on this call are probably clients of ours or looking into or prospective clients, but this is where self-funding, looking into those Roth IRA strategies that we’re really big proponents of comes into play because with a Roth conversion strategy, you’re essentially paying taxes on some of your tax deferred money and moving it to a tax free environment.
And those dollars, sometimes people can isolate or psychologically feel like those Roth dollars are their long-term care. And ideally, if you’re investing the money in those Roth IRAs, long term, those dollars are probably gonna be invested a little bit more aggressively due to the tax free growth that you get on that.
So it’s kinda prepaying your own premium to yourself to get money up into that Roth IRA and self-fund it yourself.
So that’s one way to potentially look at it. The biggest risk with self-funding is let’s just put yourself in a position of, let’s say it’s a spouse, married couple, typically the spouse that suffers the most when there’s a long-term care, obviously, is the person that’s in the long-term care situation, but it’s the survivor.
Of the long-term care person, right? The surviving spouse. Usually when you go into long-term care you go in there, you’re not getting better. So you expire in that facility and then the spouse is left with whatever assets or resources are left over. And because of the cost of self-funding, there might not be enough resources for that spouse to live out the rest of their life.
Okay? We just talked about the traditional long-term care insurance, right? We talked about the elimination periods. There’s different inflation rider, right? If you want the daily benefit to grow with inflation, that’s an option as well. Again, the more tricked out you do these policies, the more expensive they’re gonna be.
The other two that we would look at, these are a little bit more sophisticated planning strategies that take a little bit more of a, probably a one-on-one conversation with, but. Dedicated long-term care investment bucket. That’s what we just talked about with the Roth the conversion strategies, making sure that you’re setting aside money long-term for that specific cost.
Reverse mortgages as well. Those have become a lot more popular just because they’re not the wild west anymore, right? There’re a lot more structure, there’s a lot more governance on ’em. They’re not nearly as expensive as they used to. So this could be a good opportunity if potentially you’re grappling with do I do traditional Medicaid where I, my home is exempt, or do I do a reverse mortgage?
It’s kind of same. Same, right? You’re just using the home equity while you’re alive to potentially get some capital to pay for the care that would allow you to stay in the home too. HSAs, I wanted to bring this up because some of you out there, maybe in your fifties or sixties, and I’ve seen this happen quite a bit in the last several years.
These companies that you work for, some of them are offering retirement packages like buyouts and part of the buyouts. They fund a health reimbursement account like an HRA or an HSA. Those funds that they essentially give to you, you can set aside, you can even invest those dollars potentially for long-term care expenses.
So utilizing an HSA or if you’re still in your forties or fifties or even sixties and you have an HSA available, that could be a way to start siloing or setting aside some money for those inevitable costs. Okay. And again we talked a little bit about this with trust planning strategies that gets really complex really quickly.
There’s five year rule look backs, things like that. There’s the expenses of setting up the trust, there’s actually transferring assets in the trust, and then you’ve gotta actually maintain that trust every single year to make sure it’s qualifying for the appropriate legal structure.
Okay. These are probably the most popular, right? As long-term care insurance policies have fizzled out and got way too expensive. They’ve created these hybrid policies where it’s essentially life insurance with a long-term care writer. Traditional long-term care insurance. What happened with those people would use it or lose it.
That’s the thing is you pay this premium sometimes for 20, 25 years and if you pass away and never used it, it was a complete waste of money. You had the insurance, you had the backdrop, but you never actually used it, so it was money you paid into for nothing. So they created these hybrid policies where you can essentially get a life insurance benefit.
I’m gonna make up a number. Let’s say it’s $250,000, but there’s a long-term care element. They call it a writer. It’s like a bolt onto the policy where they say, okay, if something happens to you and you go into a long-term care facility, you can utilize some of that death benefit for long-term care services, obviously with contingencies.
And there’s some legalese language in there. But that’s the idea, is that you get a life insurance policy. There’s a beneficiary, probably a spouse or a loved one but if you actually end up needing the care. You’ve got a backdrop that you can actually tap into the death benefit of that policy. I think they even underwrite these for dual spouses.
So if you have a married couple, they’ll underwrite you both together. So it’s essentially a, the first person to go into long-term care gets to use the policy, but they’re called a second to die policies. Essentially. Both spouses have to pass away to get the death benefit, but they also have those long-term care writers on ’em as well.
Okay. That’s a lot, cheaper way to pay for an insurance policy. Okay. So those are some options that you’ve got. Another thing, it’s not on the slides, but something else that has come up, and these aren’t necessarily new, but there’s also these things called QA Cs, qualified Lifetime Annuity contracts.
Okay. These are essentially a chance for you to take money from a retirement account like a 401k. An IRAA 4 0 3 B 4 57, and up to $200,000 you can take money, put it into this qualified lifetime annuity contract. And essentially you’re prepaying for any income that you need. So you’re taking 200 grand outta the IRA.
It’s not a taxable event. It goes into this annuity contract. And typically these things start to pay out at your age 80 to 85. So they’re longevity hedges, right? But if something happens to you, you have this income stream that could potentially help you pay for long-term care costs. Okay.
Kathryn Bowie, CFP®: Hey Kyle, I’m gonna interrupt you.
Yeah. ’cause we’re about halfway and Okay. We have, we’ve been getting a lot of questions. Some are very detailed, so we won’t go over all of them. But I wanna say that if you’re already a pure. In our Pure Family and you’re a client of Pure, then reach out to your advisor and they can answer any questions that you may have that come up during this webinar.
If you’re not yet part of the Pure Family, then we encourage you to just take advantage of our complimentary. We do a free assessment so you can get your long-term care questions as well as all your other questions answered by just having a free conversation with one of our professionals here at Pure Financial.
I’m gonna put a link in the q and a. You’ll also see that I put down there a white paper that, what’s called, that you can download and it has all kinds of great information about long-term care. But if you need questions answered, take advantage of this free information. So I’ll go ahead and put that in.
Alright couple of questions that we had. So what happens if I buy long-term care insurance and then I don’t need it?
Kyle Stacey, CFP®, AIF®: It’s use it or lose it. That’s the nature of insurance, right? It’s similar to any other insurance, whether it’s home insurance, auto insurance. You pay the premium every single month.
In the event that something does happen, you don’t have the full burden of the cost on your shoulders, right? So it’s a transfer of risk. So it’s use it or lose it.
Kathryn Bowie, CFP®: And what happens do, does, is anyone uninsurable for long-term care? Potentially?
Kyle Stacey, CFP®, AIF®: Yeah, potentially. So if you’re going in for long-term care and you want to get long-term care insurance, it’s like the same process of getting life insurance, right?
They might draw blood, they’re gonna look at your medical history. So any past medical issues or history is gonna get factored into that. It’s actually pretty common for people to get denied for long-term care coverage for insurance at least. And so this is typically something if you’re gonna go down that route with insurance.
You probably want to do this in your fifties. You’re still healthy, you’re still insurable, and you’re gonna be paying relatively a shorter timeline of the premium than you would if you did this in like your thirties or forties, right? It’s probably, sure.
Kathryn Bowie, CFP®: Okay, so what if how much money do you know, or and it might, this may be state specific, but how much income can I receive and still qualify for Medicaid?
Kyle Stacey, CFP®, AIF®: It’s typically only a couple thousand dollars a month. And generally speaking, that’s pretty much what people’s social security benefit is, right? So they’re pretty much just allowing you to have Social security knowing that they’re gonna utilize that toward the coverage. So it’s not much,
Kathryn Bowie, CFP®: right?
And then can you just reiterate the qac not sure if they heard it correctly. What does it stand for?
Kyle Stacey, CFP®, AIF®: Qualified lifetime annuity contract or longevity, sorry. Qualified longevity annuity contract. And that’s the idea that you take some of your retirement assets today, you prepay this policy, so you’re taking money out of the IRA, it goes into that policy and it will not pay out until either age 80 or 85.
You, you get to determine when you initially buy the contract. There’s
Kathryn Bowie, CFP®: obviously
Kyle Stacey, CFP®, AIF®: pros and cons to all of those things.
Kathryn Bowie, CFP®: When I’m looking for a long-term in ca, when I’m looking for a long-term care insurance policy, how do I know that I’m getting a good PO policy through the company that I’m buying it through?
Kyle Stacey, CFP®, AIF®: Yeah. Really good question. So it’s A-F-I-C-O score system, right? So all of these different credit ratings or insurance ratings whatever company you’re looking at is going to have an insurance rating either through. Ambe Fitch, s and p Moody’s, they all have different ratings for their insurance companies.
And generally speaking, you’re gonna want something with an aaa, A plus. Some of ’em are a plus. They all have different rating systems, but that rating system essentially tells you how well funded that insurance company is to pay out the contracts in the future. Not really. Good question.
Kathryn Bowie, CFP®: And then we’ll just have one more question and then we’ll get back to it.
Is after you qualify, how long do I have to wait until, isn’t there a waiting period before they actually start paying for my long-term care?
Kyle Stacey, CFP®, AIF®: Yeah. Depending on what, whether you’re talking about long-term care Medicaid, they call it an elimination period. So it’s essentially a waiting period where you have to pay either out of pocket for a certain period of time before the insurance or the coverage kicks in.
So they, they consider that kind of like your deductible. Okay. Your time that you have to pay is your deductible there.
Kathryn Bowie, CFP®: All right. We still have more questions, but some of them are gonna need to be answered specifically in that free consultation, but Okay. Go ahead. You have you’re just about 25 minutes, 20, 25 minutes left.
Perfect. Thanks.
Kyle Stacey, CFP®, AIF®: Cool. Yeah. So that’s a good segue after that. Let’s actually take a look at some of the financial impacts through a case study. And again, this is a pretty plain vanilla case study. We’re not gonna be getting into tax consequences or anything like that, but I just wanna show you the impact.
Of what it looks like to actually self-insure for a pretty affluent, let’s say, family that we typically see. So I’m using Sam. Sam is our example for today, 65 years old, and Sam has a investment portfolio of $1.2 million today. Okay? Sam is living retirement life and is taking money out of that portfolio on an annual basis to the tune of $50,000.
Okay? So $50,000 is coming outta the portfolio. We’re also going to assume that in today’s dollars, if you walk down the street and you needed to go into a nursing home, it’s about $131,000 a year. Okay? That’s the about average cost, and that’s for a private room, right? If you want a roommate, it’s gonna be a little bit cheaper, but let’s just assume that you want a private room, okay?
So that’s the setup of what we’re looking at. So again, 65 years old. Let’s just look at the costs of what that turns into over time. So again, $131,000 in today’s dollars, let’s say Sam needs long-term care at age 80, that’s 15 years from now, and these long-term care costs don’t go up at the same rate of inflation.
They go faster, right? Health related expenses are way quicker. So let’s just assume that inflation on that $131,000 is 5%. The total annual cost is $273,000 a year. That’s more than of the price of a home in some parts of the country, right? And so let’s just assume that they, Sam, needs that for three years, right?
I said earlier the average is about two to two and a half, and some people, we talked about 20% of people actually need it longer than five years. So three years of that is about $820,000 over that person’s lifetime. So we’re not talking small peanuts here.
Kathryn Bowie, CFP®: Okay?
Kyle Stacey, CFP®, AIF®: Now, in our case study, to be fair, what I also assumed is that at age 80 that portfolio that was $1.2 million, it’s still invested, right?
It’s still growing. Even though that per Sam is plucking $50,000 out of it, it’s still invested in growing at a rate of 5%. So assuming 15 years of those $50,000 withdrawals growing at 5%, there’s about 1.4 million in the portfolio, right? So a pretty good nest egg, that’s really good, right? Seven figures. And just look at the math, right?
1.4 million, taking out the costs turns into less than $600,000. And so again, in this scenario, Sam’s fine. Sam’s gonna make it through. There’s gonna be assets left over. Sam can self-insure. But let’s say Sam was married, right? Sam’s got a spouse. That’s what’s left for the survivor. The two of them for that person to live out the rest of their days.
And again, depending on their age, that might not be enough for that person to, not run out of money. Okay. The other thing to consider in this scenario is this is about as vanilla as it gets, right? We’re assuming no bad stock markets, right? We’re not assuming any of the expected, unexpected expenses, right?
The hot water heater breaks, we need breaks on the car you, you name it. There’s always something that comes up. So that’s just assuming a very straight line assumption. That doesn’t include taxes as well into any of this. So in reality, my opinion is that number would be substantially less, probably half of that if you factored in all of those other things.
Again, that it’s a huge drag on the overall portfolio if you’re trying to self-insure. Okay. So again what actually happened here is like the portfolio got chopped in half, just over three years, right? So you think about your entire lifetime, you put money away, you invest money, you endure some really crappy times through bad stock markets, personal events.
You, you live, modestly off the money to make sure it lasts forever and then within three years it’s gone. That’s tough. And so making sure you’re planning around that’s important. I didn’t assume any market downturns over that 15 year period where it was growing at 5%, that’s inevitably going to happen.
We didn’t assume that they live more than three years in the long-term care facility. That would’ve easily wiped it out even further. And then I didn’t assume any increased withdrawal needs of one-off expenses. So just in a very rudimentary situation there, you can see the assets go pretty quick.
Okay. So that, that kind of gets into some of the questions you’ve all already asked is like, when do you start planning for this stuff? Ideally, you wanna start planning in your fifties, right? The earlier, the better. And again, no amount of preparation is gonna actually prepare you if and when it does happen to you or a loved one, right?
It takes a lot of time to get that stuff up and going and get the ball rolling. Ideally you’re doing it before health changes, right? And again, that comes on pretty quick. You’re only healthy for so long. So ideally, if you’re able to start planning for this stuff in your fifties, while you’re either insurable, you’re healthy, you have a good job that you’re working with, typically people in their fifties, if they’re still working that’s usually their highest earnings years where they’re may be able to sock away a little bit more money for those potential costs as well.
And then, ’cause once you get into retirement. Things are generally pretty fixed, right? What you need to spend, what the range is. And so adding that on top is just gonna throw a little bit of a wrench into things. Okay? So just try not to be the do nothing plan, which is, I’m just gonna wait and see what happens.
That’s essentially spending down assets. I’m just gonna, assume that family members are gonna help me and take care of me. I’ve also heard some really crazy stories of people who tell me what their long-term care plans are. They’re probably not acceptable for a webinar today, but and so that’s why I put that, is that acceptable?
Again, the default backdrop of everything is if you do nothing, eventually there’s Medicaid that you can fall back on. You just have to ask yourself whether or not that’s something that you’re willing to accept and go down that path, right? And for some, that’s probably the only option you’re gonna have.
So again, we talked about a action steps there. You can look at. Evaluating what exposure you have there. I think stress testing your current retirement plan is super important. You should be looking at that probably once every couple of years or annually at the least. If you have an advisor, ask ’em to stress, test it, look at different ways, assumptions, things like that.
And if you don’t have a retirement plan, get one. Retirement is one part, but if you get all of those things right, it might not make be any good if it doesn’t work through the long-term care situations. And then again, we talked about underwriting while you’re healthy. So no, no surprises there.
Again, with the timeline earlier, the better. Once you’re post 70 you’re pretty much trying to just preserve as much of the assets as you can. God forbid you do end up needing that care. And then, other questions to ask. These are some kind of more near and dear questions.
Like I said earlier at the beginning of this is something my grandmother’s going through and my mom is taking the burden of most of that. You go through having to sell a home, move people out, sell all the furniture, sell ev, get everything out of the house, clean it out, and make sure the bills are getting paid.
It’s a little bit of a nightmare. So have those conversations now, whether it be with your kids or your loved ones or your friends of, what is the role that you expect someone in your life to play for you or for someone else, right? Can a family member even handle that burden? Most of the time what I’ve seen is people can gut through it for a period of time, and then after a certain amount, it doesn’t matter how much you love the person, you throw your hands up.
You’re like, oh my God, I can’t do it anymore. It’s just too much. That’s very common. Or, how do you want to spend out your retirement years? Do you want to go in a home? Do you wanna stay in the home that you’re in? What do you want for, God forbid that happens to you.
So these are just open conversations that you need to have, whether it be to yourself, a spouse, kids, family, friends, things like that. Okay. We talked about obviously long-term care planning. The legal structure, we did not touch on this a lot today. That is definitely, there are entire companies out there that they are built around sheltering assets to qualify for Medicaid and still preserve your assets for your loved ones so that, they get the costs of the Medicaid long-term care coverage, as well as still preserving the nest egg for their beneficiaries.
It, it’s expensive. You go down that route if you want to. And then everything else, I’m not gonna read off the prompter here for you guys. You can read that. I think that’s it. Yeah. Here we go. Catherine, what’s coming in questions.
Kathryn Bowie, CFP®: Hey there. Alright, so you did a great job. There’s still a lot of information.
Couple things. Someone’s asking, are you trying to shelter your should I try to shelter all of our assets so that we can use Medicare, me, Medicaid? Sorry,
Kyle Stacey, CFP®, AIF®: Medicaid. That’s a very personal decision, right? I’m not gonna get up here and I don’t know anybody on the call right now, or maybe I do, but to intentionally start sheltering assets, you just gotta be cognizant of that five year look back period, right?
You might do it all perfectly, but if two years goes by and something happens, all of that gets clawed back, right? Whether it was a loan to your kid or you gifted money or you had loan forgiveness, all of that paper trail comes back.
Kathryn Bowie, CFP®: Wouldn’t you also say that Medicaid, as you are, you did mention this, Medicaid doesn’t always give you the best care necessarily.
Not saying that they don’t but going that route may not be in the long run, the best option, right? Potentially.
Kyle Stacey, CFP®, AIF®: Yeah, potentially. And I think you just, you could probably do a quick Google search on this of, Medicaid long-term care, facilities or funding versus others. And a lot of the feedback that you’ll see is that a lot of those facilities are understaffed.
That they don’t have the means. There’s way less activities, there’s a lot less stimulation of people, right? You’re sharing a room with two or three other people, right? It’s just a little bit different quality of care. And so again, that’s why it is the fallback for many people is it’s not like you’re going into, the Ritz type of thing.
Kathryn Bowie, CFP®: What do you think about the companies that you go into early. When you don’t need long-term care and then you, so that it, you can, basically what they’re asking is, so you have a place where you go into and you don’t need long-term care, but they say that you’re gonna be covered for the rest of your life.
What do you think about those type of
Kyle Stacey, CFP®, AIF®: places? Yeah that’s really come about the last 10 to 15 years. These kind of communities where you either buy into ’em upfront and it’s not cheap, right? It’s the price of a down payment on a home or the price of a home.
But you essentially have a place to live for the rest of your life, where initially you move into one of these communities and you might not need any help at all. You’re just living in a condo or an apartment and you can still go up and down the stairs. You come and go as you please. There’s no curfew or anything, so you’re just living your life.
But as you get older and you need more and more care, you go through different stages, whether it be assisted living or then eventually into a nursing care type of facility. Again, the devil’s in the details with those tend to be pretty expensive upfront, where you’re paying several hundred thousand dollars.
I’ve seen these go up to a million dollars where you’re paying a huge lump sum upfront, and then you still have seven to $10,000 in rent every month. That doesn’t account for any of your, Christmas gifts or birthdays or, little travel funds that you want to do. Just could be,
Kathryn Bowie, CFP®: it’s a way of, it’s almost like a different type of long-term care insurance.
’cause you may never need those extra levels. But yet you have the opportunity to, however, unlike long-term care insurance, it’s not use it or lose it because you do have a place to live,
Kyle Stacey, CFP®, AIF®: Yeah. And. They’re all a little bit different, but I’ve even seen some of ’em where let’s say you go into that, you have a huge down payment, let’s say, of half a million dollars.
If you pass away, there is some sort of death benefit of your down payment, right? It’s probably actuarily determined. And all of these facilities are a little bit different or communities but there is a potential for some of that money to come back to your heirs or your kids or something like that.
Kathryn Bowie, CFP®: And I think you mentioned this, but if you start in your fifties, what’s the average total cost you might be? I guess that would mean maybe monthly costs that you’re paying for your long-term care policy. I know you said that’s, it really depends.
Kyle Stacey, CFP®, AIF®: That’s gonna range a lot depending on how Cadillac of a policy that you’re buying.
Those will probably range from two 50 to eight or $900 a month, depending on the type of policy you get. Let’s say you’re doing that for, 7,000 a year for 20 years. That’s a pretty big amount of money. So that’s where the conundrum is. Do I take that amount of money and stash it away into a separate account earmarked for the coverage and invest that money and maybe get, eight, nine, 10% on the money?
Or do I just pay the premium and hope, I don’t know if you wanna hope, but that you get to use the policy, right?
Kathryn Bowie, CFP®: Correct. And then a couple of people have asked about popularity and importance of long-term care insurance, but not necessarily. Their best option because everybody’s different as we know.
And so each individual, it depends on your situation, whether or not you’re gonna need or want to purchase long-term care insurance. But what are some of the, if you’re able to self fund or incorporating your retirement plan, just go back to your little synopsis of the best options to be thinking about for those people that are trying to figure out should they go long-term care or should I look, it has to be in your retirement plan, but, sorry, I’m,
Kyle Stacey, CFP®, AIF®: yeah.
Kathryn Bowie, CFP®: Think I had three or four questions of kind of the same things, so I’m trying to wrap it all together.
Kyle Stacey, CFP®, AIF®: Yeah. And I think I get the sense of what the question is, but I think the most underutilized. Strategy is actually, I don’t want to, beat a dead horse with the Roth strategy, but actually purposely planning, whether it’s in your fifties or your sixties, getting some of your retirement accounts, those tax deferred assets like your IRAs, the, your 4 0 1 Ks, moving a little bit of that money to a Roth IRA, it’s called a Roth conversion.
But what you do is you’re taking that money, which in the future you’re gonna pull the money out to pay taxes on it, but you can actually take that out early, move it up into a Roth IRA, you pay the taxes on it. So you gotta be careful with how much you’re moving, but then those dollars are tax free forever, right?
And so there, there’s different strategies with creating income, especially if you’re self-funding it, because long-term care is a health related deduction on your taxes. So you can pull money from a retirement account, get a deduction for it, and if you have some money that’s tax free in a Roth that you had converted, let’s say 10 or 15 years ago, that money, you can also use the supplement to keep your income artificially low so that your deductions are gonna be much more beneficial for you if you have to use the long-term care route.
Kathryn Bowie, CFP®: Got it.
Kyle Stacey, CFP®, AIF®: Again, that, that’s very much a little bit more in the weeds, but definitely something to consider.
Kathryn Bowie, CFP®: And that actually brings us to the fact that great questions everyone. You’ve done a great job. There are some very specific questions that we can’t really go into without having a whole nother hour webinar, but that’s why we offer our free consultation.
So come in and get your questions answered. We offer this because you don’t know what you don’t know. And if you’re already a member of our pure family, then you have somebody to ask all these questions to. If you’re not, then we encourage you to get this one-on-one information about you, specifically, get your questions answered with this free financial assessment.
Please join us. Reach out to us. I’ve put the link in there. Call us, email us, or just fill out the Calendly at your convenience and we’ll just have a free conversation with you and find out if we can add value to your situation. This is just one aspect of your financial plan. Long-term care is just one aspect, but all of these things need to be considered when you’re thinking about your financial future.
So I hope that you’ll contact us. Thank you so much for being here. We appreciate you and we look forward to seeing you next month at our next webinar. Thanks
Kyle Stacey, CFP®, AIF®: for joining.
Kathryn Bowie, CFP®: Thanks for joining.
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