Ep. 138 – What To Consider About Long-Term Care
Is long-term care something you’re thinking about or a conversation you’re having with your loved ones? It is important that you know all the risks involved and the options you have when it comes to long-term care.
You have to keep in mind that long-term care, be it nursing homes or assisted care living is very expensive.
In this episode of the Secure Your Retirement podcast, we talk about long-term care as part of your retirement financial plan. We cover your options from self-insuring to traditional long-term care insurance and the best viable one for you.
In this episode, find out:
- The big ANNOUNCEMENT on continuing to offer you value.
- The long-term questions you need to understand options for.
- Understanding how the basic numbers are, for nursing homes and assisted care living.
- Self-insure – funding your long-term care and taking life insurance so you don’t take away from your children.
- Traditional long-term care insurance – why most people are not looking into it plus some hybrid policies options you can look into.
- The process we use to help clients have the long-term care conversation and the potential risks.
- “It’s really optimal if you’re paying life insurance premium because in reality, if you’re going to leave money behind, it’s actually the greatest way to leave money behind because the beneficiaries get all of the death benefit 100% tax-free.”– Radon Stancil
- “What we’re doing in our plans in every situation is all based on your numbers, goals, and scenarios.”– Murs Tariq
If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!
To access the course, simply visit POMWealth.net/podcast.
Here’s the Full Transcript:
|Radon Stancil :||Welcome everyone to a 138 episodes. That’s crazy. Can you imagine?|
|Murs Tariq:||That is crazy.|
|Radon Stancil :||I mean, we started this well over a year and a half ago and it’s just amazing what we’ve been able to talk to people about, the feedback we’ve gotten. Not only is it episode 138, but it is also the last episode of 2021. I think that is even bigger, 2021 is gone.|
|Murs Tariq:||It’s just crazy how it has flown by and all these episodes that we’ve been spinning out, every single week. And next thing you know, we’re at the end of the year.|
|Radon Stancil :||Yeah. So this particular episode is on the topic of long-term care. It’s big topic and we’re going to kind of take you through some thought processes on that, but we also want to make an announcement that we are pretty excited about. When we started this podcast a year and a half ago, we came up with this idea that we were going to do an interview every single Monday and we were going to do a Retirement In Action every single Wednesday. And we have just put out a tremendous amount of information. We’ve gotten great feedback but we have pulled our audience and we’ve talked a lot about it and a lot of people say, man, I love these. I’m just behind because I can’t keep up with all the information coming out. So we’ve talked about different things that we can do for that, or how to be able to do that.|
|And we realized that two episodes a week might a little bit much, and people want to hear everything, but they get so far behind and we almost feel like sometimes we might have to go back and repeat an episode just so that people get it back in their queue. And we know you can go back and look and you can go back and get that information, but we thought let’s make it a little bit more streamlined. And so what we’re going to do starting in 2022, so January 3rd, episode 139, we’re going to have a new podcast come out every Monday. We are not going to have a Monday and a Wednesday. So every Monday that podcast will come out and we are going to still do interviews.|
|We’re still going to do our Retirement In Action, but we’re only going to do interviews that we feel bring a tremendous amount of value. So instead of just trying to go out and find an interview and say, Hey, well, it is kind of a fit, we’re going to really be careful and be very, very picky about who we do interviews with, so only on information that we feel is going to add extreme value. Also, in addition to that, because we’re going to this one episode, our Retirement In Action, we’re going to make sure that they themselves are really kind of going into those good questions and dealing with good topics that are current and things that we think can add value. We’ve gotten great feedback on all of the different podcast types, but we know that, that’s a lot for you to get two episodes a week. It’s a lot to keep up with.|
|During COVID it wasn’t that big of a deal because you’re stuck at home anyway or you’re stuck in this scenario where you’re not able to kind of have your normal routine. Well we’re getting out a little bit more, we’re traveling a little bit more. So we feel like this is going to be a very, very good transition. So beginning January 3rd, we’re going to be one episode a week and we are going to try our best to deliver an extremely good informational podcast every single week. What do you think Murs?|
|Murs Tariq:||Yeah. I mean, I think we’ve talked a lot about it and we’ve gotten a lot of really good feedback on the podcast and our biggest thing is we want to keep the quality coming and sometimes, and you’ve heard the saying quality is always better than quantity and that’s what we’re striving for here. So we love doing this podcast for you guys. We’ve gotten so much feedback on some of the topics that we do and we know that we are going to continue it for as long as we can.|
|Radon Stancil :||All right, let’s get on to our real topic today, which is long-term care. Long-term care is a topic that is something everybody feels like they need to talk about, but at the same token, everybody knows how expensive it is. And so there’s a dilemma and the dilemma could be for one person is, let’s say you’ve got a good amount of assets. Should I self-insure? That’s a question that we take the clients through. Another one is what type of insurance should I get if I’m going to get insurance, because there are different types of insurance for long term care? And we want to kind of talk you through how those options look. But I think in my mind, the first thing I would want to do is to kind of understand what’s the risk. And I’ll say this statistic and this obviously changes I think the longer we live, but right now we know that there is a very high percentage of at least one of a couple.|
|So you’ve got two people, a very high percentage, and I’m talking, in that 80% range. That one of the couple will go into some form of long term care. Now it might not be very, very long. It might not be full on critical type care. But for some period of time, I think the average is somewhere around two to two and a half years on average. So Murs, could you kind of walk us through just so we got some context here, if a person’s looking at that, how we come up with the calculation and what that can look like?|
|Murs Tariq:||Yeah. So like Radon was saying long term care, let’s just say insurance in general is somewhat of a personal decision. Yeah. There’s a numbers aspect to it, but it’s also this idea of transferring risk and how much risk do we want to transfer and to really think about it, I mean, when we’re talking about long term care or buying life insurance or even buying your car insurance or your homeowner’s insurance or an umbrella policy, it’s all about saying, “Well, I don’t want all of this to be on me. If something does happen, I want to kind of prep myself or make sure that there is something in place that if something does happen, I don’t have to cover all of it.”|
|And so with long term care, we know it’s expensive, but also we need to kind of take a look at what are the costs of actually, what if we are in this scenario of whether it’s assisted living or if it’s full on nursing home care, what is the actual potential outlay that we may have if we don’t have insurance? And then we get to, once we have an idea of what the cost is going to be, and no, we don’t know when someone’s going to go into long term care. We don’t know how long they’re going to last in there, but we do have averages. We do get to work off of some of that.|
|And so once you kind of get to know those numbers, then you can say, okay, well, let’s evaluate, can I afford this on my own or do need to transfer some of that risk over to an insurance company? And then we work through, well, what’s the process? How does that all work? What type of cost am I going to be paying? But the first is understanding some of the basic numbers. And so as far as nursing home and assisted care living, I pulled some numbers today and this is from Genworth, a large insurance company, and they provide this for us every single year and they update it and they give us average monthly cost per state.|
|I’ll go ahead and tell you what the national average is, but we know how averages work. It can be all over the place, depending on the numbers that are used to make that average. And so the national average today for 2021 nursing home care, and this is a monthly bill, a nursing home monthly cost is $8,517 a month. And if we’re in an assisted living situation, that number is $4,051 a month. And so that is no small number. That is a number that can be very intimidating and so we need to think through, Hey, how are we going to afford this if we do have this situation?. To give you some more specifics, because that is one big national average covering 50 states, a lot of you listening here are North Carolina, we’re recording in North Carolina. So it makes sense to know that number. The 2021 North Carolina nursing home average monthly stay is $8,060 and the assisted living is $3,800 a month.|
|And then you’ve got places like California, where you’re expected to pay around $11,000 for nursing home care, $5,000 for assisted living. In Texas, it’s a little bit lower $6,000 and $3,000. In Pennsylvania, $10,000 and $4,000. So it’s all over the place. But the moral of the story here is that it’s very expensive. And so we have to kind of think it through and be prepared for it. One other number that I’m going to throw at you because the numbers that I’m talking are basically, if you go in today in the year of 2021, what we know that we always have to deal with is the cost of insurance, the cost of facilities to be able to take care of us. And essentially what I’m getting to here is, there is an inflation rate, inflation in the world that we live in and that is essentially a cost increase.|
|So let’s say you’re 60-year-old today and you’re not worried about long term care at all right now. You’re still relatively young. You’re barely getting into retirement but you’re thinking about it, Hey, this ran in my family, whatever it was that ran in my family and they entered into it at whatever age, and you say, I just need to figure this out because I know I’m not going to go in today, but potentially what if I’m going in at 80. And so we need to kind of look at that number just once again, based off of the averages.|
|So I said, well, if I’m 60 today and I plan on going in, no one plans on going in, but if I, let’s say, I do happen to go in to one of those scenarios at the age of 80, the current cost of increase is 4.28% on an annual basis. So if I go in at age 80 and let me say that, I’ll be in there for about four years in this long term care type of situation. Well, some of those $8,000 numbers that I told you today have basically doubled 20 years from now. So 20 years to get you to 80 and then that 4% increase on an annual basis, now we’re looking at $16,000 a month to cover some long term care costs. So from $8,000 to $16,000 a month, now that number is even larger and even scarier and if you take that on a monthly basis, so you’re in there for 12 months, $16,000 a month and then you take that over the next four years. Well, that becomes a total cost of $830,000.|
|I’m not telling you these numbers to scare you by any means, but this is just pure math. If you have this type of situation, it is expensive, it can be detrimental to your portfolio. It can affect your loved ones that do survive this type of situation. And so again, this is why this conversation has become so big because long term care is a fact of the life that we live in. It’s there. And so now we got to talk about, well, how do we cover it? How do we start to think about making these decisions? And what do we want to be thinking about? So Radon, I’ll let you get started on that.|
|Radon Stancil :||And Murs, how long is that average there to get us to the total long term care cost? You know, is that four years?|
|Murs Tariq:||That’s four years.|
|Radon Stancil :||All right. So four years, if you take that $16,000 a month comes to an expense of about $830,000. If you take that and say, what, if you go into a long term care scenario for four years, $830,000. So, now again, go back to this scenario of what are my options. Well, one option is, to self-insure. What that means is that you say, Hey, I’ve got enough money that I know that I can fund at myself. I look at my numbers. I’m not going to spend that money. So in all essence, if I go into a long term care, my children get a little bit less.|
|So there’s a couple of ways to think that through. One of those is let’s just go down this idea of the potential of self-funding. So what you could do, one option would be, is you could say, look, I’m going to take out today at age 60, a million dollar life insurance policy that will go to my kids. And that way, if I have to use a million dollars of my money for long-term care, if I actually do that, then I didn’t take away from my kids. They’re going to get funded through the life insurance. That’s one, I kind of spread the risk that way. But the other option is a person says, I want to go take out the traditional long-term care insurance and I’m going to just go get it to cover that. A couple of things that people have problem with on that is that they go, what if I buy this traditional long-term care insurance and I don’t need it, then all those premiums, no one gets any benefit from.|
|The other thing that we’ve seen a lot of recently is with the traditional long-term care insurance policies, the premiums going up and honestly going up massively. We’ve had clients coming in that their premium is doubling from what they thought it was, it’s doubling. And so a lot of people are not really into the traditional “let’s just go get long-term care insurance for long-term care.” There are some hybrid policies that you can look at. One hybrid is a policy that is an annuity and long-term care. It kind of looks like this. You put a hundred thousand dollars into the annuity.|
|You might, depending on your age, let’s say have $300,000 of coverage toward long-term care but if you don’t need it, the money is still there in the annuity. If you were to die, it’s going to earn some interest. If you died, then whatever that hundred thousand has grown to is going to go to the kids. If though you need access to the money, you also have access. So, that’s one option. Another option is to go back to the life insurance and it’s a life insurance hybrid and it has a little couple extra features. One, I can put a lump sum of money in that I have access to. That’s a hundred percent liquid, if I want it to be. It’s going to earn again, a nominal interest rate. Let’s put that in that 2 to 4% range on my cash benefit. I have access to that money if I need it, but then I can actually have a long-term care benefit based on the death benefit that I can use for long-term care.|
|But if I don’t need the money and I don’t need the long-term care, then my heirs are going to get the life insurance, which is going to be a multiplier of whatever I put in and it gets to them tax free. So that’s a big benefit. You can also do it where you don’t put a lump sum of money in, but you actually pay a premium. So you could say, okay, I know I’m paying a premium every month or year to fund this life insurance policy, but I know I’m not just throwing premium towards something that somebody is not going to get. Meaning somebody is either going to get the long term care benefit, or they’re going to get the life insurance.|
|So it’s really optimal if you’re paying that premium, because it might look bad at first. Like you say, what if I’m paying $12,000 or $15,000 a year of life insurance premium and you’re thinking, well, that’s a lot, but in reality, if I’m going to leave money behind, it’s actually the greatest way to leave money behind because the beneficiaries get all of the death benefit 100% tax free. Now I know that we’ve laid a lot out here to you in a lot of different ways, but Murs, could you kind of just take a couple of minutes and help walk through how we would do this with somebody in live, in a live situation so they could see the numbers of all these different scenarios using our retirement analyzer.|
|Murs Tariq:||Yeah, we actually did this the other day with someone and the power of this is pretty good because it kind of gives you some direction on things you need to start considering. And if you’ve been listening to us for some time now, you know we put a lot of weight on what we call the retirement financial plan. And so very quickly what that is, is basically saying, Hey, here’s where I am today. At whatever age, here’s my goal of retirement. Here’s the assets that I’ve accumulated and then let’s project it out. And let’s see on a spending plan, how does this all work?|
|And how do things play out when I reach age 90, 95, 100 whatever you want to look at, to kind of say, does the plan work? Once we have this baseline plan set up, now we can run all kinds of what ifs and say, all right, well, specifically for this podcast, let’s say, what if John goes into a long term care scenario and let’s say it is at that age 80, and we can then take the numbers that I gave you at the beginning of the podcast and say, Hey, here’s what this potential expense is going to be if he goes into long term care at age 80 and what the software does is really nice.|
|It kind of shows you in one very clean picture, we approach age 80 and then all of a sudden we see this unfortunately massive outlay of dollars that we have to pay to the facility every single year. And that total, like I said earlier, ends up being $830,000 over a four-year period and what it’s doing is it’s withdrawing funds from your nest egg and what it shows us very quickly is, Hey, is it even possible to self-insure? And if it is possible to self-insure what is going to be left over for the surviving spouse? Is there anything left over for the surviving spouse? Does the surviving spouse make it to a comfortable age 90, 95, 100, whatever you want to look at.|
|And so what that does is it gives us the ability to have a really nice conversation again around how much risk are we willing to take in this type of scenario. This future massive outlay of trying to self-insure or, Hey, do we want to take a chunk of the money now and do something like Radon said, do you want to put it towards a hybrid policy? Do we want to look at paying into a policy? And it really starts just giving us an ability to have that conversation, because now we do see what the potential impact is of a long term care scenario on our own individual situation, which is the biggest part of it.|
|Sometimes you read articles and they all always go off of these rules of thumb. You got to have this amount saved before you retire. You got to have all these different things before you retire. What we’re doing in our plans, in every situation, it’s all based off of your numbers, your goals, and your scenarios and so the power to be able to put someone and this is all technology, the power to be able to put someone into a long term care scenario, put someone in a different situation, it lets us look at a very real picture as to what could happen in the future and then from there sparks some really good conversations.|
|Radon Stancil :||All right. Well, we hope this has at least given you something to think about. We know that there’s probably questions you have. I would encourage you to do a couple of things. Number one, as you think through this, we have a blog written on this very topic. You can go to our website, pomwealth.net, go to the blog page, you’ll see the blog article. It just helps you review it. The number two thing though is, if you’re thinking about this and you’re thinking, man, I got questions. Then if you look at the top right hand side of the website, you’ll see a button there that says complimentary phone conversation. You click on that and Murs and I, our calendar comes up and you can schedule a 15 minute phone conversation with us. We’ll be glad to walk you through or answer some of your questions.|
|And then if you decide, Hey, I would like to actually look at my own illustration, my own retirement plan, we can talk to you about how to do that. But we hope this has been helpful. We look forward to spending 2022 with you and sharing and continuing to share with you great podcast, great interviews and great retirement and actions and we think this is going to be a great year when it comes to being able, just to have, be ready. You can’t throw much at us after you’ve lived through 2020 and 2021 that we’re not ready for. So thank you very much for listening this year. We will talk to you next year.|