Ep. 214 – What If You Need Long-Term Care?

In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss long-term care, how it works, and your options. If you want to know and understand what long-term care may cost you in the future, you must first understand the actual cost of long-term care.

Listen in to learn about assisted living services for long-term care that involve more than a nursing home. You will also learn about long-term care insurance methods/plans, how they work, plus the pros and cons of each.

In this episode, find out:

• The importance of knowing and understanding the cost of long-term care and what it may cost you.
• Understanding why long-term care itself is more than a nursing home.
• The assisted living services that you might require for long-term care and their cost.
• How the self-insuring method works, plus the pros and cons of it.
• How Medicare benefits long-term care even though it doesn’t provide long-term care insurance.
• Understanding how Medicaid provides for long-term care, plus its pros and cons.
• How Traditional long-term care insurance works, plus the pros and cons of the plan.
• Asset-based long-term care insurance – the beauty of life insurance combined with long-term care insurance.
• How long-term care and chronic illness riders are added to life insurance, plus their pros and cons.
• How asset-based long-term care through an annuity works, the benefits, and why it’s a good option.
• How an asset doubler for your income works and who it’s a good option for.

Tweetable Quotes:

• “The thing about coming to terms and understanding long-term care and what it may cost in your plan is thinking about the actual cost of long-term care.”– Murs Tariq
• “Medicare does not provide what is called long-term care insurance or custodian care, but it does have some benefits there.”– Radon Stancil
• “An asset-based long-term care policy through an annuity is a great option.”– Radon Stancil

Resources:

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:	Hello, everyone, and welcome to Secure Your Retirement. Today’s topic, long-term care. Not an exciting topic, not a thing that people want to think about, but a definite reality. And I’ll tell you my background. A little over 20 years ago, I worked exclusively with long-term care policies, helping people think about that, plan for it, buy that long-term care insurance, and then evolved into doing more holistic financial planning and not just focused on that one area. But I know that it’s been a concern, and I know that today, it’s still a concern of folks, is the what if I need long-term care, what do I do? How do I pay for it? What are my options? And one of the biggest topics, I think that has made this be such a big issue is, even for those folks that bought long-term care insurance… Now back then, if you bought it 10, 15 years ago and you say, Hey, I’m going to buy it when I’m in my fifties maybe, and that way I’ve got it in my, I’ve got it while I’m in good health.
	And then you just didn’t think about it, but the insurance companies were very upfront that they could raise the premiums in those traditional long-term care policies. And today, we’re seeing that happen all the time. Okay? So right now, we work with clients all the time, and they get one of these notices in the mail. And it says, here’s what you’re going to get. You’re going to get a 50%, sometimes even more, percent of a rate increase on your premium, but here’s some ways that you can actually offset the increase in premium. And usually what that means is drastically cut benefits. And so now the person’s well into retirement. Their age at this point, or maybe healthcare in this point is like, well, I can’t really go change. And so it is a struggle. And then we’ve got folks that come to us and they go, “I need long-term care, but I’ve heard about this traditional long-term care insurance, and I don’t want to do that because I don’t want to have the rate increases. So what else can I do? How else can I handle it?”
	And so the real goal here in this particular episode is to say, “What are my options? How does it work? What are some things I could think about?” I will tell you right up front that we have a very nice informational piece that has been developed around this topic. So if you’re listening to this and you’re thinking, man, I’d like to get some information around this particular topic, this information, you can just reach out to us, go to our website. You can click on the schedule call. We’re glad to hop on a call with you. Or you can just send us an email through the contact us or give us a call, either one, and we’re glad to send this out to you so you can get the information that you need.
	But I think first of all, it’s important for us to talk a little bit about, what are the risks? What are the numbers? And then as we build financial plans, we go through these numbers all the time. And I know Murs as you’re working with the financial planning team, that that’s a big part of what we’d think about. So can you kind of walk us through what this looks like in a numbers perspective?
Murs Tariq:	Yeah, so the big thing about coming to terms and understanding long-term care and what it may cost in your plan is thinking about, well, what are the actual costs of long-term care? Right? Just like you do when you’re making an evaluation on whether or not to buy this car or that car, or this house or that house, how to mortgage it, how to finance it, all those different things, it’s the same deal with long-term care. You want to know and understand the numbers and the statistics around it. And so what we know is that right now, roughly there are about 69 million baby boomers right now. And so that is a large category of people that of are of a certain age. And the stat that we also know is that the percentage of Americans age 65 or older, who are expected to need some type of long-term care… And that ranges in, is it simple? Is it more extended? Is it long, long term? But the percentage of those baby boomers, if you will, is roughly seven in 10.
	So the percentage there is 70% of that 69 million, is going to need at some point, somehow some type of long-term care assistance. So when you take that, that’s a pretty large number. And now we’re talking about probabilities. What are the chances that you and your spouse are going to need some type of long-term care help? And so keep that in the back of your mind as we’re thinking through, well, do I need insurance or do I not? What are the odds of me going in? There’s a decent chance that one of you will, right? Now, as far as costs go, we all know and have heard the cost of insurance we know is expensive, and the reason it’s expensive is because the cost of the actual care is very expensive. So what we know is that the median US annual for a private room nursing home, the cost back in 2021, so a couple years ago was $108,000, $108,000 a year to be in a private room in a nursing home. And so that is a significant bill to pay.
	So you have to start asking yourself, can I afford to self-insure? Can I do this on my own, or do I need to transfer some of that risk? Transference of risk usually means involve an insurance company. That’s kind of what they’re there for. And where the numbers start to really change is maybe you’re 60 today, or maybe you’re 65 today and you’re like, well, long-term care, I’m pretty fit and healthy right now and I’m not going to have to worry about that for say 10 or 20 years from now. Well, when we look at the projections, just based on the inflation cost of long-term care facilities, what they cost today in growing that over a period of time, the projected median US annual private room nursing home costs, in 20 years, almost doubled. So back in 2021, about 108,000. And in the projected 20 years from now is $195,000, so almost doubling the cost of care.
	So with that in mind, you may start to say, well, that that’s a pretty hefty bill to cover. And so, well, how do I do that? Now you’ve got my interest, right? And that’s just one year. Imagine if you have a three year stay or a five year stay. I think the average is somewhere around three and a half years, but you do have those scenarios where someone’s in there for memory care that’s prolonged and very expensive, right? So now you may start thinking, okay, well this is something serious. I need to be thinking about how do I do this? And what is long-term care? So I’ll hand that back over to you, Radon. Let’s help people understand, what is long-term care.
Radon Stancil:	Yeah. If you go back again, 20 years ago, everybody thought about long-term care as nursing home insurance, and that’s the way it was. And then they developed home healthcare. So it wasn’t just associated with nursing care, it’s even more than that today. So what I want to make sure is clear is long-term care planning or long-term care itself is not, or is really more than staying in a nursing home. It’s not just a nursing home. My mom right now is in assisted living. She is able to pretty much do a lot of her activities of daily living, but she needs assistance in some of them. And that’s a key terminology here that we want to think about, what are called activities of daily living. And there are a few of these. Those basically, we kind of come down to six. We’ve got bathing, dressing, continents, eating, toileting, transferring, meaning moving from one place, moving from seated to a standing position, getting in and out of bed, those kinds of things.
	Those are really the levels of different, what we call activities of daily living. And so the idea here is I need help with… Usually, in insurance policies are going to say two of those. So I need assistance in two of those activities of daily living, and a doctor says, “Hey, this person can’t do this on their own.” But they can do other things. It’s not like they’re restricted to being in the bed or that they’re in a scenario where they can’t do some of their own things throughout the day. They just need some assistance. Now when you think about that, that could easily be something done at home. That does not have to be in a facility of any kind. Well, then a person could consider that they want to be, that they prefer to be in assisted living where they’ve got a little bit more of somebody that’s close at hand to be able to come over and help them.
	Again, they’re able to do a lot of things on their own. They don’t have to have full-time care. And then a person could then progress to even more or more detailed assisted living and even then progressing into a nursing home scenario. But the nursing home scenario is really the shorter overall number in this equation. But assisted living itself can be rather expensive, and how we deal with that. So again, I just want you to have it in your mind. If you’ve thought about this and you’re thinking, man, I just don’t really want to have to think about it in that perspective, but still the costs are there. So let’s just talk a little bit about homemaker services. Somebody that’s going to come in and help you with food, maybe help you with some bathing, those kinds of things. Again, that’s too right there. Maybe if I’m not able to make my own own food because of the standing in the kitchen, it’s just too much, or whatever it might be.
	And then maybe I can’t take a bath by myself, or actually I shouldn’t because of fall risk, or home health aide. Somebody, now that really is there on a more regular basis, put some numbers. On an annual basis right now, if you were going to have, let’s say homemaker services, you’re around 59,000. That’s 44 weeks out of the year. Home health aid, that’s $61,000 a year. And again, that’s based on a five day per week program. If I need an adult daycare, which would, I mean, I’m going to go into a place for just moments in time, about $20,000 a year. I’m sorry. And then on top of that, we have assisted living facility, an assisted living facility, which is I’m there 12 months, but again, I’m going to be able to take care of my own needs for a lot of things, but I need a little bit of assistance, and I want to be in a private room with one bed, about $54,000 a year.
	Nursing home private room is about 108,000. Murs talked about that number. A semi-private room, 94,900. So these are hefty numbers. But again, you notice that we don’t really get into the really high expense until we get into the nursing home scenario. So a lot of people are in those upper areas, but the still, again, having something in place to help them think those through. So now we’re going to move over into what are our options. There’s a lot of different ways that we can handle this. And when we’re building financial plans, we look at all of these different categories. And so we’re going to start off here with Murs kind of helping us think about what’s our first option.
Murs Tariq:	Yeah, so the first option is self-insuring. What that really means is you feel like you have the assets already and you’re not going to transfer any of that risk to an insurance company or anything like that. You’re just going to say, “Hey, if it happens, I’m going to pay for it out of my pocket. Obviously, this is probably a one that is going to bring up some anxiety and some unknowns. And the idea of having to pay out of pocket 108,000 a year can work for some and it doesn’t work for some. We know that for sure. And there’s pros and cons to everything, right? The pros and cons of investments, being in the stock market. As its pros, you can make really good money. As its cons, you can lose a lot of money, right? Keeping your money in a bank account has its pros. It’s safe FDIC. The con is as well, it’s probably not going to make all that much.
	Everything has a pro and con, and that’s what you need to understand. With self-insuring, the pro is, hey, you get to maintain flexibility. You’re not really transitioning your assets to some type of insurance vehicle or anything like that, and you get to maintain the assets really under your own umbrella. The con is you’re taking on some risk of, well, what is long-term care going to be for you? If you need it, how long are you going to have to pay for it? And the big thing is here is, can you afford to? Can you actually afford to self-insure? And I’ll tell you how we answer that. There’s an exercise that we do with clients that kind of shows, hey, here’s what the cost is today of long-term care insurance, or self-insuring long-term care.
	And let’s just project Mr. Client, when do you want to go into long-term care? We’re doing this pretty lightheartedly, but we’ll say, well, what if we go in at age 80? Okay. At age 80, we’re going to project out based off of today’s rates, based off of inflation today. Here’s what it’s going to cost at age 80. And we’re going to run that up against your nest egg, and we’re going to say, hey, you’re probably going to be in there for a period of time, and we’ll make some assumptions and say, this total stay is going to end up costing you five, six, $700,000 out of your pocket, and we show what that does to the plan. One, can we afford to actually do that? And two, which I think is more important, what we see clients tell us is, well, what’s going to be left for the surviving spouse? H.
	Ave I completely depleted the assets to where there’s nothing left for the surviving person? And so what that exercise does is it helps us see, can I afford to self self-insure? And is it responsible to self-insure, or should I start thinking about other options?
Radon Stancil:	All right, now we’re going to move to Medicare. First of all, I just want to be very clear. Medicare does not provide what is called long-term care insurance and IT or custodial care, but it does have some benefits there. One of those is is that for the first 20 days of a stay in a rehab type facility, it will cover. So what might that be? Again, I’ll go back to my mom. She fell. And after that fall, it was recommended that she go into a rehab facility. She needed to be there for a couple of weeks. Medicare would pay for that. So for the first 20 days, it will do that. For the next 21 to 100 days, there’s some coverage there, but it’s going to require a co-payment each day. It’s still rather expensive in that, but there is some benefits. And then after that, there’s no more care as far as the Medicare is concerned.
	So again, there is some coverage there, but it’s very limited in what it will do. So this is not even really kind of what we would call long-term care because it’s not that long. All right, then we’ve got Medicaid. Now, Medicaid is a government program for low income folks or people without assets. The pros there, it’s for low income people. So if I don’t have any assets, I don’t have any much income, then I’m going to get some assistance to make sure that I can get cared for through this Medicaid program. Whatever I do make though in income, whether let’s say I get a social security check, that social security check is going to have to go toward the facility and then Medicaid’s going to help me over that. My amount of assets I can have, very low. And we’re just not going to go through all those numbers cause it could vary from one place to the other, but very, very low.
	And so that’s the con. If I’m going to go under Medicaid, I can’t have very much because that’s the type of program it is. But if I do have that, then I’m going to be able to have at least some care. And the program does vary from state to state as to how I qualify. So again, unless I really want to put myself into a financially destitute scenario… Because sometimes people ask us about Medicaid planning. Well, okay, the way you’re going to have to do Medicaid planning is getting assets out of your name, and you got to do it the proper way. You can’t just go give it to your kids, and say, “Oh, it’s in their name.” There is a such thing as called Medicaid planning, but the reality is do I really want to plan on being in a position where I have to get care based on whatever that state’s going to tell me that my care needs to be?
Murs Tariq:	All right. So the next one is going to be our traditional long-term care insurance. And this is the one I think most people are familiar with in a couple different categories. One, you’re paying for insurance, and the other one that’s very commonly said is it’s very expensive, and if I don’t use it, I lose it, right? We’ve all heard that phrase With traditional long-term care insurance. What that is you’re paying premiums. It’s an annual premium that you probably pay monthly or one big lump sum bill every year, and you’re putting that towards a policy to cover you in the event that you actually need help with. Two out of the six activities of daily living, if you do qualify and you have the plan, then the insurance company is basically going to reimburse you daily cost up to the amount that you’ve, you’ve bought the plan around.
	So maybe it’s a couple hundred bucks a day, 300 bucks, 300, 4 50 bucks a day. There’s also provisions within this plan that you can buy that allow for inflation. So as costs rise, your daily allowance starts to rise with it. And how long you get coverage for. So maybe a couple years. I’ve seen some that are unlimited. So it all just depends on how much of the risk you’re wanting to cover. Obviously the more risk you want to cover, the more expensive it’s going to be. But the pros are is you’re going to be well covered in this type of scenario, and it takes the stress off of the plan numerically and financially. It also takes the stress out of your life in the sense of, if this does happen, go back to this status of 70% of people potentially are going to go into some type of scenario of long-term care, if this does happen, well, the stress is I’ve got something in place.
	The con is I’m paying a lot for it. And we hear that all the time. I’m paying this annual thing that I really… There’s nothing tangible to it yet. And we kind of say, well, we hope you never have to use it, but it’s there if you need it. But it can be expensive. The other piece of it that we know is happening all the time, [inaudible] already mentioned it, is that we are seeing annual increases that are becoming pretty significant. The insurance companies when they designed these plans didn’t realize how expensive the cost of long-term care was going to be. And so they’re having to take clients that have been paying their premiums year over year and increasing their premiums on a pretty regular rate. And so that is becoming a concern for people that are in these policies. It’s definitely becoming something that is thwarting people from entering into these policies. But like I said, there’s pros and cons to everything. There is underwriting involved with these as well. So you do have to qualify to be able to purchase these plans.
	So they work for some, and then for some, they just are not interested in this idea at all.
Radon Stancil:	Yeah, I would say on that particular topic, a lot of times people would say, “Well, what happens if I don’t need it?” And we would say, well, it’s just like a homeowner’s policy. You could pay into it for all those years, not need it, and those premiums just went away. And that BR brings us to this next couple of categories. This category is called asset-based long-term care insurance, or a life insurance policy combined with long-term care. The beauty of this one, I think is that it combines long-term care with life insurance. And why is that a beauty? Well, number one, I could pay in my premiums. And if I never need long-term care, my beneficiaries are going to get a tax-free life insurance benefit, which means I didn’t have my premiums go in and no get any benefit to it. I protected myself if I needed long-term care, but if I don’t need the long-term care, my beneficiaries are going to get a life insurance policy that’s all tax free.
	So that’s the pro. But then the other pro is that my premiums are not going to go up. I don’t have rate increases, they’re fixed. Now, I could do it in a couple different ways. I could take a lump sum of money and just pay into the policy. So if I have to say some cash or non IRA money, and actually there’s a few of these that will actually take IRA money that we can fund it with, but I can be able just to go fund it one lump sum. But if I say, “No, I don’t want to do that,” I could do 10 year pay, and some plans will let me do a 15 year plan, where I pay it for 10 years and I’m done, or I pay it for 15 years and I’m done. So there’s options here. But again, I don’t have to worry about rate increases, I don’t have to worry about somebody not getting the benefit of my premium payments. Now, what are some things I need to consider?
	First of all, I am going to have to do a little bit of underwriting. Okay? So make sure you keep that in mind, but that’s really not that big a deal. If we kind of ask some questions up front, we’re going to have a really, really good idea on whether or not we can qualify.
Murs Tariq:	All right, the next two are going to be… They’re called riders that can be attached to long-term, that can be attached to life insurance. So there’s a long-term care rider, and there’s a chronic illness rider. Long-term care rider, it can be added to a life insurance policy for long-term care expenses that may arise. It’s going to be adding to a death benefit now a value for long-term care. Your premiums will not increase and benefits will not change. So go back to traditional long-term care insurance where you’re paying the premiums on a monthly or annual basis. Those premiums we have been seeing them going up year by year. In this case, they’re a bit more locked in because you’re paying for the rider. And so that’s more of a fixed amount. The cons here is that the premiums are not tax deductible, whereas in some cases, they can be tax deductible, and it is going to cost a little bit more, right?
	So you’re going to pay for the cost of insurance to get that death benefit, and then you’re adding on an additional feature, what I like to call bells and whistles. And sometimes those bells and whistles are going to have another fee associated to them, so you may have to pay a little bit more to actually attach this rider. That’s the long-term care rider. The chronic illness rider is similar, but it is associated to chronic illnesses. So it does give you the flexibility to use your benefit payments, but they are going to be limited to what is defined as chronic illness. And chronic illness is going to be something that’s a nonrecoverable illness that is occurring, so something way more extreme, but now you can activate it in that case, something worth looking into. It’s like it’s kind of an in between of going, do I want all the way to long-term care, or do I just want a little bit of extra benefit within my policy? There is going to be an additional premium there as well, but something to consider.
Radon Stancil:	All right, so now we’re going to look at what’s called asset-based long-term care through an annuity. This does not have life insurance. But again, I’m going to take my money, I’m going to put into an annuity. And that annuity, it’s going to have a true long-term care benefit. This is not a writer. This is an actual annuity built for long-term care. Typically, the way it works, depending upon my age and underwriting, if I put in amount of money, it’s going to either double or triple it many times to be my long-term care benefit. So I put a hundred thousand, it could become $300,000 worth of value to my long-term care. So the beauty is I get the leverage. I don’t have to worry about premiums cause there’s no premium that I’m going to be paying in this case, I just put the money in there, it’s there.
	If I need the money myself, I can take withdrawals, but if I take withdrawals, it reduces my benefit. The other thing to keep in mind is that I’ve got that benefit there, but as I pay my long-term care expenses, when I’m in long-term care, I’m using my assets. That’s okay though because I got my leverage there. This is a really good option, especially for some of our clients and the listeners that are older, say above 68 years of age, because I have less of a stringent underwriting, and so I don’t have to be as strict as if I were taking out that full life insurance policy that we were talking about. So I do have some baseline underwriting, but I don’t have it to the degree I would on the other, as well as I don’t have to worry about the premiums and those kinds of things.
	So an asset based long-term care insurance policy through an annuity is a great option. In fact, we’re helping quite a few folks in that particular area. One final one that we’ll talk about is this is a benefit on income-based annuities and it’s called a doubler. It’s an asset doubler for our income. So think about an annuity that’s going to pay me an income stream. So let’s say that I’ve got an annuity that when I turn 70 or whatever, it’s going to pay me $20,000 a year of income. The way the doubler works is if I can’t perform two of those activities of daily living, it will double my income for 40,000, many times for a period of time. So say five years, it’ll double that income. Then after that, if I’m still alive, it just goes back to the 20,000. I don’t get the 40,000.
	That one, there is no underwriting. So if I have a client who has a medical problem that they can’t qualify for any of the underwriting issues, well, this is a great option that we could put the money in there and know that at least we’ve got something that’s going to give us a little bit of extra cashflow. So I know that at this point we’ve gone through a lot. I want to tell you about a couple things. I want to repeat it again. We do have a good resource here if you would like to get that. It kind of breaks down all what we said. But we also have a blog that is written on this topic. So you can go to our website, pomwealth.net and go to the blog page. There’s a very nice article that we’ve had written on this particular topic, and so you can just read through it, have all those things there. Ultimately, if you have questions about it, feel free to go to our website, top right hand corner, click on schedule call. We’re happy to hop on a 15 minute, no obligation complimentary phone call for you.
	We know this is a heavy topic, but one that we feel is extremely important. We hope this has been a benefit to you. Have a great week. We will talk to you again next Monday.