In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss long-term care, one of the topics that comes up most often with clients, including those who have saved well and still want a clear plan for it. They break down what long-term care actually means, why it’s not the nursing-home picture most people assume, and how continuous care retirement communities and in-home care both fit into real financial planning.

Listen in to learn about the two hybrid approaches available today for funding long-term care, a life insurance policy with a built-in long-term care benefit and a long-term care annuity, and why the tax treatment on each one matters more than most people realize when it comes to protecting retirement savings.

In this episode, find out:

• What long-term care actually means, based on the technical definition of needing help with two out of six activities of daily living
• Why continuous care retirement communities offer an independent, resort-style option most people don’t expect
• Why Medicare does not cover long-term care, and what gap that leaves in a retirement plan
• How a life insurance policy with a long-term care rider can provide either a tax-free death benefit or tax-free care funding, depending on what happens
• How a long-term care annuity works, including the typical two-to-three-times benefit multiplier and tax-free withdrawals for qualifying care

Tweetable Quotes:

“The technical definition of long-term care is that you have someone that cannot perform two out of the six activities of daily living.” – Radon Stancil

“If you don’t use the money, if you don’t go into long-term care and you end up passing away, there’s still a benefit that goes to the beneficiaries.” – Murs Tariq (flagged for audio verification before publishing per standard compliance check)

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:

Have you saved, say, $2 million or more, but you’re still a little worried about long-term care? You’re thinking, how do I manage that? Well, in this episode, we talk about good savers and how they plan so that they can have everything figured out to live a very comfortable life. 

So, Murs, this is something that comes up a lot in our conversations that people are, I would say, kind of concerned about, but at the same time, don’t know how to tackle. And that’s the topic of long-term care. So, what we find is, is even people that have been good savers, I mean, you know, if I’ve got a client with two-plus million dollars even, they’re going to still want to have a conversation and say, how do I deal with this topic of long-term care? And there’s good reasons for it because the cost can be rather high. And depending upon when you get something that you’ve got to deal with, that also would be a topic. 

But I think before we go very much further, because I think there’s misconceptions out there as to what long-term care really is. I think a lot of people just go straight to, I’m in a nursing home. So can you kind of talk a little bit about, because, you know, in our working together now, you know, for over 15 years, we’ve had a lot of scenarios where people do go in and need long-term care, and it’s not what a lot of times people think. 

Yeah, yeah. You know, the long-term care concept, I think people do get negative around it, and it’s also something people don’t want to talk about because they’re like, I don’t want to think about that happening to me, and I don’t want to be put in a home. We hear that all the time, being put in a home. But long-term care really just means that, you know, there’s some things that are coming about in your health and there’s some additional help that is needed. And anytime there’s additional help, there’s added cost that comes to it. 

The technical definition of long-term care is that you have someone that cannot perform two out of the six activities of daily living. And so some examples of those two out of the six are the ability to kind of feed yourself, you know, change your clothes, get out of bed, and a handful of other ones. But when you’re in a place where you can do a couple of those, well, your ability to kind of maintain a normal lifestyle, you need help in order to do that. 

But people jump to this assumption that I’m going to be putting a home, aren’t I? And it really just depends on what you want. Long-term care can be… In today’s age, it can be rather glamorous that there’s some incredible places that build it into their structure, like these continuous care retirement communities that we’ve talked about. We see plenty of people moving there independently and living in this resort-style life. Of course, it has its own cost to it, but then they have the ability to tack on long-term care services if they were to ever need it in their future. 

But also some people say, I never want to leave my home. I love my home. I raised my family there, and I don’t ever want to leave my house. And so there’s also the ability to, with long-term care insurance, and there’s also the ability to cover some of the cost of bringing help inside the house, whether that’s even a family member, uh, or a skilled, you know, professional coming in. Uh, there’s ways where you can still stay in your house and cover the additional cost of long-term care there. 

So one thing that does happen, though, waiting all the time, is there’s an assumption that Medicare is kind of the coverall, and it includes long-term care. And if we had a lot of you listening right now know about Shawn on our podcast or in our firm, Shawn’s our Medicare guru. And when he hears that, you know, if he was on this podcast, he would be up in arms right now about saying Medicare is going to cover long-term care. Well, in fact, it’s not. It was never designed to. 

Whether or not we have a plan or a policy around it, we definitely need to be talking about it because it is a big expense if you are to get to that place. In a lot of cases, it’s a multi-year expense that we want to make sure that the risk around it in our financial plan, can we afford to absorb it, or do we need to transfer some of that risk to an insurance company to help us absorb some of that cost? 

So that’s the big picture. But it doesn’t have to be this negative thing that sometimes does come about in the world of long-term care planning. But, you know, there’s dollars here too, Radon. It’s not something that is all that cheap. And if you just talk about medical in general today in the United States, it’s a very expensive conversation no matter what you’re really talking about. So let’s talk a little bit, you know, the conversations that you have with people around the financial piece of this. 

Yeah, I appreciate you brought up the CCRC, Continuous Care Retirement Community, because in that process, we are actually helping people plan for how to pay for it. And so the nice thing is, with our financial planning program, the way we do that and working with Taylor on our team, is that we can take a person and walk them through the what-if. 

So let’s walk through something that’s pretty typical in this particular scenario. Somebody is making a plan that they’re going to transition into something like an assisted living, but you go in. You go in with independent care, but with the opportunity that if you had to have assisted living, you could transition. And that’s really what I think the most attractive is, is that you go into a continuous care retirement community. You’re a completely independent person. You have your own, you know, do everything the way you would normally do it. But you’re in a place that when you need assisted living, you just transition very nicely. 

There’s a couple different options there that a person can think about. One of those is that they do a buy-in. The other is more like a rent. But what we look at in that in the financial plan that really helps people think it through in a different kind of way is that if I’m going to do that, I’m selling my house. I’m going to have those proceeds. And that can either be used to buy in or they can be used just to put into savings. 

And then we’re going to have the rent. Now, the nice thing is a lot of times when we pay the monthly fee at these locations, it includes our food. It includes our light bill. It includes every aspect of everything. So I would say that the cost is not going up over the top for somebody in that particular scenario. 

Now, let’s say that a person says, no, I want to stay at home. I don’t want to go out, which now you’re going to have to have somebody, if you ever needed it, to come into the home. Little different numbers. It is actually way more cost-effective to go into a facility than it is to have home health care. But it is one of those things that we can kind of plan for and do a hybrid. In fact, we’ve done a couple of programs with some different groups that they focus on that staying-at-home phase. 

But I think the other big thing that people want to think about, and this is where the numbers come in, is they go, well, what if I want to spread or take some of the burden away from me on my finances and put it over into an insurance program? 

And the problem with that is in the past, we only had the traditional long-term care insurance, and the premiums have gone up, and it’s just not been a very good experience. And so today there’s really two approaches that are what we call hybrid. I’ll mention one, and then maybe you can mention the other one, Murs. 

One of those is using a life insurance policy with long-term care benefit. I mean, I personally took one of these out last year, and it’s pretty simple. I think about it this way. I have a million-dollar life insurance policy, which means if I die, my children are going to get the million dollars 100% tax-free. 

So now I’m paying a premium to go into that life insurance policy, and I view it that if I don’t ever need anything out of this policy, the money that I’m paying every month or every year is not just going away to insurance. My kids are going to get it. So if I pay for it for 20 years and I never need anything, they’re going to get a million dollars 100% tax-free, so I’m really doing what we call a wealth transfer. 

Now, let’s say that I need the care and I want to use it. Now, I can take out up to $200,000 a year for five years, which I wouldn’t do it that way, but I could do it at that maximum, and I get all that out tax-free for long-term care. Now, I could take out $50,000 for 10 years, or I could take out, I’m sorry, $50,000 for 20 years or $100,000 for 10 years. And I can do that spread however I want to use, and it just reduces my death benefit, and I’m able to pay and use it for whatever I need to use it for. 

So I’ve kind of taken this hybrid approach of saying, I’m going to pay premiums. If I don’t need it, it’s going to go to death benefit. If I do need it, I’m going to get it tax-free as well. And then I don’t have to ever worry about an increase in premiums. I don’t have to worry about any of those things. So it’s really kind of, to me, the best of all those scenarios. 

But there is another one that we can maybe talk about for a minute or two, Murs, and that’s using an annuity. And we use a fixed annuity for this. So maybe you could lay that out as to how we utilize that type of program. 

Yeah. And I’ll kind of start with this is I sometimes jokingly will say in front of people that, you know, long-term care planning, I think prior to the pandemic, was much more difficult to do. We didn’t particularly like all the solutions out there at that time. I think today it’s way more attractive, especially interest rates are in a good spot where some of these products are really attractive. 

But also I think the long-term care space has had enough scrutiny over the years to where they’ve started to figure some things out. And the life insurance one that you’ve explained is a really good kind of Swiss Army knife of, you know, the death benefit to the kids if I don’t use it, but also I can access it myself as far as cash value, but then there’s this long-term care benefit to it. 

And if we say, well, we don’t need that Swiss Army knife and we really just want to hone in on this one gap in our plan, and it’s long-term care, let me go get really specific and go get an annuity that is designed for long-term care. A few things happen. One, you take away the, the rely, the, the pressure on the insurance company, right? You’re, you, you have a million-dollar death benefit, and so for them to be able to give you that, they have to do a good amount of underwriting to understand your health and your longevity and everything like that. 

When we take that pressure off of them to provide that million-dollar benefit in the case of you passing, well, then they can say, well, we can give you more benefit towards whatever you, whatever you’re solving for. In this case, we’re solving for long-term care. And, and so, um, years, you know, what it used to be is a premium-paying type of policy for long-term care. Today, it’s way more about asset relocation. 

And so you put some money into an annuity that’s focused on long-term care planning. And there’s still some underwriting, but it’s much simpler, usually done in a 30-minute Zoom call with an underwriter, kind of understanding where you’re at as far as your scenario. And in most cases, everyone’s kind of passing these in a very good scenario and getting good ratings in most cases. 

Your rating matters because it’s going to dictate how much benefit you get. Just like your rating matters in life insurance, it’s going to dictate how expensive it is to get your life insurance benefit. 

And so when you get your rating, I’d like to just explain it in kind of a simple one, two, three type of scenario where, you know, your rating could be, if you’re not in great shape, which it’s hard to see that happening in my experience of doing these with people, um, where you get, you know, maybe say you put in a hundred thousand, you’re going to get $150,000 of benefit, uh, for long-term care purposes. 

But the most, the majority of what we’re seeing is a two to three times of, of long-term care benefit. So you put in the hundred thousand, and over a period of time, that becomes a two- or $300,000 bucket of money, a pool of money to use for long-term care expenses over a period of time. 

So that’s the cool part of the initial part of it, is I just reallocated some money out of my, you know, I’ve been hoarding some cash, and the cash isn’t really earning, and now I’ve been able to take that cash and solve an issue that I’ve got around this future long-term care issue. 

What’s nice about these plans is that they still, you know, the phrase of use it or use it or lose it doesn’t apply here. Whereas in old long-term care planning, it fully applied, and that’s why people didn’t do it. I’m going to pay all these premiums, and if I don’t use it, I’m going to lose that entire benefit and that money. 

Well, today, in the annuity structure and asset-based long-term care, if you don’t use the money, if you don’t go into long-term care and you end up passing away, there’s still a benefit that goes to the beneficiaries. In most cases, the money you put in is going to go back to the beneficiaries, so you don’t lose it in this scenario. 

But if you were to have to use the long-term care benefit, let’s say you’ve got that $300,000 bucket, what’s really cool about this is that if you qualify for long-term care, which is those two out of six activities of daily living that I talked about, these dollars get to come out tax-free. 

So think about that for a second. Even take the person that’s got millions of dollars and they say, I don’t need long-term care. I’m going to self-insure. Well, to me, it’s all self-insuring in one aspect or the other. Am I taking it from my brokerage account to pay for long-term care, or am I taking money from my portfolio, reallocating it to get some leverage and some tax benefit so that I can use it when I need it at the appropriate time? 

At the end of the day, I’m still using my money. I’ve just made it very specialized to what I want it to do for me. And so take the person that says, no, I’m going to self-insure and I’m just going to sell from my stocks. Well, when I sell from my stocks to pay those monthly bills, I’m incurring taxation, capital gains, right? 

Whereas if I shifted money into this type of policy, now if I need long-term care help, this money is going to come out tax-free. So to me, it’s way more about making the plan as efficient as possible and having kind of a purpose behind our dollars and what it’s supposed to do for us. 

We talk about the income and safety and the growth bucket all the time, while this other bucket is a long-term care bucket that a lot of people want to have that bucket fulfilled and taken care of. So I’ll repeat myself again in the sense that I think that the space today, if people are trying to fill that void or the gap that they have, it’s way more attractive than it used to be. 

And I’ll ask you a question and kind of let you go and probably close this out here. But, you know, the amount of times that we hear people say, or go back for a minute here, and, you know, used to be people would say, hey, it takes a village. It takes a village to raise a family, and then that village is going to take care of the elderly as they grow up, right? That was the old-school way of thinking. 

How many times, Radon, do you hear someone say, I don’t want to be a burden on my kids today? 

I think we hear that a ton. I think the other thing that’s changed in, as over the, you know, I’ve done this for 25 years, and I think one of the things that has changed is that the folks today that are coming into retirement, the kids don’t live where they live. 

And so I hear it all the time. They say, I moved to whatever state because that’s where the grandkids were, and now they’ve moved again. I’m not moving again. And so they say, look, I don’t want to have a scenario where my kids are having to come back. And by the way, I don’t even know that they have the circumstances to come back and take care of me. 

So I know that for me, I don’t want my kids to have that on them. I would prefer that not to be the scenario. I don’t want them to even have to worry about it. And quite honestly, I kind of want to stay in a really nice place. So, you know, when I see these CCRCs, I’m like, man, that’s where I’d like to be. And I’d like to be able to be in a place that I’m comfortable and that I know that, you know, that it’s going to be the happiest particular situation possible. 

And I think for people that have been good savers, that’s what they’re doing. We’re not talking, there are circumstances where the conditions don’t look well. And I know that that’s a whole different story, and we’re not trying to avoid that. That today’s topic, though, is about somebody who’s been a good saver, and they go, what’s the best way for me to be able to transition as I need to get into that scenario? 

And that’s the conversation I think we’re having today. And then we could have another one on another day. But, but this scenario is, how can I be happy? How can I have a good situation? How can I be comfortable? And I think that doing good planning today can help you plan for that so that you’re not having to worry about it and you’re not having to think about it. 

Nobody wants to think about this stuff when it’s imminent. Let’s think about it ahead of time, have a plan, so when it becomes the thing that we’ve got to deal with, I don’t have to think. It’s already there. So we’ve already got a plan in place. We’ve already thought it through. 

And that’s what I love about, I’ll tell you, the clients that we’ve had that have transitioned into CCRCs and they come back in or we go see them there and we say, what do you think about it? How do you feel about it? It is a myth. I mean, just super positive. They love it. There’s nothing negative about it. It’s not an old person’s home. It’s not that. It is, no, I’m living in a very good place. I’m very happy. It’s fun. I have more activities than I’ve ever had. It’s a very positive experience. 

Have you had anybody, Murs, tell you that they hated their transition? 

Yeah, no, not at all. What I hear more is it’s kind of resort-style living, especially in the CCRC space. 

Yeah, so anyway, I think that if you’re listening to this and you’re going, hey, I want to explore options. I want to at least have a plan in place. Reach out to us. Go to our website, pomwealth.net. Click on the schedule call and schedule a call with us, and we would love to be able to have the conversation with you and say, hey, here’s how we start the planning process. 

But thank you very much, Murs, for chatting with me about this. And I hope it’s been helpful for our listeners. Everybody have a great week. We’ll talk to you again next Monday.