Delivered on: Friday, August 25, 2023
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What are the Odds? – Planning for Long Term Care
Exploring your options to weather the financial storm of needing extra care as you age – even in the absence of a government solution
- STATISTICS: The odds that you will need some kind of long term care
- TRIGGERS: The kind of care you may need to help with activities of daily living
- TYPES OF CARE: Various ways that care is available when needed
- CONSEQUENCES: Effect of not having a long term care strategy in place
- SOLUTIONS: Options available to protect your finances if you need care
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Prefer to read instead? A transcript of this webinar is below:
Welcome everybody to today’s FedImpact webinar on What Are the Odds? Planning For Long Term Care. Now, normally I’m able to share with you that we have thousands of people registered for these webinars. I’ll tell you, this is the most unpopular topic for us to possibly talk about today, and so I’m super grateful for those of you who have expressed an interest in learning and just making sure that you are on top of this very, very important topic, even though it’s not super popular to talk about.
You guys know me. I’m Chris Kowalik, the ProFeds founder. Super happy to be able to talk about this topic. Again, not a super sexy topic to talk about, but one that’s probably one of the most important ones to figure out for retirement.
What Are the Odds? Planning For Long Term Care.
The idea here is how do we figure out how to weather the financial storm if you end up needing a lot of extra care as you age? And because now the government doesn’t actually have a solution for this long-term care problem as far as an employer sponsored plan is concerned, we have to get a little bit more creative in how we plan to solve it.
Agenda
Our agenda today, we are going to talk about the statistics themselves. What are the odds that you’re going to need some kind of long-term care? What are the things that end up causing you to need this kind of care and make sure we have some real-world examples, the different types of care. We always think of nursing homes, but there’s actually lots of different ways to receive this type of care. We’ll go through what those different types are.
Of course, we’re going to talk about some consequences of not having a long-term care strategy in place and then the solutions. What is it that you need to be looking at to protect your finances in the event that you need care? I’d hate for you to have gone your whole life making all these great financial decisions only for them to be ruined by a long-term care event that happens in your life either for you or your spouse, and it really derailing everything that you’ve worked so hard to build.
What this webinar will NOT cover
As far as what this webinar will not cover, we of course, are not going to be able to get into the nitty-gritty details of long-term care and some of the things that I’m sure you’re curious about, but really more on an individual basis that needs to be done. Along those lines, we are not here to give long-term care advice.
I want some long term care awareness and knowing that there are solutions out there, and I’m going to encourage you to go seek out those solutions so that you can identify what fits best for you and your family and your budget so that you don’t just put blinders on and believe long term care is something that other people deal with and never you.
The Big Questions
Here are the big questions when it comes to long-term care, what is it? Will I actually need it? How much is it going to cost me? How can I get somebody else to help me pay for it? And then what if I don’t need it? What happens then? These are kind of the big overarching questions with respect to long-term care. And so, we’re going to weave these answers to these questions into the different sections that we’re going to review today.
THE BASICS: That is “Long Term Care”
We have to start with the basics. We have to have an appreciation for what is long-term care and specifically how it relates to healthcare. There’s two important establishments here. Long term care is the kind of care that a person would need if they had an ongoing illness or disability that prevents them from taking basic care of themselves, things like feeding themselves, bathing themselves.
We’ll get into some more of these specifics here in a couple of slides, but the basic premise is whatever is going on, whatever the reason being that you are unable to do the basic things to care for yourself. It’s also important to distinguish that long-term care is not the type of care that’s received in a hospital, and it is not care intended to cure you. Long-term care is typically the kind of care that a person would need for the rest of their life. It’s not, for the most part, something you grow out of. It’s possible to do that, but that’s not typically how this goes.
When we think about this idea of being in a situation where either sick or disabled and unable to care for ourselves, how often does that happen? We get that a lot. Is that really a thing that people struggle with? Well, we have to look at the odds here.
The reality is that people are living longer. Advancements in medicine, technology, overall health. We have the ability to live longer the longer that we live, and I know that seems like a silly thing to say, but things continue to get better along the way as life expectancy continues to expand. And the longer that we live, the more likely it is that we’re going to need some kind of care. It’s just the stats. It’s just how it works.
STATS: What are the Odds?
Here’s a shocking statistic. I actually didn’t believe the statistic the first time I saw it, that 70% of those people turning age 65 will need some form of long-term care during their lives and 20% of those people are going to need it for more than 5 years.
That is a really long time, especially when you start to get into the cost of getting this kind of care for basic things that someone is able to do on their own normally, but for some reason an illness or disability prevents them from being able to do that and now they need extra care.
Nearly 70%. As long as you make it to 65, you have a 70% chance from that point forward of needing some version of long-term care. That has to be a stat big enough for us to pay attention to and bend our ears a little bit and say, “Okay, I’m paying attention now. What does this really mean? And what control do I have over the financial outcome in the event that I need long term care services?”
And here’s the deal. The cost of long-term care is expensive and it can derail your retirement planning, meaning if you don’t have another way to pay for it, other than being out of your pocket, all the great planning that you’ve done up to this point, all the money you’ve saved in TSP, you working for the government for a higher pension, sticking around, expanding your high three, all the good things that I know feds are looking to do, you’re doing all these good things and one long term care event can completely dismantle and otherwise great retirement plan.
Again, this is not a topic that’s fun to talk about. Everybody wants to avoid this. And so, I applaud you for being on today’s webinar to get into some of the details here.
TYPES OF CARE: Where Does LTC Take Place?
Let’s talk about the types of care. In other words, where does long-term care actually take place? For most people, they would prefer to receive this care at home, and that’s normally when it starts. Eventually you may progress to an assisted living facility, that you need a little more hands-on. You don’t need constant supervision, nobody’s living with you or anything like that, but somebody’s looking over you to make sure some of the basic things are being taken care of.
Next are nursing homes. This is of course the thing we all think about, and everyone dreads just because of some of the horror stories that come out of nursing homes, but actually very few people statistically end up in a nursing home. They’re typically at home or in an assisted living facility.
Of course, at the end of life we have hospice facilities and that type of thing. That’s of course where nobody wants to be, in hospice. But along the way, on this journey, there are what we call alternative care settings that are just kind of the more unusual or more creative ways of receiving care.
Adult daycare centers, this would be in the event that maybe your kids are taking care of you, maybe you live with one of your children, but they need to go to work, and they can’t leave you there by yourself. And so they may scoop you up, take you off to adult daycare, they’re watching over you throughout the day, making sure you have meds, going to the bathroom, all of those normal things that are long term care, and then you get picked up at the end of the day and brought back home.
That’s a very creative way to solve the problem of your children who may be taking care of you, needing to go to work, or perhaps it’s a spouse who’s trying to take care of you. And for the most part, things are okay with you staying at home with your spouse, but they need to go to work. That’s possible that that needs to happen as well.
And then we have continuing care retirement communities. These are communities that have a wide variety of different types of care being provided there, and you can kind of graduate into different levels of care as your care needs increase. It’s kind of an interesting setup for facilities like that.
ALTERNATIVE: Family Caregiving
That’s the idea of where care can take place. But what I hear most often when we think about long term care is this idea that your kids are going to take care of you. I want to talk a little bit about this alternative of family caregiving and some of the realities of what this actually means. The vast majority of care that is provided at home is provided by unpaid caregivers. This is your spouse, this is one of your children, whatever that might be. 80% of the time we don’t pay these people.
And if you’ve ever been a part of a long-term care event in someone’s life, maybe a parent, an aunt or uncle, grandparents, whatever that might be, you know how challenging it is to actually give this type of care. From a feeding standpoint, perhaps not that deep of care, but when we’re thinking of toileting, incontinence, and bathing, and dressing, this is the type of care that’s hard for people to give. It’s mentally hard. It’s sometimes physically hard to provide that care depending on the circumstances that we’re dealing with.
If we have a lady who’s 90 pounds soaking wet, taking care of her 200-pound husband, that’s probably a problem. It’s really hard to bathe someone twice your size. We have to be honest with ourselves about what we’re asking of the caregivers that are family members and when we’re not even able to compensate them. The average length of this type of care, of this family caregiving is over four years. That’s a really long time.
And here’s the reality that I don’t think a lot of people give the appropriate amount of credence to, and that is as those caregiving duties increase, meaning your health is declining and more care is required, those caregivers end up feeling the pinch in other ways. They’re already mentally exhausted. That’s probably a given just given this type of care that’s being rendered, but they end up not having full employment. Their earning potential gets stifled because they’re taking care of you.
If they are in a position where perhaps they were earning pensions, a state employee, of course, a federal employee, those types of benefits are going to significantly decrease because they’re either not working towards those benefits any longer or they’re working on a very limited basis and thereby decreasing the pension benefits that are available to them and things like social security over a lifetime. If you’re not out earning money, you are naturally going to get a lower amount of social security when the time comes.
I share this with you, and I’m trying to be as direct as possible in my explanation here because this is a lot to ask of somebody. And I know that as a parent, we would hope that our children would return the favor when we cared for them, and we took care of them, and we kept them going so that that favor could be returned to us later in life.
And listen, if you’ve been a caregiver specifically to your parents, but I would argue with anyone, a spouse, siblings, whatever that might be, it is a lot to ask of you. And you know how challenging that is, not only for the financial aspect, but the mental aspect, the relationship that you have perhaps with your spouse or your parent or your children or your siblings. When somebody is stepping up to provide this care, perhaps someone is not, and it can cause a lot of strife in a family if we’re not careful.
What I’m going to suggest to you today is that you think outside of your family so that you can protect your family. What are the things that we can do, that we can put ourselves in control of so that when the time comes that we need this type of care, that we can get someone outside of our family to provide it and have the means to do so? That’s ultimately what we’re trying to do when we plan for long term care.
TRIGGERS: When You Need “Long Term Care”
Here’s the deal. Many of you are wondering are there specific triggers of when you need long-term care? Like what’s the qualification? Well, there’s a couple of things. The first is we’re talking about non-skilled care. Sometimes it’s referred to as custodial care or informal care. And what I mean by that, first is not that the people who are providing this care are not skilled people.
I want to be clear; this is the terminology that’s used in the industry to differentiate medical care, which is skilled care versus what they call homemaker care, which is considered non-skilled. This isn’t a knock on this group of people. I have met a lot of them throughout the course of my lifetime with different long term care events that have happened in my life. And God bless these people because they do the Lord’s work when it comes to caring for people on a daily basis in non-medical ways.
This is what these people are helping with. They’re helping with what we call activities of daily living or ADLs, bathing yourself, dressing yourself, feeding yourself, and we have this word transferring. You might not realize what that means. In the context of long-term care, transferring is getting yourself from a bed to a chair and back again. Can you do that by yourself? If not, you need somebody to help you.
And then the last two, toileting and incontinence, my goodness, these are some of the most challenging ways that you can receive long term care and why, again, I hope that you’ll look to people outside of your family to provide this type of care. If nothing else, to retain some dignity with your family of not requiring them to do that type of work on your behalf. It changes the dynamic of relationships. And if we can avoid it, I think we should.
The next thing that may trigger long-term care is you may need supervision due to a cognitive impairment like Alzheimer’s. You might be fully capable of doing all of the six activities of daily living. You just might forget to do them or forget how. You know you have the capacity to do it. But do you remember which order your clothes should go onto your body? When you show up with your underwear on the outside, that’s a pretty good indicator that we might need some help.
Eating. You might know that the food that’s sitting in front of you needs to be consumed. You just might forget how to bring that spoon up to your mouth. These are very normal things that happen with Alzheimer’s patients. It’s terribly sad to see. But for these folks, it’s not just the activities of daily living.
Even if they’re actually able to do all these things and are doing them, they still need some supervision because we can’t leave them alone. They can’t stay in their home by themselves because the likelihood that they wander out and put themselves in harm’s way or forget to turn the stove off after preparing dinner, whatever it might be.
Those are very real risks that Alzheimer’s patients face, which is why the memory care facilities or portions of nursing homes that cater to that group of people are so important to make sure that the safety of that individual is put at the forefront. This gives you a pretty good idea of what is triggering this type of care that is being needed.
COSTS: How to Pay for Long Term Care Services
All right, next up, let’s talk about costs. How to pay for long-term care services? Well, you could pay out of pocket. We’re going to talk about that a little bit more here in just a second. You could rely on government assistance. I’m not sure how many of you are really excited about that. I’m going to tell you I’m not, and I’ll show you why here in a moment. And then the other option is to purchase your own protection in advance. We’ll talk through each one of these items.
Pay Out-of-Pocket
Let’s talk about paying out of pocket. There are several different ways and different types of settings that you can receive long-term care. We’ve already reviewed those on a previous slide. Starting at the very left, adult daycare. This is you for the most part, having taken care of, but during the day, maybe you need to be dropped off to be cared for while perhaps a child or a spouse is working. That’s going to run you about 20,000 a year.
Next up are assisted living facilities, and these are nationwide averages if you’re kind of curious. Your area might be higher or lower of course, than this. Next up, we have assisted living facilities. Here we’re looking at about $54,000 a year.
In home care, this is you staying in your home and someone just visiting. This is not 24-hour care. Let me be very clear. This is not live-in care. This is a couple of hours a week, or I’ll say a few hours a week where there’s normal check-ins, maybe there’s scheduled bathing, preparing meals to be able to heat up, those types of things.
And then we have nursing home care. Most of the time, nursing home care is provided in semi-private nursing home rooms where you’re sharing a room with another individual, but there are private nursing home settings. They’re just a little harder to come by. Easier to fit more people in a facility when they put them in the same room. That gives you an idea of what we’re looking at. Nursing homes are going to run you on average about 95 to about $108,000 a year.
Many of you might be looking at this and say, “I don’t even make that much money a year right now. Even if all of it went to the long-term care facility, man.” But even for you higher earners, this is still a lot of money and it’s certainly a lot of money when you think about taking an out of an account like the Thrift Savings Plan.
Because keep in mind, if most of your money in the TSP is traditional TSP, you owe tax on that money first before you pay it to the long-term care facility. We have to get real about the consequences of self-funding with taxable money.
Annual Cost in Sample Cities
Many of you are wondering, well, I wonder what care looks like in my area. I wanted to give a little bit of a sampling throughout the country to show some of the broader spectrum of costs. We would expect in San Francisco for it to be expensive. It’s super expensive to live in San Francisco to begin with, but I wouldn’t have expected it to be as expensive or more expensive in Fargo, North Dakota. This is a supply demand problem.
There are very few people in that area, very few facilities, and so naturally they’re able to charge more because they have fewer providers there. And I’m not going to get into the politics of what they should be charging, or highway robbery, or anything like that. The reality is, is that this is care that a lot of people need, and these companies have found a way to be able to provide it. Whether we like the cost or not, it doesn’t really matter. The cost is the cost.
Of course, even in these areas, these are all averages as well, but I wanted you to get an appreciation for what we’re really looking at in different parts of the country. And I would challenge you to think about where you might find yourself living in retirement in the event that you need long term care. It’s not necessarily where you live right now. You may need to get closer to your children.
You may have plans to move, say you’re going to go down to Phoenix, a very popular spot to be able to move to as a retiree. Maybe that’s the plan, but we need to think about what is happening during that stage of our life. And if none of your family is in Phoenix, chances are you’re either going to be down there all alone, or you maybe have to move to be closer so that they can advocate for you and help support you in that time.
Again, lots to think about here, and I hope these numbers are at least settling in a little bit to say, “Wow, okay, even if I’m in Kansas City, which is where I’m at right now, it’s running me almost 80 grand to have a nursing home per year. So let me take my TSP and divide it by 80,000. Oh, but wait, we can’t just take 80,000 out to pay the bill. We probably have to take 100,000 out to pay the bill.” How quickly is your TSP evaporating? I would argue probably very quickly. We have to be very, very careful about our expectations to be able to self-fund long-term care.
Various Government Programs
We have comments from workshop attendees all the time that all these other programs provide long-term care services. And so, we need to debunk a few things here. The first bullet here states that FEHB does not provide long term care services. This is the God’s honest truth.
If you have Blue Cross Blue Shield, or Kaiser Aetna or any of the programs out there under FEHB that provides medical care. Remember, long-term care is not medical care. It’s all the other stuff that we have to do every day to keep our lives going. Eating, bathing ourselves, feeding ourselves, those normal types of things.
FEHB does not provide long-term care services. Same thing with TRICARE, that’s the military’s health program. It does not provide for long-term care services either. TRICARE operates just like FEHB does in that it provides medical care, not long-term care services.
The insurance companies know exactly what they’re willing to pay for and what they’re not. I don’t want you to be confused or believe that because you have one of these healthcare programs, FEHB or TRICARE, that you think miraculously your long-term care services are set because they’re not.
We get lots of questions from vets like, “Hey, the VA has long-term care services.” Well, they may provide some long-term care services based on a service-connected disability or for wartime veterans.
Now, the caveat, and the reason I underlined the word may is because the VA is not properly funded to be able to provide long-term care services to all the people, they’re supposed to provide them for. They’re just not funded that way, and that’s not a knock on the VA. That’s just the nature of what is required of an agency like the VA to provide these types of services. They’re just not funded to be able to do it.
I would hate it for a veteran, I’m a veteran myself. I would hate to know that we dismiss the idea of properly planning for long term care because we thought the VA was going to take care of us. We’ve got to do something, be in control of this decision. And if it just so turns out that the VA pulls through and they’re funded or you have such an extenuating circumstance that you qualify for it and the money’s there, then great, but let’s not leave this to chance.
Next up, we hear this occasionally. “The state can take care of me. I mean, I’ve paid all these taxes all these years. Surely the state Medicaid program can help.” Well, I hope that Medicaid isn’t helping you because it means that you have fallen below the poverty line because that’s the standard for the state Medicaid program to kick in.
I’m going to guess with your pension and social security and what you have in your Thrift Savings Plan and probably other assets that you’ve accumulated over the years, that you will not qualify for Medicaid.
Last up, and this is one we get questions about all the time, is about Medicare. The reason it’s confusing of whether Medicare provides long term care services is because there’s some language in the Medicare rules about when they will provide short term rehab.
So if it just so happens that you have to go to a nursing home to receive this short term rehab, say you had an accident that requires rehab, you broke a leg, you had a hip replacement, those types of things, and perhaps that rehab because of the extenuating circumstances of it needs to be done in an assisted living or a nursing home setting because that’s where the care can be rendered, Medicare will pick up that short term rehab cost.
And I’m not going to get into all the rules of how long and what you have to do to qualify for that. That will make this session a little bit too convoluted. But Medicare is only looking for a very short-term rehab situation.
But long-term care, remember, is the kind of care that you’re probably going to need for the rest of your life. It’s not the 60 days that it takes you to recover from a knee replacement. It is a much longer period of time that is going to be required for care.
And remember, it’s not medical care. It is non-skilled care. This is the care to take care of the rest of you, not the medical parts of you, but the rest. And Medicare 100% does not pick that up. I need to be as clear as possible on that statement because it is a misconception that too many people have, and it leaves them under-protected when the time comes.
CONSEQUENCES: The Cost of Taking No Action
Let’s talk about the consequence and the cost of taking no action. At the beginning of this webinar today, I talked about how this is probably the most unpopular topic that we talk about. People don’t want to talk about long term care more than they don’t want to talk about life insurance. And that’s saying something. When it comes to long term care, there are a couple of reasons why people don’t take action to protect themselves. And it’s typically for these three reasons.
First, they think they’re not part of the statistic, that they’re not going to need this type of care. Why plan for it if I don’t think I’m actually going to need it?
The second is they think the insurance is too expensive. And they’re like, “Man, why would I pay all that money? That’s ridiculous.” And I’m not saying I argue with that. I get it, but they think it’s too expensive to solve the problem.
And the third reason is they’re afraid if they do bite the bullet and pay the premium for the insurance, that they’re paying a lot of money for a product to protect them and then they never use it. Because we don’t want to actually use long term care services. If we can avoid it and be healthy just until the day we die, well then let’s go that route.
But the reality is, if you have a product, then you feel compelled to use it. It’s kind of like having homeowners’ insurance. You don’t want to use it, but if you need to use it, you hope that it’s there, and you hope that it’s enough to fix the things that need fixing.
This combination of these three reasons is what caused most people just to shut down on the long-term care discussion altogether, and then they put their blinders on, or they put their head in the sand, whatever analogy you want to use. And then there’s nothing. There’s no protection, no strategy whatsoever.
And guys, that can’t be the answer. There are too many creative solutions that the private sector has created to solve this problem for you not to at least explore these and do it intentionally and genuinely that you are looking to solve the very likely need that you are going to have in the future.
That’s my ask of you today is to take this conversation seriously, have the hard conversation. I promise you they’re always the most important ones. So having a conversation about an unpopular topic like this with your spouse, with your children, for those of you who are young enough on this call, have the conversation with your parents who might need some long-term care planning.
There’s all sorts of things that we can do to be better prepared for when the time comes, and we can hope that we’re part of the statistic that doesn’t need long-term care, but the odds are pretty stacked against you that you’re going to need something.
CONSEQUENCES: When You Don’t Have a Plan
What happens when you don’t have a plan? If you don’t have some sort of strategy in place for long term care, then you’re left to do one of two things. To either rely on someone to take care of you for “free” and we already know it’s not free. When you have a family member taking care of you, it costs them an awful lot of their mental energy, their earning capacity, and their relationship with you. So, it’s not free, but on the surface, it looks to be free.
The second thing you’re left to do is to pay out of pocket. So, you’re on your own. Start pulling money out of TSP, other assets that you might have. It might cause you to sell off assets like rental property or maybe even your primary home when the market just tanked because you need the money so desperately. It also might cause you to divert assets that were intended for a spouse.
Long term in retirement, and you just gobbled all of them up for the care that you need right now. Not only do you end up needing all that care and presumably dying earlier in retirement, but now your spouse is supposed to live a long time in their retirement and now they don’t have the money to be able to do it, at least not in the way that you had planned.
And the last thing, some people scoff at this a little bit, but I’ll tell you, not being able to leave a legacy to your children or grandchildren, we’re not looking to make anybody rich, but we have the capacity to change a lot of lives when we leave this earth based on the planning that we’ve done. And I would like to know that I have the ability when it’s my time to go, that I have not drained all of my assets for a reason that could have been avoided.
It’s not that I want my children or grandchildren to want to take something from me. I want the ability to give it on my terms in a way that I feel is valuable. And if it’s not my children or grandchildren, then it’s a charity or a cause that I care about, but I’d prefer my money to go to that, to my family or something that I care about more than I would to know that I had to pay totally out of pocket for all this long term care and I drained it all.
And this isn’t a scare tactic. This is just the reality of the real things that happen when someone has a long-term care event and they’re unprepared. Like I said, I’ve been through more of these than I care to admit, and I see the effect that it has on families, the effect that money and the access to or lack of access to money has in decisions like this of where you can receive care, what you can afford, and what you’re left with at the end. I implore you to do something to solve this problem.
Purchasing Your Own Protection in Advance
What is that something? We talked earlier about the idea of purchasing your own protection in advance. You can’t wait until you actually need the care to purchase this. It has to be done earlier.
The first option is an employer-sponsored plan. The Office of Personnel Management had used the Federal Long Term Care Program for many years. It is used exclusively for long term care purposes. Unfortunately, this program is currently suspended by OPM, right now, they say until December of 2024, which means they’re not taking any new applications.
I would share with you if you’re kind of curious what the fate of this program is, I suspect that John Hancock, who is the contract holder for the Federal Long Term Care Program, I suspect that they’re following suit with the rest of the industry for normal long term care products, what we would call traditional products on the employer sponsored side, and even in the private side that are difficult to fund.
It takes an exorbitant amount of premium to support the product because so many people go on claim because of the stats, the 70% number that I shared with you before. If I were a betting girl, I would say this program is not coming back in December of 2024 or ever.
OPM might come back and surprise us and do some modified version or something, but it won’t look like it has in the past. I can almost guarantee it.
If we don’t have an employer sponsored option, so in this case a government option available to you, what are the other options? Well, if we look at the private sector, there are really two ways. We have a traditional or what we call a standalone long term care policy that is used exclusively for long term care purposes, and then we have some other private products that have some long-term care features available in them that allow for us to use them in the event we have a long-term care event.
I want to take just a few minutes and walk through these different types of solutions so that you have some language to use as you’re exploring the different options and thinking through which is the right one for you.
Solution #1: Traditional LTC
The first one is the traditional long-term care policy. So how it works, you buy a policy that pays up to a certain amount per day if you end up needing care. It would be structured like $200 a day for 3 years. There’s probably some inflation protection built in, that type of thing, but it is a set dollar amount that you have to trigger the activities of daily living that you’re unable to do, two of them that constitutes you needing care, which triggers the long-term care policy to start to pay out.
It’s typically a reimbursement type of policy, although there are some straight payment policies available as well. There aren’t many of these companies left that do traditional long-term care, and so it’s harder to find these days.
The pros of the traditional long-term care product is that you can buy a significant amount of coverage. It’s great. I mean, it’s going to cost you through the nose, but you can buy a lot of coverage. The cons though are that you must be healthy enough to qualify for the coverage. You can’t have the markers that insurance companies are worried about triggering a long-term care event, and now they have to pay out.
Instead of collecting money from you, they’re giving you money. You have to be pretty healthy to qualify, not in perfect health, but pretty healthy to be able to qualify for it. This coverage is often very expensive, and frankly, I think cost prohibitive for most people.
The biggest reason is not always the cost. It’s what happens if I don’t use it. What if I don’t ever need long term care services? I’m one of the 30%. What happens then? In that case, all of the money you’ve paid into this policy is for nothing. It’s not paid to anybody. There’s not a refund of it. It’s really a use it or lose it type of program, which is really off-putting to most people, and I get it. I completely understand. But don’t let this be the reason that you stop looking for a solution. There are two other solutions that I want to talk about today.
Solution #2: Life Insurance
The next is a life insurance policy with what we call living benefits. Here’s how it works. If you need long term care, part of the death benefit that you purchased in the life insurance policy gets advanced to you. The dollar amount or the percentage that is paid to you varies by policy. You’ll need to look at either a policy you already own that maybe has this in there that you don’t know about, or one that perhaps you’re going to be purchasing, that will allow for some of those benefits to come to you while you’re still living, and be able to help afford this type of care.
In the event that this happened, and you took, let’s say it’s $100,000 of advance to you, then at your death, your beneficiaries would receive whatever the death benefit is minus $100,000. Again, I just use that as an easy example, but it’s essentially accelerating the death benefit to happen early.
The pros, this type of add-on benefit or living benefit is often included in permanent life insurance policies at no extra cost. That’s kind of an interesting way that the insurance companies have gone about it because frankly, it makes the life insurance policy much more attractive to people because they’re thinking, well, if there’s any objection or any hurdle of buying life insurance because “we don’t want to make somebody else rich when we die,” this at least helps us while we’re living in the event that we need it for long term care services.
And here’s what we love about life insurance policies that have these living benefits is that someone gets the money. Someone gets the money. It’s either you while you’re living receiving that extra or advanced benefit, let’s say again, 100,000 or that money is getting paid to your family in the form of a death benefit when you die.
Someone’s getting paid one way or another, either you or your beneficiaries. And so, it doesn’t feel like a lost benefit. That way we can hope that we don’t need long-term care services instead of being frustrated that we’ve paid all this money for a product and then not ever use it.
There are some cons to the life insurance side, or at least something to think about. The first is that you have to be healthy enough to qualify for a life insurance policy. We need to make sure that you’re not thinking about this too late in life when life gets in the way and our medical situation changes and then we can’t qualify. This is an encouragement to have this life insurance conversation earlier and the earlier the better.
The next con here is that the amount that you receive might not cover all of the costs that you have for long term care. It just depends how long you need long term care services, the extent of the services that you need. If you’re in an adult daycare at 20,000 a year, that’s very different than a nursing home at $100,000 a year. It’s very possible that it doesn’t cover all of your costs, but it hopefully takes a big chunk of those costs off the table and someone’s getting the money. In this case, it would be you as an advance of your life insurance proceeds.
Life insurance is a super popular way to be able to solve this long-term care problem. Just remember, you have to have the right kind of life insurance. It needs to be a permanent life insurance policy, and you want to make sure that there is a feature or a rider, what we call it, that is added to that life insurance policy that puts this stipulation in place with the insurance company.
Solution #3: Annuity Product
The last product is an annuity product. Of course, you folks have an annuity with your federal pension. There’s private annuities out there that have different types of features, and they’re designed initially to provide a similar style of benefit, just like your federal pension, where you get perhaps monthly benefits if that’s how you have it set up, that you’re getting a monthly payout from your annuity.
And it looks an awful lot like your federal pension. It’s very possible that in the event that you are looking at an annuity product to provide more guaranteed income for you in retirement, that you can add on a long-term care feature or rider onto this annuity product. In that event, if you need long term care, the amount that you’re set to get from that annuity product gets a boost. The amount of that boost varies by product.
You want to make sure that you understand there’s different levels that you can select, but for instance, it’s very common for annuity products to have a long-term care doubler. Meaning that if you’re set to get $2,000 a month from your annuity, now you get $4,000 a month while you’re in long term care, while you’re receiving that type of care.
There are triplers out there, there are all sorts of different solutions that are available that help you to fund that long term care need that you have. Will it cover all of it? Maybe not. Probably not, but it’s going to help take a chunk out of it to help you pay along the way.
The pros of the annuity product version of long-term care is that these annuity products can include this long-term care feature at a small cost. It’s not typically free there, but it is by every measure, a small cost to add that long-term care feature in there, given what it can do for you in retirement, and certainly way less expensive than a traditional long term care product.
And another good piece of news is it’s available during your lifetime. So, no matter how old you are when you die, that annuity would not have run out and the doubler or the tripler or whatever the version of the long-term care rider is will help to boost the amount that you’d get in the event that you need long term care.
Another big pro is that there are no health questions for an annuity product. You’re essentially able to get a long-term care feature built into that annuity product without having to prove that you are healthy enough to get the coverage. This is a huge perk on the annuity side and something I think everybody should at least be looking at to see what the options are and are there some strategic advantages that you can get regardless of your health.
As far as the cons, the con here is that it might not cover all of your costs. In that example that I gave, if your normal annuity, monthly annuity is $2,000 from the private sector annuity product that you purchase, if you have a doubler on it, it’s going to take it to 4,000. But if your long-term care facility is costing you 6,000, there’s still a gap. It’s again, taking care of a good portion, a good chunk of the cost, but may not cover all of it.
I hope that this slide has helped open your mind or broaden your perspective on the different solutions that are available out in the private sector. I am not suggesting that all of these products are appropriate for everyone. I am suggesting that it’s worth looking at and helping to identify what the right solution is based on your circumstances.
I cannot stress enough how important it is to work with a financial professional who understands how these products work, so that you can fully understand and appreciate what it is that you’re choosing and not have any buyer’s regret or remorse or anything like that, but feel like you’ve made a really positive decision to protect you and your family. It’s worth a conversation and a serious conversation at that. If you have not already solved this problem, please put this at the top of your list.
Wrap Up & Next Steps
Wrap up and next steps. I can’t stress enough how creating a long-term care strategy is so essential to protecting the other parts of your financial plan. It doesn’t do you any good to have made all these amazing decisions with respect to your money as far as investing and tax strategies and having qualified money in traditional accounts and Roth accounts versus non-qualified and regular mutual funds.
You’re diversified, you’ve done all these great things, you’ve made all these great decisions, you’ve got your estate plan, your wills, and powers of attorney, and you’ve had a conversation with everybody about what happens if you die. Yeah, all that’s great, except if you have a long-term care event, you’re going to wipe it all out. Let’s not do that. Let’s put ourselves in the driver’s seat of what’s going to happen. And we can do that by looking at some of those private sector options that are available and certainly worth considering.
How does this fit into the bigger picture? Wow, long-term care can affect every part of your financial strategy. Please make sure that you understand where you’re starting from as a federal employee with all the benefits that you have. Long term care: it used to be one of the topics as far as the federal program that we were able to teach in our workshops.
Now we’re talking more about the importance of having a strategy and some of the topics that we talked about today, but it’s got to be in the context of the entire financial picture.
If you have not already or you need a refresher, please attend a workshop that we host. These are all over the country. It’s in-person training. It’s a day long. There is no cost to attend. These are sponsored sessions, the costs have all been picked up, and we cover all of the federal benefits topics and the decisions that need to be made when you approach that retirement window.
The best part is that some one-on-one help is available following the workshop if you ask for it. And that can help you just to get clearer about what your benefits look like, where the opportunities are, where the obstacles might be in your way on your journey to live the retirement that you want.
You can see all of the details, our locations, and dates and all that good stuff at fedimpact.com/attend, and you’ll be able to select a workshop that’s close by. Of course, we can’t be in every city, but we have a whole lot of them. And so, I hope we’re able to find one in your area.
Thank you very much for joining us on an otherwise tough topic to talk about. Remember, you can find a workshop to attend by going to fedimpact.com/attend. And to attend our next webinar on “COLAs vs. Pay Raises,” you can go to fedimpact.com/webinar.
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