Retirement Answers

Jacob: 00:00

Hey, friends, and welcome to the very first episode of the Friday Q and A here on the Retirement Answers podcast. This is a new segment that we're going to be doing in addition to normal episodes that come out on Tuesdays each week. We're going to be doing this on Fridays where I answer your specific listener questions that you've submitted to me. If you're new here and you're wondering, hey, Jacob, how do I submit questions? How do I get this to you?

Jacob: 00:20

There's going be a little link down in the description where you can submit your specific question and I can answer it as best as I possibly can here on the show without actually giving you true investment advice. The idea here is to share education so that you can take what you hear and what you learn and apply it to your situation so that you can have better outcomes for you and your family. So with that, I'm gonna go ahead and jump in. Today's question comes in from Teresa. So Teresa, congrats.

Jacob: 00:43

You are the very first person to get your question answered here on the Friday q and a, and I'm simply going in the order in which people submitted their questions. So that's what we're gonna do. Her question has to do with long term care. So I'm gonna go ahead and read it, and then we'll talk through some of the details. So it says my mom had dementia and spent a few months in memory care facility before she passed away in 2020.

Jacob: 01:00

I saw firsthand the high cost of living there, factoring life expectancy averages and assisted living costs. How much should I set aside for this? Should I need to do the same thing later? I don't have a long term health care plan, and I don't want my children to incur any of this cost. So I want to have some sort of idea as to how much I would need financially so that that doesn't happen.

Jacob: 01:20

She said, thanks, and PS, just started listening to your podcast this year and find them very insightful. Well, Teresa, thanks for your question and glad to have you here a part of the show and glad to hear that's been helpful for you. So let's kind of dive into this. Long term care is a tough one in terms of how to navigate it correctly. And there's a few reasons for that, which we'll get into in just a moment.

Jacob: 01:40

But I wanna start with maybe a couple of different stats. I was looking into this a little bit and doing some research, but here's some interesting things for you to know. About seventy percent of adults aged 65 or older, so whoever makes this a 65 or past, about seventy percent of those people will need some sort of long term care at some point. And I'll talk about how long someone might need long term care here in just a second, but in general, percent of people who at least reach age 65 will need some sort of care at some point, maybe that's in home, maybe that's actual nursing facility, there's all kinds of different types of care that you could need or get. So that's something that's interesting.

Jacob: 02:16

If you do get to 65 or make it past that age, there's a seventy percent chance that you're gonna need some sort of care in the future. Now, in terms of how long you might need that care, that's always something to pay attention to. So the average length of stay in a long term care facility is about three point two years, and just over twenty percent of people will actually require long term care for five years or longer. So what happens here typically with long term care is normally this is almost like an end of life care, meaning people aren't there and especially in nursing home style facilities for extended periods of time. Now, obviously there are people who have been and you might know someone personally that has been there for ten, fifteen, twenty years, and that's an outlier based on the data.

Jacob: 02:58

Normally people go into those facilities whenever it's typically towards the end of their life. And so that's why the data is saying, hey, the average length of stay is about three years and only twenty percent of people who need to stay in a facility end up being there for five years or longer. So the odds are very small, okay, for you specifically, one out of five people that end up in long term care facilities end up staying there for longer than five years. Now, I also found some information on the average premium for long term care insurance. So we're going to talk about this in just a second in terms of long term care plan versus long term care insurance, and maybe the difference there.

Jacob: 03:32

Sometimes we think of these things as the same thing, and they're not quite the same thing in terms of how I like to approach it. But for a 55 year old male, the average annual premium for someone that's that age and they're trying to get benefits and the average benefit amount is $165,000 growing by 3% annually is $2,200 per year in premiums just to have that long term care policy. Now for females that are 55, and they have an initial pool of benefits of 165,000, again, growing at 3% annually, so there's that inflation adjustment. For females, the average premium is $3,700. So there's about a $1,500 difference there between male and female, but the female being having a higher premium over time.

Jacob: 04:14

You know, there could be various reasons for that. So just like in life insurance, typically a male has a higher premium than a female. It's the opposite here on long term care insurance, likely because females will last longer than males. You know, if something happens or they're in a long term care facility. So all my females out there, you are have a superior advantage over us males in terms of surviving longer.

Jacob: 04:36

So way to go. That's awesome. So let's talk about this. Insurance nowadays is really tough in regards to long term care. Okay, the premiums are depending on the type of policy you buy and how many benefits you get, what your total benefit maximum for your whole life is, or what your annual benefit is, and how many years you have a benefit.

Jacob: 04:52

There's so many ways and terms that you could have in a policy and better policy you buy, obviously the higher premiums will be every single year. Now, if we think about insurance, the one thing that we do know about long term care insurance is that you may not need it. There's so many folks and we see there that don't end up needing to stay in a long term care facility, whether they pass away unexpectedly or simply pass away on their own terms. So there might not actually be a need for a long term care facility. Now, thing to think about here is if you are married, hypothetically, your spouse will be able to take care of you, at least in some capacity, if you were the person who needed some sort of care, maybe a joint approach with someone with like, you know, in home health, plus a spouse's assistance.

Jacob: 05:33

But if you're a surviving spouse or if you're single, no one's there to take care of you, except like in Teresa's situation where she doesn't want to be a burden for her kids. That's a big thing on most people's minds. How do I avoid being a burden on my kids? Because maybe you have been through that situation where you've had to take care of your parents. And while it's something that you're honored to be able to do because they are your parents and you want to be able take care of them and provide for them, it is also a burden.

Jacob: 05:56

And so if you've been through that, you don't want to leave that burden on your own kids one day, and so you realize some of the things that could be there for them, so you wanna avoid that. So how do need to think about this? Do I buy an insurance policy or do I not? There's no right answer. My thing is this, I don't want to buy a policy if I don't have to, and I'd rather be self insured if I can.

Jacob: 06:17

Now, do mean by self insured? Basically, I just need to have enough money myself to pay for my own stay or care or whatever it might be without having to purchase a policy. Because again, if you pay that premium of 2,000 or $3,000 every single year for twenty years, you're paying a lot of money into a policy that you may never use, which means you're never gonna get that money back, which means your kids or your family, whoever's down the line behind you does not get to keep that money. So another approach to long term care planning, which is different from buying just a long term care policy, to is think about how you should be investing your money in preparation for the possibility of you ever needing long term care. So the key there is you get to invest the money, it grows over time, and then you can use those funds in the future if you need to, or if you never need the money for long term care, you simply leave that money to your family down the road for an inheritance, and then they are much happier as well.

Jacob: 07:08

So here's how I would think about self insuring. If you own a home, think of that equity in the house, especially if it is paid off, think of that equity as, hey, could liquidate my house, I could sell it, and then I've got $2.03, $4,001,000,000 dollars, whatever your home value is, I've got that cash that I could then use to pay for my long term care stay. Because hypothetically, if you do need long term care facility, then you're gonna not be living in your primary home anymore, you will be in that facility, which means you can sell your home if you had to, to be able to liquidate to create enough assets to provide for yourself in a nice facility. Now here's the thing, when it comes to Medicaid, Medicaid cannot make you sell your house in order to pay for yourself before they start paying benefits. You don't have to sell your house, but you have to have basically no money to your name that's liquid that you get access before they start paying.

Jacob: 07:55

Most people don't want to end up on Medicaid if they can avoid it. And there are different strategies there may be to find ways to hide some of your assets and shelter those from, you know, look backs and things like that around Medicaid, that way you can get benefits. So I won't get into that so much today because that kind of gets a little bit off of the question. But Teresa, here's how I would approach this. I would be investing my money in a very thoughtful and intentional way, specifically for long term care possibilities in the future.

Jacob: 08:22

So if you've got some sort of nest egg, and you've got your retirement funds, and you've got everything built up, and you're ready to retire and you're in retirement, think about how you need to be investing your portfolio. Because again, I talk about this all the time. Most people don't think about all the different considerations when it comes to investing in retirement, think about, hey, I don't want to lose money because this is my hard earned dollars, I don't want to see this money go up and down with the stock market. So I can't do that, I'm gonna be really conservative. That's a mistake, because again, if the inflation rate on long term care or medical in general is 5% plus, and you're not getting that because you're too conservative in your portfolio, then you are falling behind in terms of what your dollars are able to buy you in the future when it comes to long term care.

Jacob: 09:00

So think of it this way, you want to have a certain amount of money in your portfolio mentally designated to be for long term care. If you're not buying a long term care insurance policy, have it designated for that specific cost in the future and make sure it's invested appropriate. So if you are 60 now, and you don't expect any long term care until say 80 or 85 or 90, that's a twenty year plus time horizon that your money could be growing and multiplying and building up a larger benefit for yourself. So that's one thing is make sure that your investments are allocated and invested properly to meet your future obligations, should you ever need a long term care facility to go stay in. Now, do you do that practically?

Jacob: 09:39

Well, if you have a brokerage account or you have your accounts already open, IRAs, Roths, brokerage, you can just mentally allocate certain dollars within those accounts, it's like, hey, if I've got a million dollars total, then I can have 50,000 is like my long term care fund, and then I'm gonna grow that over time, so I'll make sure at least 50,000 of this 1,000,000 is invested a certain way and do it that way. Or if you want to keep it really simple and not have to mentally allocate it, you can actually physically allocate it and say, I'm going have a separate account that I'm going to move that $50,000 over into right now today, I'm going to invest that a certain way just in that specific account so that you can see visually that you've got a separate account just for long term care. That way, whenever that one's going up and down, if it is invested aggressively, you're not so worried about it because you know that that's for your long term care in the future, not so much for today's income in early in retirement. So my default is to self insure if possible, think about your home or any other real estate as your insurance policy, and if you need to be investing a certain way, and think about your investments in a more appropriate manner so that you're not just conservative just because you're in retirement, you've got a time horizon to play with here.

Jacob: 10:44

You've got some opportunities to make sure that you take care of your needs of the future and invest appropriately for that. So I hope that answers the question. Long term care is not an easy thing to figure out. There's no magic bullets. In terms of insurance world, it's kind of like the Wild Wild West of insurance because there are so many different little layers and rules around it, and long term care is expensive.

Jacob: 11:04

It costs a lot of money. It's going up pretty rapidly in terms of costs. And also too, it depends on where you live and your geographic location, because in high cost living areas, you're gonna have to focus a lot more on this and plan more accordingly. On lower cost living areas, it'll be a little bit cheaper. So you've got to think about your geographic area, how much time you have from now until you think you might need long term care, and then what you can do to be investing correctly, how you can maybe use some real estate assets if you do own a primary home or any other sort of real estate that you could liquidate, and in my opinion, only buy a long term care insurance policy if you feel like you absolutely have to, or if you simply have enough money to do so without it being a second thought in your mind.

Jacob: 11:45

So Teresa, I hope that's helpful. Truly, thank you for submitting your question. Long term care is something that's hard for everyone to figure out, but that's the way I approach it mentally. That's the default I start with, I'd rather self insure if I can. You got to evaluate this based on how much you actually need from your portfolio every single year and what your, you know, withdrawal percentage is and how much you will have left over hypothetically, you know, when you get to this long term care phase of life and will you have enough to provide for yourself.

Jacob: 12:08

So there's a lot of planning that goes into it, but hopefully these frameworks in terms of how to think about it is helpful for you. So thanks for submitting the question. And if you've got a question, you could submit that using the link down the description below. Thanks for tuning in to the very first episode of the Friday q and a here on the Retirement Answers podcast. I look forward to talking with you again next week.

Jacob: 12:29

Hey, it's Jacob again, and I wanted to remind you that nothing discussed in today's episode is meant to be financial, legal or tax advice. Retirement Answers is for educational purposes only. Thanks for tuning in to this week's episode. I look forward to talking with you again next week.