Welcome in today we're talking about a key topic and conversation that happens around retirement planning and that's the idea of whether or not you need long-term care. It's something comes up all the time in the offices of Rosewood Wealth Management.
So of course we brought on John Stillman and Jake Dozier to talk about this a little bit more and kind of talk about the discussions that you guys have every single day with your clients and kind of help you and how you help them determine whether or not they need this long-term care insurance. Or point, hey, maybe better yet, how to best prepare for it. Maybe it's insurance, maybe it's something else. But it is a discussion that I know you have every single day.
So I want to kind of jump into this. I know this is this is kind of a it's pretty high on the list. It's probably not for a lot of clients when they first come in, but I know it's important for you guys. How where do you kind of put this on the list of okay, here are the planning items we need to cover when you start working with someone?
Well, long term care is at the top of it, to be honest with you, or or it's one of a few that are at the top. You know whether you have long term care insurance. Is a separate subset topic of whether you have long-term care. You know, when you're going into retirement, you need to have a plan. You need to have a plan if everything goes well and you live a long and happy life with you and your significant other.
You need to have a plan if, God forbid, one of you passes. You need to have a plan if something happens to both of you, and you want to make sure that your portfolio is not ransacked by the nursing home. On its way to your intended beneficiaries, right? And so, because you need a exit strategy, if you will, whether that be abruptly or over a long period of time, you need to have a plan of how you are going to tackle that expense, whether it be through insurance or some over other avenue.
So, it's certainly top of mind for most folks. Seeing that you know the statistics are you know fifty fifty of whether you're going to have some sort of event and every. Every person needs a plan of how they're going to tackle that. That's exactly right. I mean, the way I always try to frame it to people is: you absolutely one hundred percent need a plan for how you're going to pay for long term care if you need it.
That doesn't though necessarily mean that you need long term care insurance per se. It might. That might be the best solution for you, especially if you already have a policy that you've been paying on for a lot of years. Could very well be best to just keep that. But if you find yourself wondering, should I go buy a policy or should I tackle this problem a different way?
That's when we really want to explore the options and see what's going to make the most sense for you. You know, we don't have to get into the costs of helping people understand what long-term care can actually cost. I think most people are pretty aware of that. That's why so many people are asking the question. Most people have had a parent or a brother or a sister or somebody that's in some sort of nursing home type of facility, so they're well aware of what the costs are like.
The thing that I think a lot of people are surprised to learn is that they're actually kind of self-insured against a long-term care event. This is particularly true if you're single. Like if you're single and retired, and you have a nice income, and you have assets, you know, investments, and you're living in a home that's paid for.
Well, if you go into the nursing home, we don't have a spouse at home that we have to take care of, so the home can be sold to pay for your care, and all that income that you already had, your social security, your pension, if you have one. That's all going right to the long-term care bill. Maybe that's half of your monthly cost covered right there. You create some other income out of the investments. The home could be sold.
That's you know multiple years worth of coverage for you.
So for single people, it's actually not as hard as you might think to call yourself self-insured.
Now, if we're married, now we have to think about okay, if one spouse needs care while the other one is still around.
Well, we don't want to sell the house out from under the other one, right? Still needs income. This is where we have to get a little more strategic with our planning.
Well, it's interesting. I want to I want to kind of touch on insurance a little bit more because you kind of mentioned that and in discussing, you know, that option. I know that's what a lot of people think about. What are some of the pros and cons to it? I mean, I think you know, on the surface, I think people.
Kind of go back and forth on whether or not they want to use that, but help me better understand kind of where the benefits are, but also maybe where some of the drawbacks.
Well, you know, insurance is. I always think of insurance as a necessary evil.
Sometimes it's necessary, and it's pretty much always evil, you know, because you're always making an exchange, a trade with an insurance company. An insurance company is selling you piece of paper and peace of mind. And in exchange, you're likely not going to put in a claim. Statistically speaking, they're likely going to make money on it. But in exchange, you get this this this barrier of defense against something, whether it be long term care barrier against a long term care event, or car, home, and insurance barrier against a catastrophic bill of some sort, right?
And so, with insurance, it's important to know. Again, a it's not the only way to get coverage because, as John mentioned, a lot more folks than realize are in a position to either partially or fully self-insure themselves against a long-term care event or eat the cost out of pocket.
Now, you might say, "Well, that could be a catastrophic bill," and I don't want it to shipwreck my retirement and make me run out of money and result in my survivor having no money to pay for their life or my heirs having no money. But the reality is, is That you're either going to pay a lot of money for insurance. Or you're going to pay a lot of money out of pocket and potentially not pay for insurance because you decided to self-insure. There's no way to purely decide what's going to be the right avenue unless you can go forward in time and map out exactly how you're going to pass away and win. Right.
So you're making the best educated guesses possible. But in effect, there's two types of well, I suppose there's three types of insurance. You can have traditional use it or lose it insurance. You know, this is the thing that's most common. And things most people are aware of, where you buy a policy, and it's kind of like term insurance in that, as long as you're paying that premium, you're going to have the coverage.
This is the least expensive, generally speaking, of the options. The benefit is it's going to be the least monthly per cost. The con is going to be that you're going to pay for it every month for the rest of your life, and that you may pass away and have never made a claim. In which case you are losing the premium that you paid.
Now this is like that's the nature of insurance, right? Correct. Premium. If you never have the need, well, you're you're out on the premium. It is what it is.
We hear, in fairness, you know, we hear this "use it or lose it" moniker, and a lot of times we describe it as that. Just because that's what people are associated with, but just understand where that use it or lose it, as John just referenced, is coming from. Most of the time, that's it's coming from somebody who's selling insurance is when they're framing it that way.
Now, don't get me wrong, John and I are actually licensed insurance agents as as a subservient role to our larger wealth, you know, retirement planning mission. But we very much use an insurance as an ancillary component to the planning that we do. It's not the foremost and front-running thing that we do. And so, be aware that you know when you're thinking about your planning is, you know, is this something you're buying or is it something you're being sold? You know, if it's something you're buying, it means it's your selection, and hopefully, the implication is you're going through a really good vetting process before you reach the conclusion that this fits into my overarching plan, as opposed.
To something you're being sold because fear is being induced, and you feel like you have to have it, and not all your options are being presented.
So, option number one: use it or lose it. John, go through some of the permanent insurance alternatives to use it or lose it, if you would.
Well, so one thing that we've used in several cases for folks is life insurance with what's called a living benefit or an accelerated death benefit. Accelerated death benefit just meaning they're going to pay you your death benefit sooner, faster, accelerated. This is like let's suppose that you have an old life insurance policy, and maybe you have a cash value in there of fifty thousand dollars in addition to the death benefit.
Well, what we might be able to do is take that fifty thousand dollars. Roll it to a new life insurance policy that has an accelerated death benefit, meaning that when you have a long-term care event, like let's say you do need to go into the nursing home, the life insurance company says, "Okay, we're actually going to pay you the death benefit while you're still alive, so that you can use it to pay for your care." So now it's not use it or lose it, right? Because that death benefit for the life insurance is either going to go to your beneficiaries, just like any other life insurance would, or you're going to use it while you're still alive to pay for your care.
So you're getting something for it.
Now, obviously, the premiums on a policy like that are going to cost more than your traditional long-term care coverage. Which does have the use it or lose it component, but you know this way you know you're getting something back. For what you pay in, so that's one potential option that we've used some in the past. Another option that I'm thinking of is, and this is a really specific niche option, but you know we we're always exploring these options. And the the scope of this visit is video is not for you to oh yeah let me get a checklist, a comprehensive checklist of this is exact policy.
It's more of to give you the seeds and food for thought for you to be able to start thinking through the options that makes sense for you. But another one is where you you add this sort of long term death component to another insurance product, such as an annuity. Where annuities can look in a lot of different forms or fashion, where you have this lump sum of cash outside of retirement accounts, or that you've pulled from retirement accounts, and you make a single payment into this policy, and and it might grow one, two, three percent a year. You know, on average, in the but the growth isn't really the leading value. What you add on, just like the long term care option John just mentioned, you add on this long term care rider or endorsement lever, if you will, feature to the policy where, you know, maybe it's worth a hundred thousand dollars of cash value that grows one, two, three percent a year, not much, but just maybe barely keeping up with inflation.
In an exchange, you get this larger. Value two hundred thousand, one hundred and fifty thousand, right?
So where it's worth a higher amount, but only for a long-term care event, right?
So a lot of times when you're looking at these insurance policies, if you're not looking at a traditional use it or lose it option, you're looking at combining two or three elements of insurance into one product, where you you're doing your best to get the best of both worlds, where you're not losing premium per se. You're still getting some growth, or at least a return of premium what you've paid into it to your heirs if you pass. But in exchange, you're getting this other feature that is really what you're buying. It's complex. You have to have a license to be able to use these products.
As far as Issuing them to people from an insurance company, so you know there's not one size fits all, and you first need to do the planning for your larger retirement before you get to the insurance product that may be appropriate. And more often than not, we don't go with those options because they're really expensive.
So knowing your options is super important. And Ben, you'd ask about the pros and cons of. You know, long-term care coverage as we know it. One of the big downsides is not just the use it or lose it aspect of it. One of the downsides is the potential that they raise your premium, raise your rates.
We've seen this so much with people in the last decade, really, where you start to get letters from the company that has your long-term care coverage, and they say, "Hey, your premiums premium is no longer eighteen hundred a year. It's now going up to twenty-nine hundred a year." Which you know, for some people, a thousand or more a year, okay, no big deal. For other people, like that's a big number. And so then you're faced with now, if you want, you can keep your your $1,800 a year premium, but we're going to reduce the coverage.
So now instead of you know $400,000 of lifetime coverage, we're going to cut that down to 250. And so you can keep the same rate that you're paying, but you're going to get less for it at the end of the road.
So. You know, this is the thing we have to be aware of: is you could eventually get priced out of the policy. Maybe this is a policy you got when you were in your mid fifties, and you pay on it for twenty years, and right as you're now getting to the age, you're entering the era where you might need this coverage.
Now suddenly they're going to raise the rates and maybe price you out of the policy, so that you have to cancel it. Before you ever get to the the stage of using it, so that's a risk we need to be aware of. Whether it's a policy you already have, is there a risk you could get priced out of this eventually, or if it's a policy you are looking at, do they have language in the agreement that allows them to essentially price you out of it later if they want to? All right.
Well, yeah, definitely have to think through. Obviously, why you sit down and work with a team like Rosewood Wealth Management. I think the bottom line is you need to have. A plan for long-term care. Obviously, you you know, Jake, you mentioning being towards the top of the planning list, if not at the top of the discussions you're having.
Is there anything else besides insurance that you can do to help protect yourself? If you don't want to go down that path, if you're just looking for other options in terms of making sure that you are prepared for that expense should it come, is there anything else that you guys typically work with your clients to do? I think it comes down to two things. The first thing is. Accepting that you're going to self-insure, whether through a vehicle like the real estate, knowing that at some point you're going to have to have an exit strategy of selling your home to be able to pay for that care, or and and sometimes that's attractive to people, sometimes it isn't, or setting aside a portion of your portfolio that you have identified you don't necessarily need.
For the purpose of long-term care, so maybe you have a million dollars. I'm using round figures, and you've identified you're going to need seven hundred thousand of that to be able to live the life you want. And there's an extra three hundred thousand.
Well, maybe what you do is you earmark that three hundred thousand for self-insurance against that event, so that it can preserve the home that we've referenced to be able to pass to your heirs. But as you can tell, there's a lot of levers you have to pull to be able to ascertain what's the best move because you. First, have to plan what does the ideal retirement look like to you. Therefore, how much extras do I have that I can play with in the planning arena, whether for long-term care or some other event?
So, self insurance or this may seem silly, but doing nothing. What in the world way I mean by that?
Well, some folks really can't afford either to buy a policy or to Self-insure, and a reality needs to be in front of folks is that when you need the care, it will be there for you.
Now, the quality of that care might not be there, but it's there through a program called Medicaid.
Now, that's going to require a spend down of your assets to get there, and that's different for single or married people. And that's generally not the type of planning that you should. Oh, yeah, yeah, yeah. I'm going to have the state pay for my care because the quality will be notably different than what you pay for out of pocket. But be aware that it's not like You'll one day be thrown out of your home and not get the care you need.
The care is there through social programs. It's just not the same quality.
So, being aware of those options and eventualities, and what you can even afford to pay towards insurance, if that's relevant. Before you even decide to look into the policies, don't look into which policies right for you before you even know how much you can afford to pay into one, if any, and to know before you know if you can even afford to self-insure.
So there's quite a few planning steps before you get to that answer, but it should be a leading thing that you're thinking about as you enter retirement. All right, very good, John. Anything else to add before we close it out? No, I mean I think it all goes back to what we said originally. You don't have to have long-term care insurance.
You do have to have a plan. Yeah. For how you'll pay for the bill, if it lands in your lap.
So let's make sure you have that plan. All right.
Very simple. Go to RosewoodWealthManagement.com to get in touch, to schedule a time to sit down and have this conversation about long-term care or whatever else you're maybe concerned about or curious about or hey, want to start planning for in retirement. They can help you with that as well. But again, this is a conversation you need to be having. Whether or not you're excited about it, that's a different story.
But this planning has to take place.
So again, hopefully, this gives you some things to think about. But we appreciate you watching. We'll talk to you again soon, John. Jake, take care. Carolina Wealthwards, doing business as Rosewood Wealth Management, is a registered investment advisor in the state of North Carolina.
The material presented is intended to be general information and should not be construed by any consumer as the rendering of personalized investment advice.
