Early Retirement - Financial Freedom (Investing, Tax Planning, Retirement Strategy, Personal Finance)

A Complete Guide To Long-Term Care

• Ari Taublieb, CFP®, MBA • Episode 226

Share episode

Worrying about long-term care isn't as complicated as it seems. Ari Taublieb emphasizes understanding one's personal needs, evaluating costs, and considering self-insuring over policies to create a sustainable long-term care strategy.

• Understanding common misconceptions about long-term care 
• Analyzing average long-term care insurance costs 
• Discussing self-insurance versus traditional policies 
• Highlighting the importance of mental accounting in financial planning 
• Exploring the average costs of nursing home care 
• Examining relevant legislative changes in long-term care 
• Providing strategies for effective self-insuring 
• Advising on the significance of personal financial autonomy 
• Encouraging proactive planning for future care needs 
• Offering final advice on seeking professional guidance 

If you want to work and get true holistic planning, you can book a call with us.

Text us your thoughts on the show!

Create Your Custom Early Retirement Strategy Here

Get access to the same software I use for my clients and join the Early Retirement Academy here

Ari Taublieb, CFP ®, MBA is the Vice President of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.

Speaker 1:

I need you to stop worrying about long-term care, because it's not as complex as you think it is, and I do want you to start planning for it. So I will joke on some of my podcasts that I am the meanest financial advisor. I promise I'm not mean. I'm a very transparent guy because I believe you deserve transparency, but largely this is because I don't want anyone working longer than necessary and I don't want anyone retiring too early going. Look, now I'm going to have to sacrifice lifestyle, so I take that responsibility seriously. I'm going to be explaining to you some statistics and what you should do, and for a lot of you it's you should not buy a policy, you should self-insure, and here's how much you should put away for future long-term care, you and your family. Other times I'll say here's when it might make sense to get a small policy and the reason for it. Now my mom has $800,000 of long-term care and she has slept really well knowing there's going to be a policy there for her and there's a peace of mind. There's a component to that that we need to value. But at the same time, a lot of these long-term care plans there's a lot of lawsuits right now of these companies not paying out what they said they would. So I want to really simplify this and my goal is 10 to 15 minutes on this and you are good to go for life on long-term care. So, with that being said, I'm going to hop right in.

Speaker 1:

If you don't already know, my name is Ari Taublieb. I'm a certified financial planner. I'm the host of this podcast, the Early Retirement Podcast, and I'm the vice president at Root. If you're listening on the podcast app, I will always keep putting episodes out on Mondays. If you are watching on YouTube, you can see I've got my Root t-shirt on here. I am the vice president here at Root, where we do comprehensive, holistic financial planning for those who really want to make the most out of what they've worked so hard for. So I've built out an outline today of what I want to show you and some fun statistics we're going to hop right in.

Speaker 1:

So what I'm going to start with is what do most people do? Most people think of one of two things. They go. You know, I don't know exactly how much I need for long-term care. Me, I definitely don't wanna end up living in a way that is not gonna be comfortable, but I feel like if my 401k or my IRA or my Roth grows, and at the rate it keeps growing, I'll probably have more than enough money that I can just use that money to fund my long-term care needs. That's a lot of you. Others of you go look, I'm just going to feel better if I have a policy and I feel like if I get it now, while I'm younger, maybe I'm going to be in a better spot. So later I don't have to pay as much money and then my needs are taken care of. Sure, maybe I could invest and do better, but I don't really care. I'm going to sleep better at night. It's the same reason people want to pay off their mortgage. It just it feels better not having that mortgage. It's one less payment when the reality is maybe sometimes the best thing to do is pay the minimum down on your 4% interest rate and invest the rest, if you could get 10% growth.

Speaker 1:

So here's the long-term care stats and here's maybe what you should do. So here's just some averages from 2024. Age 55, the average that people pay for long-term care premiums is between $2,100 and $2,800 a year. The average at age 60 is $2,700 to $3,500 a year. The average from age 65 is $3,400 to $4,300 a year.

Speaker 1:

So the reason I'm explaining that, let's just use some basic net math here. Let's assume age 55, I'm going to be super conservative and say you're going to pay $3,000 a year. Well, let's assume you pay $3,000 every single year for 10 years. That's 30,000. Now let's assume you go out further and you go well, I'm going to do that for the next 30 years. Well, you could certainly do that, and that's still a lot of money. 3000 years, 3000 per year times 30 years, that's $90,000. Now, maybe that's worth it, and for some people they go.

Speaker 1:

Look, I not only sleep better, assuming it's going to take care of what I feel is my long term care needs. I'm good, but the reality is for some of you, what if it turns out you need more health assistance? What if it turns out you don't want to be in a certain community and you want more luxury or whatever it is? Well, this is just an average, so don't rely on this. Now, this is another example, but I'm just going to assume you do that 3,000 a year for 30 years, that's going to have a total pool of about 215,000 to $360,000. So that's a good amount of money. That's 215 to $360,000. That's going to be there for you for your long-term care needs.

Speaker 1:

But what if it turns out you need five years of coverage at a hundred thousand bucks a year? Well, this just wouldn't cut it. So I'm not saying don't go buy it. What I'm saying is what we want to understand is what's going to be the best for us. So here's what's really crazy about what I just said. I said if you put 3,000 a year for 30 years, that's $90,000. You might have $216,000. Just taking an average of a long-term care policy, that's a 2.9% rate of return.

Speaker 1:

Okay, now let's assume you don't do what I just said and instead you take $3,000 a year for 30 years. That's $90,000. But you didn't pay it to a long-term care company. You just invested it yourself and got 8% growth. It would have grown to about $339,000. So that's way more money, but you can also do whatever you want with it. And so that's way more money, but you can also do whatever you want with it. And so that's after 30 years. That's someone who starts at 55. Now they're 85 and they might decide they want long-term care and there's $339,000.

Speaker 1:

The other reason I really will often encourage self-insuring is because let's assume something happens in your seventies and you want to turn it on. Then let's assume you're in great health and you're like I want to help out a kid with a down payment and my 401k is grown by way more than I expected. So, like I want to help them out now because my 401k is grown by so much I can use that for my long-term care in the future. So the long-term care policies they will lock in these funds. And then what, if not fun to talk about? What if you pass away after one year? We just paid into this thing for a long time you have 216,000 of value, maybe used 40,000 of it. So the reason these companies are in business is because they're betting on the odds that most people don't end up using all of the returns that are in there.

Speaker 1:

So this is a really interesting analysis that has to be done, and the key factors to always think about here whenever you're doing self-insuring analysis is hey, am I in good health today? If you're in good health today and you feel that that's not going to change and you want to have the right investing strategy for a lot of my clients, what I'll tell them to do, just so they can actually feel it and not see it from me or hear it from me should I say I'll say go get a quote. And they'll get a quote like $3,000 a year. And I'll say go open up your own long-term care fund. You're going to call it Ari's long-term care fund and you're going to start paying yourself that today. And the reason you're going to do that is that is for future. You you know that's something that's being taken care of, because if you just kind of look at your portfolio and you don't see long-term care anywhere but it shows you have $1.5 million, you're still going to worry about long-term care because your brain didn't separate those funds. Your brain cannot look at 1.5 and go well, I know 300 is there, it's going to grow and that's long-term care and 200 is going to be travel. And that's why I encourage what's called mental accounting, having a few different accounts, not like 50 accounts, but like three to five different accounts one for travel and retirement, one for property taxes and not everyone needs to do this, but this is how I do it One for property taxes, one for insurance, like one for just things like long-term care or like experiences that I really want to do, like having a few different accounts designed for your life.

Speaker 1:

I think it adds a lot of weight here. So for long-term care, I'm just going to give you a few more averages. The average nursing home cost is $108,000 a year. That's if you want to be in a nursing home, and the average length of care is two and a half to three years. So for most of my clients, like 300,000 is the minimum that I want them thinking about for long-term care, and that's just because I sleep better at night. And so like the conservative approach is having four or three to 500,000 of liquid assets in long-term care funds, the more secure approach. If you want, maybe to plan on five years plus of long-term care and a really nice you know nursing home $750,000 to a million. So that's a lot. So the reason that is important is because if we're planning and you see that there's a million dollars left over at the end of your plan and you're going, I'm doing legacy planning well, is that going to your children or is that being used for long-term care? So I'm not saying this to scare you, just real life stuff here. You want to plan for long-term care intentionally.

Speaker 1:

Now the next level here is what's called legislation, which means, let's assume you've determined that you want to self-insure, that the example I gave you resonates and you believe you can invest and do better and you'd rather have the funds to whatever you want with, rather than this insurance company. Well, that's great. But the next level is the legislation conversation. In Washington, there is something called the Washington cares fund, where there's a mandatory 0.58% payroll tax that started in July of 2023. And so there are certain states that are going to come out with different legislation where we always want to make sure we're up to date so that we don't essentially pay more taxes than necessary or miss out on a policy that eventually maybe becomes a requirement and if we get it last meaning new law gets enacted and now premium shoot up and everyone else purchases it and then we're last and we get the worst possible price well, that wouldn't be really wise. So California is considering a similar program.

Speaker 1:

That's where I am. They're in the planning stages. Their expected implementation is 2025. New York well, there's a private sector worker program that's under consideration, but that's not yet implemented. Illinois they're studying right now a state-based program and they have a task force on that. Minnesota is exploring some options, but in the research phase. So the big news comes from Washington, which I already went over. But there's a mandatory participation unless you opted out by November 1st 2023, and you can opt out of that. You must work 500 hours annually to qualify and you can opt out by having private long-term care insurance. So if you don't want to pay this tax, you can have your own policy.

Speaker 1:

So one of these considerations should I say all of these considerations are applicable, but the main thing for all of you guys is okay, self-insurance. That requires discipline, saving and investing. If you're going to open up a long-term care fund but not actually fund it which, yes, I've seen that's where I'll say look, the optimal thing is to do this, but I can tell you're not going to do that. So at least putting money into this long term care policy is going to have something there for you. My mom will often say that is better for me. My mom would have maybe spent that money on me or my brothers, or my fiance's new wedding dress, which they're going shopping for right now. That is maybe what that would have went to if she didn't have a long-term care fund. So her having the separate policy locked up.

Speaker 1:

The funds Number two, state programs. They typically just provide basic coverage, so just don't rely on that. Private insurance will complement the state programs. If you want to purchase a policy. Early purchase of private insurance significantly reduces the lifetime premium cost. But it also is where I'll think maybe you should self-insure, because that's more money that's getting compounded for growth, for whatever you want. And then health underwriting. Obviously that becomes more stringent as you get older. So please work with your financial advisor. They should be doing all the long-term care analysis planning for you.

Speaker 1:

We have some really fancy tools and tactics that we use to have a deep conversation with our clients to really dial in. We don't know exactly their health, but we can say, hey, based off of this conversation, other clients we've seen. I think this is the amount of money we should self-insure, or we should do a portion of this small policy, or we should do this to avoid this new payroll tax or you name it. If you want to run your own projections with this. This is something that if you're listening on the podcast apps, you're not going to be able to obviously see this, but if you're watching this, you certainly can see this. So, once again, don't need to watch this, but I'm going to explain it for both of you inside the academy.

Speaker 1:

If you do have access to that, you can click this tab called insurance. Here there's a long-term care dropdown here. You can go in here and essentially be your own advisor and go put in these figures here and go what if I bought X amount of new coverage and what if it lasted for this amount of years? And so really kind of going in and building out your own coverage and it will help you determine if this is necessary. You can see they have a cool stat here. The US Department of Health and Human Services indicate that 70% of people turning age 65 can expect to use some form of long-term care during their lives, and having insurance can help offset the cost.

Speaker 1:

But do you need it? That's the question is can we self-insure? Is it necessary? Hopefully this was helpful for you guys. If it was, if you're listening to the podcast app once again in the description of this episode, you can go ahead and book a call with us if you want to work and get true holistic planning. If you're going, I just want to play with the software and the tools here. You can start there. That's totally cool and then, if you determine it's sufficient for you, great. If you determine you want more, we'll be here and you can always reach out then. See you guys next time.

Speaker 1:

Thank you all, as always, for listening to the Early Retirement Podcast. I love getting to host these shows and make different content for you guys every single week. I've not missed a single week in years and that is because I love getting to do this. Now, please be smart about this. Before you actually execute any strategy that you see me talk about or hear me talk about, should I say Please talk to your financial advisor, your tax preparer, your estate attorney. Please be smart about this. None of this should be construed as financial advice. This is for fun, educational, informational purposes only. Once again, just quick disclaimer here. Guys, please be smart about this. Appreciate you listening, as always, and you can, of course, submit a question on my website, earlyretirementpodcastcom, if you of course, want me to address a specific case study or topic. I will not promise I can get to it, but I respond to every single person and if I find it will be helpful for a lot of people, I will absolutely make an episode on it, at the very least give you some insight. That's it, thanks, guys.