Summary

In this conversation, Amy and Mike discuss long-term care insurance and how to plan for long-term care. They explain the different types of insurance available, including traditional long-term care insurance and hybrid long-term care insurance. They also discuss the option of self-insurance and the importance of having a plan in place. They highlight the uncertainty and cost associated with long-term care and emphasize the need for independent advice when making decisions about long-term care insurance.

Chapters

00:00 Planning for Long-Term Care in Retirement
06:05 Options for Dealing with Long-Term Care
10:30 The Challenges of Long-Term Care Insurance
12:52 The Importance of Having a Plan for Long-Term Care
12:55 Understanding the Types of Long-Term Care Insurance
16:19 Exploring the Federal Long-Term Care Insurance Policy
20:09 The Benefits of Hybrid Long-Term Care Insurance
22:10 Considering Annuities as an Insurance Product for Long-Term Care

Takeaways

• There are different types of long-term care insurance available, including traditional long-term care insurance and hybrid long-term care insurance.
• Self-insurance is an option, but it is important to consider the high cost and uncertainty associated with long-term care.
• Having a plan in place for long-term care is crucial, and it is recommended to seek independent advice when making decisions about long-term care insurance.
• Long-term care insurance can be expensive and complex, so it is important to understand the different policies and options available.

Operation Retirement Readiness: www.operationretirementreadiness.com

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TRANSCRIPT

Amy (00:00)
Hey Mike, it’s good to see you. We’re gonna do another question episode. We got a couple additional questions in, so we’re gonna, we’re gonna do some more questions.

Mike (00:10)
Yeah, that sounds great. The first one went well and seems to have been received well. yeah, and listen, if any of our listeners have questions, we like doing these. These are a good break from some of the more defined topics. So if you’ve got a question you’d like us to tackle in the podcast, you can send that to info at Operation Readiness.

Operationretirementreadiness .com. info at Operationretirementreadiness .com. So we’ll also have that in the show notes if you’re looking for it. It’s on the web page also.

All right, we’ve got a couple of good questions today. You know, our first question show was more younger folks asking questions. These are more folks either approaching retirement or actually in retirement and looking for some information. So, yeah, I’m looking forward to tackling these, Amy.

Amy (01:50)
Sounds good. Like we like Mike covered last time, just a reminder that this information, even though these are questions, you might have a very similar question. This is not personalized advice. This is just general information. if your situation seems similar and it fits, doesn’t mean we’re telling you to go do X, Y, Z. We would need much more information about your specific information or your

specific situation to give you advice. So take it for what it is, which is just some additional information for you to consider as you make decisions in your financial life and or get get some help.

So with that out of the way, the first question that we have today is from a couple in their mid -50s. They are thinking that retirement, ultimate retirement is about 10 years away. They have a military pension, they have some savings, they have investments, and then they’re planning on taking social security. Their biggest concern is around long -term care, and they want to know how to be thinking about long -term care.

Mike (03:03)
That is a big topic. And it can be an expensive topic. lots of stats out there about long -term care and your likelihood of needing it and how long you’re going to need it for. And the problem is it varies significantly. It can go from needing it.

you know, either for a very short time or not at all, because, know, unfortunately, maybe you have the massive heart attack and are, you know, die or you’re fully healthy and die in your sleep, you know, just of old age, and you never really need that long term care need. On the other side, if you end up with dementia or Alzheimer’s,

Those can be, you know, your mind goes where you can’t be at home or take care of yourself really anymore. But your body is still good and that can last, you know, five plus, ten plus years. And so trying to figure out how do you budget for that and how do you, you know, understand that is is a big, big deal. Not super easy.

But, you know, that’s the that is kind of the frame that you got to look through this. So again, it’s going to like like all financial planning is going to be a trade off that you’re going to have to figure out what you’re comfortable with. What will allow you to sleep at night and, you know, just just think through what are my options? How do I pay for them and, you know, come up with that plan? So, Amy, that’s that’s the

big framing, any kind of initial thoughts along those lines, and then we can get kind of talk into some more specific ways of thinking about it and options that you could consider.

Amy (05:17)
Yeah, I mean from a big, big picture standpoint, I don’t think I have anything to add other than to, you know, just point out that, you know, there is, you have to have a plan. Now that plan might be that you’re going to, you know, have one of your children take care of you.

or a family member or something like that. That could be your plan, but you have to have a plan. There’s no way to know if you’re one of the people who’s going to need long, long -term care. So if you have early onset dementia, you’re talking about needing a lot of very expensive care for a long period of time. Or like Mike said, you’re one of the people that passes away quietly in your sleep and you never needed a single day of long -term care. So I don’t really have anything

to add to the big framework except a foot stamp that you need to have a plan. So Mike, with that, how about if we jump into a little bit more around the details?

Mike (06:18)
Sure. So let’s talk about some of the ways that people do deal with it. You mentioned one. Maybe it’s the family that’s going to take over and take care of you. You’ve got several kids. And the big thing along those lines is you need to talk to them and make sure that they’re on board with it also, depending on when.

you know, these things occur. You know, your kids could be at the height of their career and, you know, just having that expectation that they’re going to be able to do this could be a significant imposition on them. So, you know, you need to have that discussion and make sure that is a true viable plan. The other one I’ll hit is that some people go, you know, I’m just going to I’m going to self insure.

I’ve saved up a lot of money. I’m good. And I can handle it. Well, it’s expensive. You’re talking probably $120 ,000 to maybe even close to $200 ,000 a year, depending on the level of care that you need. For memory care, you’re probably in the $12 ,000 a month.

you know, median price across the states. Some states are, you know, way more expensive than that. understanding that and then you really need to set that money aside. can’t be, yeah, I’m going to self insure, but I’m also going to have this, you know, awesome retirement life where you’re spending that money down. now when you might need it, you know, a lot of times in your 80s,

You’ve eaten into a lot of that money that you said, yeah, I had this big pool. So if that’s the case, that needs to be fenced dollars that you have available should something happen to you. Any thoughts on the self -insurance side?

Amy (08:39)
Yeah, so what’s hard about self -insurance is that the uncertainty range is so big. So average, right, average is that a male will spend two years in long -term care.

and a female will spend four years in long -term care. Those are averages. That means 50 % of the population is going to spend more time than those averages in long -term care. And like Mike said, it’s really expensive. So you’re talking about, you know, if you plan for average, there’s a 50 % chance that you’re going to fall above that pot of money. So it’s very difficult to…

decide how much you need to set aside and that then could impact your spending in your earlier retirement. You know and if you think about it so if you think about setting aside all that money then that means you’re not enjoying it. And so just like I said 50 % of the population is going to fall above average 50 % is going to fall below average. So if you’ve held back that money and you’ve given up a lot of the lifestyle that you would have preferred to have

then you’re and then you don’t need long -term care, which is great, but then you gave up the opportunity, you know, maybe some opportunities earlier in life that you would have enjoyed. you know, self -insurance is sometimes the only route that people can take, but there are some issues that come along with it. So again, you know, the point is have a plan, talk with your family about your plan, and if it involves them,

and then start thinking about how much money you need to set aside and other ways that you can tackle it. Self -insurance is just one way to tackle it.

Mike (10:30)
How about thoughts on insurance, Amy, along the long -term care lines?

Amy (10:35)
Yeah, so.

Yeah, yeah. insurance is one of those things, you know, if you think about it, insurance is the only thing we buy and we hope we never have to use. So, you know, don’t, you don’t buy car insurance and think that you’re gonna, you know, I haven’t used my car insurance in a while. I’m going to crash into something just to use it. We don’t think like that. We insure against things that we don’t want to have happen. We insure against things that we can’t control. And that’s a lot of what long -term care is. It’s, it is out of our control. We don’t

know how much it could cost. We don’t know how long we’re going to need it. We don’t know how early we’re going to need it. So it does tend to be one of those things that sort of fits what I’ll call like the typical profile for something you would want to insure against, just like you insure your house against fires or floods or, you know, car insurance, health insurance for major expenses, stuff like that. Long term care insurance is the same way. The problem is that

a lot of folks is that long -term care insurance can be very expensive. It’s a little bit confusing. People don’t understand the types of insurance available to them. They don’t understand when to buy it, when it might make sense to buy it. then the policies themselves can be confusing depending on how they’re set up, how they work. Some policies, the premiums are not set, so premiums can go up over time. Some policies

are expensive out of the gate, but then you don’t have to pay more for them. Some policies have a set premium. So there’s just a lot of complexity in that space. And the idea of spending, because it is expensive, you know, and this isn’t a number that I’ve gone to look up or whatever, but if you think about paying, you know, $500 a month for something you hope you never use, and that’s 500, if that’s a meaningful $500 to you, that’s really hard to stomach.

So while long -term care is one of those things that is sort of meets the typical definition of something you’d want to insure against, it’s very difficult mentally for people to think about long -term care insurance. So those are just some general thoughts about it. How about you, Mike?

Mike (12:52)
Yeah, just hit on a couple of things.

Mike (12:55)
there’s several different flavors of insurance when we talk about long term care. And, you know, the first is what you’ll hear to refer to as traditional long term care insurance. And that’s specifically, again, to ensure your long term care needs. Typically, policies are based on you purchasing a number of years of coverage. And, you know, that can be two to five.

You know, long time ago, they used to have unlimited and those have pretty much all gone away just because it’s open ended for the insurance company. And as we talked about, sometimes it can be five, 10 plus years, you know, that you might need care. So they didn’t want to be locked into those. So fixed number of years and also typically a fixed daily rate that they will pay. So that could be a couple hundred dollars a day.

That’s the maximum coverage. If you’re using less than that, a lot of times it’ll extend the amount of time you have in the policy. All the policies are different, so make sure you’re checking that out when you’re considering it. There is a federal long -term care insurance policy that you can get into. Right now, it’s on a pause. They’re revamping the whole system.

It paused in December of 2024, supposed to be for two years. I haven’t heard any updates on whether that is going to come back online by the end of the year. But that’s what they had originally announced. And they were going to be checking, just making sure the plan was solvent, I guess, over the lifetime of the insurance and making sure they didn’t need to adjust premiums and things like that.

Folks that can qualify for that are active duty military, retired military, and also federal civil servants are also included in that. that’s an option. had been thought of as a pretty good option, especially for females, because as you talked about, typically do use long -term care or have long -term care needs more than men. It’ll be this because

They outwit men, so they may take care of husband. He doesn’t need as much care until the very end. And then when the, you know, females, spouse remaining, they may have less options. So that’s why they typically need more and have to take advantage of long -term care and the insurance more often. But this is a federal program. They had to price male and females the same.

So it’s not to discriminate. So it was really a deal for females. So we’ll see what happens when it comes out of the pause that they’ve been taking, if it’s as good a deal or not. The other kind of insurance that people typically use for long -term care is what we call hybrid long -term care insurance. And it’s really a life insurance policy

that has long term care benefits in it. So the nice thing about that and one of why people say I don’t like traditional long term care is talked about you may not need it. And so then you’ve been paying all these years and, you know, it’s those are basically use it or lose it. Whereas the hybrid side, it’s built on life insurance. So if you don’t use it, there’s still a benefit, death benefit.

that will go to your heirs or a charity or whoever you designate. So that’s those have definitely picked up in, you know, I’d say the last 20 years or so. Those have become a lot more common. And folks, you know, seem to like that because there is that guarantee, if you will, that, you know, at least some of the money that you put in will go to someone, either you for long term care or

for a family member or a charity after your death. And a lot of times those have really leveraged up care expenses that you can use. So say you put in a couple hundred thousand dollars as a one time purchase of that, you get a death benefit that may be close to that.

the long term care benefits that you could have attached to could be in the multiple hundreds of thousands of dollars that allow you just to spend off of that as you go and need care. So, Amy, those are the two big categories. Anything else you need to correct me on or any other thoughts on on either of those? And when you think one’s more appropriate than the other?

Amy (18:16)
Yeah, I mean, those are the two buckets, if you will. Nothing really to add specific to them. mean, the takeaway there is that if one, you have to be very clear -eyed about the purpose of insurance. Just like I said before, the purpose of insurance isn’t to get your money’s worth out of it. The purpose of insurance is to defray a risk.

so one, and then, you know, just because you, you, know, believe that and that, kind of buy into that, if you will, it doesn’t mean that, you know, there’s only one option for you. have to go, you know, spend money on traditional long -term care. The key takeaway is that there are a ton of products out there.

that can be designed to help you achieve the goals that are most important to you. And it doesn’t have to just be, you know, one single goal. as Mike alluded to, there’s long -term care insurance that’s sort of attached to life insurance. There is another thought that I’ll add. It’s not really insurance, but it’s an insurance product. You might use an annuity. So an annuity doesn’t have to be…

doesn’t even have to have a long -term care rider on it. It could have a long -term care rider on it. But maybe you buy an annuity. Its earmarked purpose is for long -term care. But if you don’t ever need it, then it can be passed on the way that annuities are passed on. So there’s just a ton of different ways to tackle the long -term care question. think it’s just important to focus on sort of one,

plan so no

what you want things to look like, assuming you will need care, because there’s a good chance that you are going to need some kind of care. Figure out how much you want to plan for in terms of cost. Be realistic about what you can sell fund, and then start researching the products or the solutions that might work for you, whether it’s the federal long -term care insurance program that Mike mentioned that sort of has been on pause since December of 2022.

The earliest it will come back is December of 24. We’ll see what it looks like when it comes back. But that’s like a group life insurance policy, hybrid life insurance policy. weigh your options, understand them, don’t hate them just because they’re an insurance product. know military members tend to be skeptical of insurance. Just because it’s an insurance product doesn’t mean that it’s laden with fees. You can find products that are

not leading with fees, they’re going to have fees because they have to stay in business, right? And we want them to stay in business, right? Because if they don’t, then they can’t cover the risk that we’re insured for. But those are sort of my big takeaways. mean, this topic is just really unwieldy. It’s wrought with emotions because one, you’re facing your own mortality. Two, you might need to have difficult discussions with your families. Three, it’s a huge expense and it’s relatively unknown.

We don’t like uncertainty like this. So it’s just a really difficult topic to grapple with. It is one of the things that I really think that people should get advice on. You know, there’s some things that you can do it yourself through, but long -term care is one of those things that you should really have. An independent third party who is working in your best interest give you some thoughts to help you through the decision -making process.

Mike (22:10)
Yeah, definitely. I’ll throw one more thing out specifically. Again, not advice to the person that sent the question in, but say they’re in their mid 50s. That is somewhat kind of the sweet spot almost for if you’re thinking of either the hybrid or the traditional long -term care that you want to start really thinking about it. again, hopefully it’s before any

disqualifying things come up in your health records, but it also gives the window it’s a longer amount of time before you typically need it.

So, you know, if you wait till your mid 60s, even if you can qualify, you know, you your premiums are going to be that much higher because you’ve given the insurance company 10 less years of premium. So they need to make it up. They need to make sure that, you know, typically in your 80s is when you’re going to need it. Now they’ve only got 20 years to invest that money and try to, you know, build that up that they’re going to have to pay out should you need the care. So again,

50 is typically the time if somebody is considering it, know, that’s that’s, you know, typically the ideal window to start thinking about that. So.

Amy (23:34)
Yeah, like I said, Mike, I think this is a huge topic and we could spend hours and hours on it. But I think we’ve given people a lot to think about. Like Mike said, if you’re in your 50s, now’s a really great time to start thinking about your approach to long -term care. I think we’ve covered quite a lot. So I think we’ll keep it to one question for this episode, unless you have other thoughts, Mike.

Mike (24:04)
No, I think that’s good. I think this was a good topic to dive in on a great question. And thanks. And again, if you’d like, you got a question for Amy and I, please send them in. You can send those to info and operation retirement readiness dot com. And we look forward to doing some more of these in the future. And, you know, we thought we’d get through more today. But so we definitely have at least one more question.

Show coming up and and so we’ll you know release that in the next next couple episodes probably

Amy (24:41)
Sounds good, Mike. We’ll talk to you later.

Mike (24:44)
All right, take care.