Today, let’s talk about long-term care or as I’ve referred to it before, the elephant in the room that nobody wants to plan for. Does this get your attention? 70% of the people who are 65 years of age or older are going to need some form of long-term care. Now, when they need that, it’s going to cost more than $100,000 a year on the average, and Medicare doesn’t pay for it.

So what do people end up doing? They drain their savings, they burden their family, or they end up spending down everything to the point where then Medicaid will help you. Or in the state of California, Medi-Cal will help you.

Today we’re going to talk about this issue and some of the costs and some of the chances that you’ll need it, what Medicare will pay for and what Medicare won’t pay for. And then how some people who are really developing, not necessarily a policy, but a plan to pay for long-term care… that big elephant in the room that nobody’s talking about.

So let’s talk about what is long-term care. If we really boiled it down, there would be three different parts of what could be considered long-term care. There’s home healthcare, and let me give you the prices. It’s generally $30 to $40 an hour when you have somebody come by for three or four hours a day, maybe three or four days a week, maybe five days a week, maybe seven days a week, but it’s $30 to $40 per hour. That’s home healthcare.

The next area would be assisted living, and that is where you are actually living somewhere maybe in a retirement center or retirement area. And in addition to the cost of living there, you’re having to pay maybe $60,000 for some kind of assisted living so that they assist you with the health issues that you’re developing.

And then the third area would be just flat-out long-term care where you’re in a nursing home and the cost of that generally is $100,000 to $120,000 or more. A lot of people come and say, well, I got a price cheaper than that because that’s what you’re going to pay the facility. But let’s get down to the real nitty gritty here. Okay? Many times you’re going to have a lot of meds that you’re going to be taking during that time. You got to add that in. You’re going to need diapers, you’re going to need other clothing, care and healthcare. A lot of things that just add up.

I’ve never had anybody come in and sit across the table from me in financial planning in 30 years of doing this, and had anybody say, “I am shocked at how little long-term care costs.” Everybody comes in and says, “I am shocked at how much it really costs.”

Let’s talk about how long you might need long-term care. Well, the normal person, normal who’s normal, but the normal person will spend two and a half to three years needing some form of long-term care once they need long-term care. And that is if you don’t have Alzheimer’s or some form of dementia, because if you have Alzheimer’s or some form of dementia, sadly having lost a mother and a mother-in-law to both of those, when you get to Alzheimer’s or dementia, the body is okay. You’re physically okay many times, but mentally you’re just gone. So you could have five, seven, or 10 years left of needing some form of long-term care.

So, let’s talk about Medicare. I’m shocked at how many people come in, talk to me, and when we bring up the subject of long-term care and building a financial plan, people say, “Well, I’ll let Medicare take care of it.” You know what Medicare is going to do? Medicare is going to take care of 100 total days in your lifetime of skilled nursing care. And most of that is after a three day stay in the hospital. They don’t take care of home healthcare, custodial care, memory care, and actually being in a nursing home when you’re not there just for skilled attention.

So how do people pay for it? Well, a lot of people self-fund it. And if you’ve got millions, that may be an opportunity for you and you don’t have to buy a policy or put together a plan. If you’ve got millions, you can just pay for it out pocket. But be careful. That could be a real drain on your finances because if you’re only in and you only need long-term care for one year or two years, you’re probably okay if you’re pretty well off. But if you need it for three years, four years, five years, or God forbid you need it for Alzheimer’s or dementia, and you’re in a situation where you need memory care or something like that, and you need it for 10 years, and I know people who’ve done that here in Southern California, then you’re really, really going to put a strain on your finances.

Second way of paying for it? Just move in with a child or let your spouse take care of you. So let’s talk about relying on spouse or family for your long-term care. You’re really taking away their life in many cases. You’re really taking what they’re doing. Take the Gen X generation, they’ve been called the sandwich generation because they’ve got kids they’re caring for and they’ve got parents that they’re caring for. And if you move in with them because of force and you just don’t have the way to pay for long-term care, if you have to do that, you have to do that. But otherwise you’re really taking away their life. The imposition on their life is unbelievable and you know who it impacts the most? A lot of times the kids are, “Hey, I’m going to take care of my mom and dad. They took care of me.” But you know when you’re doing it, what you’re doing to your family and it eats away at you like crazy. I’ve been doing this 30 years. I’ve seen people after people after people that they grieved themself away because of the burden they were putting their family under.

Lemme give you a personal story here. I’ll never forget being at my dad’s house, 1981 or so, and my cousin called and my cousin’s mom, my Aunt Lucille was taking care of my grandmother and she’d taken care of my grandmother for four years. She was living in the house with her and my cousin called and she said, “Uncle Felton” she said, “she’s dead. She’s passed away.”  And my dad sat down on the bed, I was right there by him. I could hear what was going on the phone, and dad said, “My mom passed away.” And my cousin said, “No, MY mom passed away.” The caregiver, my Aunt Lucille passed away before my grandmother did because of the strain and the burden. So you’ve got to take into account what are you going to put your spouse under? And guys, if you’re listening to me. If you weigh 200 pounds and your wife weighs 110 pounds, she’s not going to be able to pick you up out of the bed and put you in a chair and take you from the chair and put you in the car. You can help her, but she can’t help you. So you’ve got to consider the strain on the caregiver both emotionally and physically through the years of caring for you, before you leave it to your relatives to take care of you.

Third option, you can just spend down, and you probably don’t want to do this because if you do, you will have to spend down to around $2,000 and then Medi-Cal/Medicaid will begin to take care of you. If you’re married, the spouse is allowed to keep a few more things, and that is if you do it legally and you don’t try to hide and you don’t get caught, and with our computer these days, they’re really good at seeing people who try to hide things. You are going to have to severely pay down on everything you have till you get to a point. You’re going to have to almost put yourself in a destitute situation before Medi-Cal and Medicaid will start picking up the bill.

So what are some smart strategies to pay for long-term care if you’re still in your fifties or maybe early sixties? It’s sometimes cost effective to look at a real long-term care policy.

The problem is they’re few and far between and they’re pretty expensive. In California, there’s really only one major company that really focuses on California. You can also get some national companies that provide long-term care, but you’ve got to watch the cost, and dealing with a 60, 90, or a 120 day wait period. You’re going to deal with what it will pay per year or per day or per month, you’re going to deal with how many years will it pay you, and it’s more expensive the shorter you go on days and all of these things, it gets more expensive. You’re also going to deal with whether it has a cost of living increase because I’ll guarantee you over a period of years, your medical costs are going to increase. Think about it, if you buy a policy at 55 and it’s paying X amount of dollars and it doesn’t have a cost of living increase when you need that at 75, you can pretty much bet that your healthcare costs are going to have doubled in that 20 year period.

So you can buy a real long-term care policy from a company. That’s one way to take care of it. A second way to take care of it is what’s called a hybrid life insurance policy. Now, here’s what I mean by that. It is real life insurance that pays a tax-free death benefit to your family. But if you need long-term care, it has an added benefit that will pay you significantly more in many cases than the amount of money that you put into the life insurance policy. Let me break that down. You put $150,000 into a life insurance policy and then maybe, and I’m just pulling these out of the air here, maybe you have a $250,000 death benefit, but you also possibly in a policy like that have a $6,000 a month payout that you can receive for five years of $6,000 a month if you ever need long-term care.

So it’s a hybrid policy. It’s really a life insurance policy that you can draw from up to a certain amount. As you draw from that life insurance policy, it diminishes the ultimate death benefit when you do pass away. So that is one possibility and there’s some positives about that. I always say there are three things you can do. You can get all your money back at any time without interest and without growth, but you can get your money back out of the policy. Number two, you can die and your family gets the death benefit, or number three, you can live and need the long-term care coverage and get $5,000 or $6,000 a month. A hybrid life insurance policy is a second way to cover it. Third way to pay for it, if you’ve got pretty good assets, you can take $200,000 or $250,000 and slide it over into a fixed indexed annuity that will give you some benefits that apply in case you ever need home healthcare or any of the things that we’ve mentioned.

Long-term care itself, assisted living, any of those things, if you reach with some of these annuity policies, these are annuity policies that if you or if you’re married, a spouse ever needs future income, you can use it for income. If you need long-term care, you can use it to help pay for the long-term care. If it has a rider called an Activities of daily Living rider, many times it’ll pay you 150% or even some policies 200% if either spouse, if you’re married, if you’re single, it’s just you, but either spouse, if you’re married, hits two of the six activities of daily living, it’ll double for five years. So if you’re getting $30,000 a year as a normal payout, it will double or 150% to $45,000 or to $60,000 for a five year period per year as you need that for activities of daily living.

If you can’t do two of the six, you really need to check out that annuity because again, you can use it for future income. A surviving spouse can use it for future income. I’ve seen that happen. You can use it for the activities of daily living to assist with any kind of form of long-term care or if you don’t use it, you can leave it to your children, and they will have that as part of your estate.

Fourth way to pay for long-term care. Sometimes people have gone to a home equity line of credit or a reverse mortgage. In a reverse mortgage you have to deal through a loan officer or a realtor because those actually put your home back into a mortgaged situation, and you can draw money from that. But hey, if you don’t have the resources to pay for long-term care yourself and you can’t afford a long-term care policy or a life insurance hybrid policy or an annuity, you may be forced to look at a reverse mortgage.

Here’s my encouragement. Work with somebody who brokers that. In other words, they don’t just work for a company. You see the commercials that are promoting one company on a reverse mortgage, just like anything else. Work with a broker who shops that reverse mortgage to multiple loan companies because you’re going back to the loan company and you need to work with a broker who can shop it and get you the best payout because I have seen them vary widely. In 30 years of doing this, and reverse mortgages have just come of age in the past five to 10 years. But in 30 years of doing this, I’ve only had two people that have gone to the reverse mortgage way of paying for it, but it really does work well for them.

So, here’s what I encourage you to do. Sit down sometime and run the numbers on what a three to a five-year long-term care event in either your lifetime, if you’re single or if you’re married, in the lifetime of your or your spouse, and see what that might cost you. You can use $100,000 to $120,000 a year times three or times five, and then go look at your finances and say, where’s that coming from?

Second thing I would encourage you to do is if you’re married, have a conversation with your spouse and whether you’re married or single, have a conversation with your family. There may be some people that are adamant that they don’t want their loved one in a care facility, a nursing home. My dad was, and what was crazy was I had long-term care coverage even for my mom and dad, but my dad never wanted to put her into a nursing home because he didn’t like the care that they gave her. So have that tough conversation with your spouse & family. And then I would say one more thing, work with a financial advisor who’s got options and other things.

You may have heard some things that you’ve never heard of before about ways to pay for long-term care. Work with a financial advisor like us that will help you at least know all of your options. There may be an option that is perfect for you, but if you don’t know about it, then it’s not going to help you. And it may be just as close as a phone call and setting up an appointment with a real financial planner, not an investment company, but a real financial planner who’s going to build you a lifetime retirement plan.

Hey, if you know anyone who’s facing long-term care concerns or might face long-term care concerns in the future, or if you’ve got parents and you’re concerned about how they’re going to be prepared for long-term care, pass this info along to them so they’ll be able to learn as well.  I promise you every week, if you’ll give me a few minutes, I’ll do my best to increase your financial knowledge. And if we can help you, particularly about a situation, a question, anything you’ve got, reach out and give us a call and get an appointment. See you next time!