Episode: 06-14-2022 | Long Term Care

Hosted by Kevin J. Zywna, CFP® and Allison K. Dubreuil, CFP®

Allison Dubreuil, Wealthway Financial Advisors:  We had plans to talk about long term care planning today we’d like to keep this show focused on financial planning topics. We haven’t talked about long term care planning in quite a while. It’s something that we address with all of our clients on a regular basis. So we will jump into that. But first we thought we’d better acknowledge the markets.

Kevin Zywna, Wealthway Financial Advisors:  The elephant in the room.

Allison Dubreuil, Wealthway Financial Advisors:  Thank you. Yes, it’s the elephant in the room. Even the bear.

What Does It Mean To Be In A Bear Market

Kevin Zywna, Wealthway Financial Advisors: The bear in the room. Right. Good one. So yes, there is now a bear in the room. It’s official. According to the S&P 500, anyway, we have declined greater than 20% – which is the general terminology for a bear market. Down about 22% from its all-time high in early January to today. So that has some nerves rattled. Understandably. We’re not going to belabor this. We talked about it extensively. Our last show which you can go back and listen to we have a copy on our website wealthwayadvisors.com

Allison Dubreuil, Wealthway Financial Advisors:  Now we’re kind of keeping shows on the website long term. Yeah. Okay, so we can go back a little bit further now.

Kevin Zywna, Wealthway Financial Advisors: All right, we have the last five or six shows on the website anyway. But you get our last show, which we talked about bear market – what it’s like, what causes it, what you can do about it. So you go back and listen to that if you want to wealthwayadvisors.com.

Now Is The Time To Buy Low

I will say this, a little something that we put into our newsletter that just went out a couple of weeks ago, when it comes to a bear market – for our clients and for people who are accumulators who are still working who are still investing who are still savings regularly, we’re still contributing to their company sponsored retirement plan. These are the times we cheer. This is buying low, the trite investment saying ‘buy low, sell high.’ Anyone can do it so easy. Well, this is what buying low feels like. So if you’re still contributing to an investment plan, keep going. This is buying low. These are the times when you look back two to three years from now. You wish you bought more. So don’t stop doing that. Just because prices (a lot of stocks and mutual funds and exchange traded funds) have declined. No, this is the time to be greedy – they’re on sale, when others are fearful. Yes. So this is where the big money gets made by those who have a plan, a system, and the courage to keep acting on it.

Impact Of A Bear Market On Those Drawing On Retirement

Kevin Zywna, Wealthway Financial Advisors:  Now, those who are in the distribution phase of life and are now living off their nest egg, and taking income or distributions from their IRAs, and 401 ks and using that to supplement their lifestyle, and have the majority of it invested in a growth oriented portfolio, this is a little bit time for a little bit more concern. Because when your portfolio declines 10%, 15%, 20%, 25%, and you keep taking out the same dollar amount. Well, that dollar amount becomes a larger percentage. And when the inevitable recovery happens, then there isn’t as much there to recover. So that’s why people who are in a distribution phase, you should already have a plan in place – because bear markets are inevitable.

Know Your Buying And Selling Plan

Kevin Zywna, Wealthway Financial Advisors:  And they are nothing to be overly fearful about. The only reason why. Well, one of the big reasons why people panic and do the wrong thing at the wrong time and sell out when their investments decline. Because they don’t have a plan. They don’t have a strategy. They don’t, they don’t account for this to happen. They think they’re going to be able to avoid it. Like oh, don’t read the tea leaves. And no, I can see it’s coming, I’m going to sell out and then I’ll buy in lower. Now, no, you’re not going to do that. No one can do that regularly, one person somewhere on the planet might get lucky, I will concede with that. But no one can do it with any consistency.

So what we like to do in our practice for clients who are in their distribution phase, is instead of having a three to six month emergency fund built up in the bank account, we normally recommend, for people who are accumulators, we already have them pre-fund their bank account with say, one to two years of monthly expenses to draw upon, in the event that the inevitable occasional, significant market decline is deep enough or is long enough. And then we purposefully reduce or temporarily suspend the amount that they’re withdrawing from their investment portfolio, and then have them purposefully draw down on their bank account, because we’ve already pre funded it. And that way, their lifestyle never misses a beat, and you can sleep easy at night, knowing that you have a sufficient cushion built up.

And then when the inevitable market recovery comes, whenever it comes, then we replenish the bank account. And that way you keep your money invested for growth. So you enjoy long term growth rates, but you have an ample cushion, so that in times of market distress, you have the backup plan already in place. And so all you have to do is execute on it. And so that’s just one example of how we manage through the occasional temporary market pullback, and then get to enjoy the long run growth rates that come with the inevitable recovery. I don’t know if we need to say much more about bear markets in the show. Okay. All right. Unless somebody wants to talk about it, and we can help talk you off the ledge if you’re feeling you know, a little shaky about everything, but know that if you’re an accumulator, great time to buy. If you’re in the distribution phase, have a backup plan, work with an advisor should already pre-plan for this anyway because they’re inevitable.

Strategies On How To Plan For Long Term Care

Allison Dubreuil, Wealthway Financial Advisors:  So all right, so on to more financial planning related topics. Like I said, at the top of the show, we wanted to talk about long term care planning. We have more and more people where this is becoming a need in their lives. Whether they need care or assistance themselves, or they have family members loved ones that are getting to the point where they need care. So this is something that we look at on an ongoing basis for all of our clients. It’s really challenging. I think it’s one of the more most challenging things to plan for because you could need no long term care or you could need years and years of long term care and nobody really knows. It’s quite difficult to predict. And the cost can be so high. So it really can impact your financial situation.

What Is Long Term Care?

So we want to talk about some strategies on how to plan for long term care. Really what your options are, if you need long term care. And I guess we’ll start by saying, what does long term care mean? How do I know if I need long term care? What we’re really talking about is help with activities of daily living. So that’s things like eating on your own, dressing, bathing, toileting, transferring, so getting around, and it could be cognitive issues for those with dementia. It’s usually two or three or two or more of those activities of daily living, that’s where Long Term Care kicks in. So we’re not talking medical care, health care, it’s help with activities of daily living. And that’s where people get confused. Sometimes people think they’re all set because they’ve got Medicare, and it covers health care expenses. This is different.

Does Medicare Cover Long Term Care?

Kevin Zywna, Wealthway Financial Advisors: Right, the Medicare covers medical care. But long term care is a subset of that, which is less medically oriented, and more maintenance oriented. So it doesn’t qualify except for some in very finite specific instances. Medicare does not pay for long term care. And if it does pay, it’s only paid for a brief window like a few months. So really long term care, which can be expensive. You’re generally left to your own devices to figure out how you’re going to pay for it. We do have some, options to talk about here. What is available to you and some of the things you might want to do to help make it easier.

Will You Need Long Term Care?

Allison Dubreuil, Wealthway Financial Advisors:  We’re talking about long term care planning. The fact that long term care is not the same as health care or medical care. Sometimes it can mean that, but it’s really the need of help with activities of daily living like eating, bathing, dressing, transferring, and such. And it’s very difficult to plan for because you don’t know if you’ll ever need a day in your life, or if you’ll need multiple years. And I think a lot of people think well, it’s not going to happen to me. But statistically speaking, there is a high probability that you will need some sort of assistance at some point in your life. In fact, there’s a 64% chance if you’re a male, that you’ll need some sort of assistance with activities of daily living during your life. A 75% chance. If you’re a female, that you’ll need some sort of assistance. So women are more likely to require care. I think that’s because we are superior, we live longer. And so then, you know, towards the end, the men can’t hang with us anymore, and we have no one to take care of us that we need care. What do you think about that?

Kevin Zywna, Wealthway Financial Advisors:  Well, that’s a theory, I suppose. No, but actually, I think there’s a lot of truth to it. Typically, men are cared for by their spouse by their wife. And men do tend to die before females.

Allison Dubreuil, Wealthway Financial Advisors:  I knew you’re going to come back to that.

Kevin Zywna, Wealthway Financial Advisors:  But regardless, and then the wife is usually left on her own and so that care then needs to come from an outside source. Whether that’s another family member or in home health care or assisted living facility where the man is getting the care, but in home by his spouse, so that doesn’t really register as another form of care.

What Are Some Long Term Care Options?

Allison Dubreuil, Wealthway Financial Advisors:  Yeah. So there can certainly be informal care. But statistically, if you need care, it’s more likely that you’ll end up needing some sort of nursing home care or paid in home care assisted living is really underused. I was actually surprised when I was looking at the statistics about only three to 6% of people ever live in assisted living. So it sounds like most people are trying to get care in home. And then if it gets to the point where they can’t have care in home, they’re going to the full time nursing home care.

Importance Of Stimulation And Activity Along With Long Term Care

Kevin Zywna, Wealthway Financial Advisors: What we should mention, there are a lot more care facilities coming into the marketplace that are much more accessible with a lot of activities, vibrancy. One of the things I think that gets overlooked with people who want to stay in their own home for as long as they can, which I understand. But what gets overlooked is the lack of connection that you can have, especially when you’re the remaining spouse, that you’re alone, a lot of the time. And one thing that we have seen firsthand in practice, and I think the medical community can back this up is that without stimulation without activities without people and talking and learning and all the things that go on in a nice vibrant community, we tend to decline even faster. So while it sounds like a good idea to want to stay in the home, sometimes the outside community can even be better for your health.

Allison Dubreuil, Wealthway Financial Advisors: Well, you know, I can’t wait to move in. I talk about that all the time. I can’t wait to go into one of those life care communities, continuing care communities, they’ve got restaurants, they’ve got salons, they’ve got bars, they’ve got you know, activity.

Kevin Zywna, Wealthway Financial Advisors: Put you on a bus, go to a show, you have as much to drink as much as you want, get back on the bus.

Allison Dubreuil, Wealthway Financial Advisors: It’s like college. I’m going to eat, cook for you, clean, right? I’m in. I don’t know why everybody doesn’t want that. But yes, social interaction, being socially connected with other people actually does greatly influence life expectancy, the research is pretty clear on that. So it is something to consider. It’s also something to consider whether being in home will be a burden on your family or loved ones, or if your home is equipped properly, and you have the right support. Because if you don’t have a plan in place, then it can become quite a crisis for all the family members involved. And we’ve seen that.

How To Plan For A Long Term Care Provider

Kevin Zywna, Wealthway Financial Advisors: A statistic that was a surprise to me is that the main provider of unpaid elder care is usually a friend, family member, or relative who volunteers to help out an aging parent. The primary caregiver is actually not the spouse, the primary caregiver is an adult child. I was surprised by that. 51% of elder care is provided by an adult child. And I would say that one of the things we hear most from our clients, when we bring this topic up is, well, I just don’t want to be a burden on my children. I said over and over very repeatedly, yet. Who is providing the most care to their adult parents? It’s an adult child. So what people say and then what actually happens, there’s some sort of dichotomy going on there. Nationally, I’m not saying in the microcosm of our practice, what have you, but usually people don’t want to be a burden on their children. Yet one of their children ends up being a primary caregiver. So that’s interesting, and it’s something for the adult children to be aware of that they may be called upon to help out mom or dad,

Allison Dubreuil, Wealthway Financial Advisors:  Which can be life changing for everyone.

Kevin Zywna, Wealthway Financial Advisors: Right, which is a huge commitment.

Allison Dubreuil, Wealthway Financial Advisors: So we talked about your chances of needing care and kind of the type of care that we typically see in the care that is provided. The duration is something that we want to talk about as well. We’ll get into how long you might need care how much it might cost and how you can pay for it.

Allison Dubreuil, Wealthway Financial Advisors: Tonight, we’ve been talking about long term care planning, what happens if you need it? What are your chances of needing it? When might it happen? How long might it last how much it might cost and how to pay for it a lot of unknowns to tackle. It is a very challenging thing to plan for. But it is something that you should plan for. Otherwise, you may end up (I hate to say) being a burden by causing some less than ideal situations for yourself and your loved ones who would probably try to step in and care for you.

Kevin Zywna, Wealthway Financial Advisors:  While there certainly is insurance to help defer or defray the costs of long term care. If you have a long enough runway, if you have enough time, and you dedicate yourself to the financial planning process properly, then we find (at least in our practice), we can help people, with a high degree of competence, self-fund. A lot of the options of long term care, as Allison was saying, the range of outcomes is vast. It’s from $0 to well, hundreds of thousands, potentially millions worth of dollars in long term care. Somewhere in the middle there lies the planning strategies. And with enough time and enough planning, most people usually can handle that. Before we get into some of those details. We do have a caller on the line. And we’re going to run out to Chesapeake right now and speak with George. Good evening, George you’re on Dollars & Common Sense.

Or some believe that it has something to do with bears how they attack that they swipe their claws downward. And that’s why it’s a downward trending market.

How To Withdraw Your RMD From Your IRA At Age 72

Caller: Hi there. Enjoying the program. This is way off topic, but it just came to mind. And I know you know the answer to this. I’ll be turning 72 on the 26th of this month. So I know I have to have RMDs from my IRAs. How does that work? How do I do that?

Allison Dubreuil, Wealthway Financial Advisors:  Good question. George. So you have an IRA just one IRA or do you have multiple IRAs and 401k’s and retirement accounts?

Caller:  I have multiple retirement accounts but to IRAs, to IRAs.

Allison Dubreuil, Wealthway Financial Advisors: Okay, any 401K plans?

Caller:  No, no.

Kevin Zywna, Wealthway Financial Advisors:  Are you still working? George?

Caller:  Yes, but I’m working part-time. I’m kind of semi-retired.

Allison Dubreuil, Wealthway Financial Advisors: Well, you are right. Once you turn 72, congratulations, now you have to start withdrawing from your tax protected IRA accounts. It is calculated each year based on the account balance as of December 31 of the prior year. So for you, that would be December 31, of 2021, the account balance. And then there’s a table, it’s a percentage based on how old you are. And that will tell you the amount that has to come out of each IRA, and it will be taxed as ordinary income. But it’s up to you what you want to do with that money. You can spend it, you can reinvest it in another investment account, or you can donate it directly to charity from the IRA. If you are charitably inclined.

Caller:  That’s excellent. Okay. Like I said, I know this is off topic, but I knew that you would know and it just popped in my mind. And I thought I would ask you, so thank you very, very much.

Kevin Zywna, Wealthway Financial Advisors: George, just know that nowadays, most of the custodians, we would call them are the people who house your IRAs or 401 K plans, retirement plans, they’re pretty adept now at proactively sending you letters to inform you that you have to do something, you have to take action. But ultimately, it is your responsibility or the taxpayer’s responsibility to ensure that the appropriate dollar amount comes out of each IRA account or tax qualified account. So just know that that’s on you. You have to take some action. The amount of the withdrawal is about 3.6% of the total of all your IRA accounts. And you have to do it by December 31 of this year, 2022. And if you don’t do it, then the penalty is hefty. It’s half of what you should have taken out. So just be on guard.

Caller:  Oh, no, I will do that. I’ll call him tomorrow. I thought that they’d contact me and say “hey, you need to do these,” but they haven’t. So I’ll call them tomorrow. And I really appreciate your help. Thank you so much.

Kevin Zywna, Wealthway Financial Advisors:  All right, George, thanks for the call. We appreciate it.

Allison Dubreuil, Wealthway Financial Advisors: There is a little bit of a grace period, a technicality that if you’re just turning 72, this year, you actually have until April 15 of next year to take the required minimum distribution. But we typically don’t advise doing that unless there’s some special circumstance, because then you’d have to take your first required minimum distribution next year, and next year’s required minimum distribution.

Kevin Zywna, Wealthway Financial Advisors:  That grace period only applies to the first year that you are required to take them out.  After that, then you’re on the clock.

How Much Does Long Term Care Cost?

Allison Dubreuil, Wealthway Financial Advisors: All right, back to long term care. So we’re talking about people who need help with activities of daily living, there’s a high probability that you will at some point, need this assistance. So what does it cost? In our area in Virginia is about average, I looked at all the numbers across the country, we’re about average. Specifically in the Hampton Roads area, if you are looking for some part time home services, so maybe you need someone to cook meals or help you run errands, things like that, it could be on average, about $4,000 or $5,000 a month. If you need assisted living, that could also be around $4,000 to $5,000 a month. But when you get into around the clock care, in home, that’s where the numbers really add up. That can be upwards of $10,000, $12,000, or $15,000 a month for round the clock in home care. And that’s when going into a nursing community, a retirement community, may actually make more sense because, depending on your medical issues and the level of care you may need, that could be a little bit less than in home care. So it could be maybe $8,000 to $10,000 a month depending on your needs.

Kevin Zywna, Wealthway Financial Advisors:  And like we talked earlier, I know most people tend to want to stay in their own home for as long as possible. But consider the fact that if you aren’t getting regular in home care, either through family, friends, neighbors, or professionally through a company that specializes in in home care. And we’ve been dealing with some situations where, usually getting out of your own house and getting into a care facility with professional treatment, with professional medical providers who can make sure you take your medicine on time, make sure you eat well, you eat in timely fashion, and have a community there of other people to engage with and interact with, can actually enhance people’s health at that stage of their life.

Allison Dubreuil, Wealthway Financial Advisors:  Yeah, we’ve seen people that have been not doing so well and have actually improved greatly from getting into a place where there’s consistency and in the proper care and assistance.

Understanding Medicaid And Long Term Care

Kevin Zywna, Wealthway Financial Advisors: Now, we will say that typically, like a lot of things in life, the more you pay, the better the quality. We all have a payer of last resort when it comes to long term care, and that’s Medicaid. Not Medicare, Medicaid, is the payer of last resort. But that’s like health care, welfare in a sense, and you have to qualify for Medicaid by spending down your assets or having little to no assets, to be able to spend on your own care, and then the state will provide a bed for you somewhere, but you don’t have as much choice. And the quality of care is typically not as good, but just know that that option is there.

Can I Self-Fund Long Term Care?

Allison Dubreuil, Wealthway Financial Advisors:  Right. So if you are in the situation where you don’t have much of a nest egg or enough income to pay for your own care, there is a backstop. Medicaid will kick in, and you will get care. Like we already mentioned earlier, a lot of our clients can self-fund. When you read the articles about long term care, see the headlines and the big dollars, it can be really intimidating, but it is not impossible to self-fund. It can reasonably be done, if you start early, and you follow a long term plan and work with a financial advisor. You’re more likely to be successful in that.

Kevin Zywna, Wealthway Financial Advisors: By early we don’t mean in your 20s, either. Typical retirement age for the average American, if we’re in our mid-60s, most of us are going to have another third of our life ahead of us. So with life expectancies being what they are, you’re probably looking at another 20 to 30 years of life expectancy. And it’s the final years of our life where the care need usually comes in. So that still gives you another several decades to work towards building and savings to provide for some level of long term care.

Understanding Long Term Care Insurance

Allison Dubreuil, Wealthway Financial Advisors: Now for some people they can self-fund. There are some people that decide they don’t want to self-fund because they want to make sure that they leave a certain amount of inheritance or legacy for their children. So those people might choose to use insurance or people that maybe didn’t quite build up enough assets to completely self-fund. There could be cases where insurance might be appropriate for someone in that situation. And there are different types of insurance.

Early on, it was like car insurance. You just paid your premium every month for as long as you lived. And if you never needed a day of care, that money was just gone. It was just, I guess an expense you paid for peace of mind. Well, that’s doesn’t really sound very attractive to a lot of people anymore. They’re like, I don’t want to pay for something for years and years. And then if I don’t need it, it’s just gone.

So insurance companies developed another type of policy where it’s really like a life insurance policy that has a long term care insurance component to it. So you pay into this insurance policy, it will cover some long term care expenses, if you need them. If you never need long term care, then there’s a death benefit that goes to your heirs. And people like that type of insurance, typically a lot more because then it’s not use or lose. Somebody’s going to get some benefit somewhere. But it certainly comes at a cost. And you would need to weigh the cost of paying those premiums against how much benefit you would eventually get one way or the other.

Using Several Tactics For Long Term Care

Kevin Zywna, Wealthway Financial Advisors: And for a lot of people, they cobbled together a variety of options to make sure that mom or dad have some form of decent long term care.  We’ve already talked about some of these: family, family friends, checking in for a little while, just making sure everything’s okay they got groceries, they’re eating okay. You have your own savings that you can use to help pay for some in home care. You’ve got your insurance as an option for those people where it’s appropriate. There are the continuing care communities that we talked about earlier where you move in healthy. It’s like a condo, there are several of them here in Hampton Roads, a lot of activities that provide food, they provide entertainment. And then as you age, there’s also a long term care facility attached to it, where you can age in place and get care at the same community.

Using Real Estate, Reverse Mortgages, HELOCs to Pay For Long Term Care

And the last thing we didn’t talk about as a way to pay for it is home equity. Typically you’re either going to sell your house if you move to a continuing care type of community or nursing home or a reverse mortgage is a very viable option nowadays to extract the equity from your home and use that cash to help pay for long term care whether that’s in home or another facility as well.

Long Term Care Wrap Up

Allison Dubreuil, Wealthway Financial Advisors:  We’ve been talking about long term care planning tonight. Long term care is different than healthcare, in some respects, because it’s more to do with activities of daily living like: can you feed yourself, can you bathe yourself, can you get around. But it is something that needs to be planned for. And oftentimes, when we bring this up with our clients, they say, Oh, well, I’ve looked into long term care insurance. I don’t think I want long term care insurance. You don’t need insurance necessarily to pay for long term care.

We’re first and foremost talking about what are the costs? And what are the chances that you would need some sort of care, and then how do you pay for it. So it could be that you get care in home from your family. It could be that you have enough savings, to self-pay for care, and that we see that more and more often that people do have enough to pay for average care needs. Sometimes insurance might be needed. But we don’t typically use insurance to insure 100% of possible costs. Because we don’t have any idea what a person is going to need. They may need none, they may need extensive care. So insurance can be used in combination with income and savings to bring a solution to the table.

Kevin Zywna, Wealthway Financial Advisors: Right. And keep in mind, as long as you’re drawing a breath, you’re drawing a check from at least Social Security. And many people in this area, probably a pension from the federal government, as well. Some state employees who are getting pension payments from VRS. So as long as you’re alive, you’re receiving those income sources and that income will go a fair amount of the ways to help pay for long term care and that’s why we don’t try to ensure 100% of long term care through insurance. If you’re working with insurance agents that is trying to sell you 100%, beware. Because you typically don’t need that. The insurance is a subsidy to help pay for long term care if it becomes necessary.

Allison Dubreuil, Wealthway Financial Advisors:  And we wanted to go back to the other side of the equation. If you don’t have enough assets to pay for care, if you’re in long term care insurance is just not cost effective for you and you end up spending through your savings, Medicaid is the backstop that we all have for long term care services. But we just wanted to mention that you often probably hear about elder law work or Medicaid planning. And that is something that most people, a lot of people think they need. That you have to do Medicaid planning to plan for long term care. And that’s not exactly the case.Kevin Zywna, Wealthway Financial Advisors: There are strategies that one can legally use to start to transfer assets away from yourself so that you then become Medicaid eligible according to state guidelines. In doing so, it’s rather complex, there is a long look back period, I think it’s five years now. So if you try to transfer away from yourself to a family member to get out of your ownership, and then make it appear as if you are destitute, and therefore qualify for Medicaid. There’s a long window there that you have to start planning for. And regardless, as you might be able to tell from my voice, I have some ethical concerns of doing so. Medicaid is taxpayer funded, welfare for medical expenses. So we all have that safety net. I think it should be used for people who really need that safety net, not for people who are trying to shelter assets and pass them to family members, and have the state pick up the tab for the long term care. Tha