How To Pay for Long-term Care [PODCAST 10]

Hi. Thanks for joining us for this episode of the Retirement Readiness podcast. Per usual, I’ve got my co-host Katie Umland with me, the Head of Marketing here at PrairieView. Welcome, Katie. So, Katie and I are sitting here at Smith Crossing in Orland Park. And we’re gonna really talk about “What are the things that you should think about when it comes to paying for later in life lifestyles?” And so, Katie, this isn’t usually a really is super fun topic to talk about, but we’ll try to keep it light.

I’m just here for the commentary.

So, as you know, on the last episode, we talked a little bit about “What does it look like when clients transition out of their normal, ‘I lived in this house my entire life’ and now I’m going into a different type of lifestyle?” And really, the question that comes up is, ‘How do I pay for it?’ Now, I don’t know if you can remember, but when we were kids, you know, you spent more more time than I did in an assisted living facility with grandma. So tell me a little bit about that. What’s your memory of that? What was that like for her?

Sure. So it took us a while to find somewhere that she felt at home and felt comfortable with. She kind of had that transition time from home. She fell and broke her hip, and then was in a rehab facility. That kind of felt to nursing home-like for the stage of life she was in, so it didn’t really feel like home for her. And then we eventually found her home, at an assisted living facility. It looks different from start to finish at the beginning. She was leaving a lot. We would come pick her up, we’d take her to church, we’d go shopping. And then by the end, she was staying home more and more. So it evolved with her. But also, she was in the same room the whole time. So it was kind of nice that she evolved but didn’t have to move around.

Well, in some of that story, too, you know, things that a lot of times we’ve talked with our clients about are, if we’re having a conversation of going into some sort of whether it’s assisted living or independent living those types of things, but moving out of their their home, a lot of times, as they get older, they get nervous about that. And they start thinking, you know, “What’s that going to really mean?” And it’s funny how that paradigm shifts, because if we had a conversation with them, when they were 50, and said, “Okay, you can go somewhere where all of your meals will be prepped for you. They’ll clean your rooms. They’ll have they’ll take you on excursions. They’ll plan trips with you.”

That sounds like a vacation!

It is! They’ll have, like, happy hour and all of a sudden it sounds like a cruise, right? And you’re signing up for it. And people get nervous about that. And what I think a lot about with grandma during that transition, is I don’t know if you remember but she kind of had a couple of different stops. So she had sold her home, and then moved in with mom and dad and actually had her whole own separate wing on the house. And our grandma was the type that was extremely busy. Once a week she’d wash her car, and then wipe up the garage floor to make sure it was clean. And she edged her sidewalk with a butcher knife so they got it perfect instead of the the gas edger. But then, when she moved in with mom and dad, she, who used to come and do things for mom, all of a sudden had mom doing stuff for her. And it just really didn’t work out real well. We thought it was the perfect setup, but really she kind of declined it naturally. That’s when we started looking for other options.

It’s the same thing. As her grandkids would go, she would watch us and then when she moved in with us, I was going to help her put her pajamas on at night, so it’s just such an opposite shift. 

Tim Regan  (3:53)  

Yeah, exactly. Luckily, I think about it frequently, I remember when she had moved in to the assisted living facility, right before that, the way that she kind of wasn’t doing as well, I know that dad and I had talked and we did not expect her to have a really long life because if that trajectory had continued, it would not have really gone well.

Often you hear, “First you fall and break your hip, then you’re in the hospital and then when you’re in the hospital, you get pneumonia.” It can progress really quickly. 

Yeah, progress quickly or digress I guess. But really, do you remember how long from the time grandma moved in… So the place that she moved into was like first being built. She was like one of the first residents to move in. Do you remember how long she was there?

If I had to guess, 10 years. 

13. And so she went from being one of the very first to being the longest resident that had ever been there. And there was something about being there and somebody coming by and knocking on the door saying “Hey, Florence, come on, let’s go to play dominoes, or hey, Florence, let’s go to dinner.” That social interaction is really something pretty significant for her. If you think about the 13 years, how in the world do you write that check for 13 years?

And if you know at the beginning, that’s going to be 13 years, you can plan differently. But if you think at the beginning, it’s two or three, that’s  different.

Yeah, absolutely. And so as we look at that, that’s really what we want to talk a little bit about today is, you know, what are the things that you should think about? What time should you be planning for that? And how in the world, if God blesses you enough to be around, which I think that for good… So a lot of times people here… I’m taking a little side note, but a lot of times people hear “13 years,” and think, “Oh my goodness, that’s bad for her, or, you know, who’d want to be like that?” But I thank God for that because, in those 13 years, every one of my kids got to know their Great Grandma Becker. We got to go visit her. Without that, they don’t. And so it really was a blessing and a God-send. But back to how do I pay for it? And what does that look like? A lot of times, what we find is there’s a number of things that happen, as people think about “What if that should take place?” One of them is, typically, as we sit down with somebody in their 50s, that’s when we should first start having that conversation. I’m 45. I’m thinking in a decade, I’m not ready to start thinking about that. I’m too young at that point, it seems like, but at that age, that’s the time to start thinking about what happens, or what if, because then all of your options are available to you. What we find many times is it’s the clients that wait until they’re closer to potentially needing something like that, that’s too long, they’ve lost all of the options that they had if they would have done this planning earlier. So the first thing they would recommend is start looking at it around 52 to 55 years old is when you should star tlooking at it.

What do you mean “start looking at it?” Like, start looking at what your options are?

Yeah, so great question. So this is talking completely on a “How would I pay for it?” conversation. And so, yeah, start looking at the options for “What does that plan look like?” So there’s a couple of ways that you can do that. We have some clients that will choose to self insure, self fund. Basically, what that means is, “I think I’ve got enough money that I’m going to hold on to it. And I’ll be able to pay for any period that I might need.” We have some clients that will choose on the opposite end of the spectrum, they’ll choose to say, “I’m going to take out an insurance policy. And I’m going to shift all of the risk of my needing to do that to an insurance company. And they’re going to pick up the bill if something ever happens.” And then we have clients that are somewhere in the middle where they say, “I don’t want to do the two extremes. I don’t want to go completely alone, but I also don’t want to shift all of that. Let me come up with a plan that’s right for me somewhere in the middle.”

And that’s called long-term care?

It is. It’s long-term care insurance. And we’ll talk a little bit about the different types of insurance because there’s different types out there. But really, when you start looking at it, the right time to plan financially for it is is between the ages of 55 and 62. Now, that doesn’t mean if you’re outside of that range that you shouldn’t think about it. You know, if you’re 65, you’re not like, “Darn it, I missed the boat, I can’t do it.” But just ideally, that is the timeframe that we recommend people really start getting serious about looking at those options. And so, step one is “How do you pay for it?” and when we think about the obvious argument is “If I take out insurance, that’s another premium, right? I’ve got a payment that I have to make.” So this type of conversation, typically of people on one of two sides, but you have some people that are extremely concerned about it. It’s on their mind, and they’re thinking, “What if?” and “I’m going to worry about this.”

Katie Umland  (9:06)  

And paying for a premium can alleviate some of that, and take the burden off. Maybe they might find it worth paying?

Yeah, absolutely. And so sometimes that’s the case. And so for people that are there, then it’s something we need to have a serious conversation about. But then we have other clients that are at the opposite of that.” You know what, I never worry about anything. I ain’t worried about that.” So there’s no peace of mind in having that conversation. But we have to start in that earlier age group because if there is something there, let’s do it when we have a chance to. 

Well, how much of a factor is it when you look at our grandma, who did live till she was what 95? So did her mom’s…. Like, you know, how much do you take that into account?

100%. A lot of times when we talk to clients, they have those preconceived ideas. They think “Oh yeah, my dad was healthy and lived to 94 his own and then he passed away” or, “You know, my mom wasn’t as healthy and I got sick.” So people have some of those preconceived thoughts around what their longevity might look like. And so, a lot of times, that’s what drives some of their thinking around “How concerned am I about some of my options?” And so then when we start looking at “How do you pay for all that?” and have that conversation, what we find is the clients that are on that end of the spectrum that say, “I want to self insure,” there are some of them that are perfectly good doing that. Meaning, they’ve got enough money, or it doesn’t worry them too much. And so it’s a good option. Other clients, what we find is, we’ll be talking to them 10 years later, and they’ll be now in their 70s, potentially, and they maybe aren’t spending money the way that they could. And so we’ll be encouraging them, “Hey, why don’t you take another trip? You know, the one you’ve been wanting to take the kids on?” And they’ll say, “Oh, no, I can’t. I don’t want to.” We’re finally like, “Well, wait a minute, you’ve got all this money sitting over here. Why don’t you…?” They’re like, “Oh, that’s my long-term care money. If I ever need to go into a facility, that’s the money I’m going to use for that.” So what ultimately ended up happening for them is they said, “I don’t want to spend the money over here, because I’m afraid it’s going to hinder my ability to live my retirement, then spend money over here being like, some sort of long-term care policy or something like that. And so I don’t want to do that.” But now we’re 10 years later. And really, if they would have paid that premium, they would have increased their lifestyle much more than that, because it would have freed them up to really enjoy their time. And so that’s why we really want to sit down and say, “What are the options? And how can we craft a plan specifically for you?” And so, as we talk about that, we talk about long-term care, ways to pay for it. So obviously, there’s the first one, we can self fund it. The second one is you can choose to have a long-term care insurance policy. Those are the traditional policies that have been around since I’m guessing early 80s, or so. And when you hear long-term care, that’s what people usually think about. They think about a policy that I’m going to pay a big premium into. And like we tell everybody, it’s a big premium, like it’s probably one of the most expensive premiums that you’re going to have. But if you ever need it, it would be the best investment you ever made. So it kind of goes both both ways with that. And so we’ll tell them, “With those kinds of policies, if you need somebody to come in and help you with your physical needs, if you need to go into an assisted living facility, if you need a full blown nursing home kind of a kind of a thing, that policy will pay some portion of that. You choose how much. You choose a dollar amount monthly, and that will pay for it.” But what we found is that the biggest drawback to those is their “use it or lose it” nature. If I never need care, all of a sudden all this premium, which is the biggest premium ever paid in my life, all of a sudden, it’s gone. 

That’s a tough decision. 

Oh, it’s hugely tough, yeah. So then what what’s happened is the insurance companies have come out now with what are called “combination policies.” So what a combination policy does is it’s actually based… I consider it a chassis. So you drive a Subaru, right? So that Subaru has a chassis, that chassis can support the car that you drive, or could support the wagon that’s all built on the same what they call chassis. And so that chassis has… the way that the wheels are and all that stuff. Now they just put the body on top of it. And so it’s kind of similar to that in the way that they’ve designed these combination policies. They start with a life insurance policy. So that’s the chassis, if you will, but then from there, they add things to it. So they add a long-term care provision to that to that policy. So now I have long-term care coverage. It still covers me from at home. It still covers me if I need assisted living. It still covers me if I need a nursing home. But if I never used that policy, I have a death benefit that kind of reimburses all those premiums back into my family. So there’s a lot of options that are out there today. A lot of times, as people think about it, it can be kind of overwhelming. And it’s not something anybody ever wants to talk about. But it shouldn’t be overwhelming because we can make it pretty simple and straightforward. And right now, when you look at “Why is that something we want to talk about?” In our opinion, the “What happens when I’m no longer able to stay in my home?” question, that is probably going to be the number one issue facing retirees going forward. Sciences figured out how to get us to live a very long time. It’s not always the greatest time or not always the most independent. And if there’s anything that could wipe out your investments or your savings, I mean, that’s a pretty big deal.

Where they say, like, at the end of life, you spend, what, like three quarters of all the money you spend in your whole life? You spend it in the last bit of your life?

Tim Regan  (15:19)  

And full years, yeah. And what we find a lot of times is for our clients who do not plan, then their kids are kind of left saying, “Well, what do we do? And how do we do it?” And all of a sudden, kids are taking out some of those burdens and doing for mom and dad, which almost puts us back to our grandma was, and mom and dad are saying, “This is way worse. Not what I really wanted.” But if we come up with a plan, and there’s a way to learn about it and think through, now the kids just step in. 

Katie Umland  (15:19)  

And so that’s what you kind of help your clients to determine, right? Like, you can help them navigate which of these three options make the most sense? 

Absolutely.

Katie Umland  (15:59)  

They don’t have to do this research on their own and come in and say, “Hey, can you set this up?” You really help them to figure that out?

For sure. Yeah, no, thanks for making it clear. Because the way that it works is it’s not, “This is the right way.” It’s, “Let’s look at what you have going on, what you would like to have done, where your investments are, and then let’s, let’s design it to fit into your overall plan.” Rather than really being just cross my fingers and hope for the best. 

You don’r just look at one piece of the puzzle. You need to look everything over.

So yeah, so it’s not not the most fun or happiest topic sometimes. But it’s probably the biggest thing that’s going to face retirees, in our opinion, aside from, you know, outliving their money, one of the ways that they’re going to do that is if something comes up.

It doesn’t sound fun and exciting, but we’re here at Smith Crossing, and we’re sitting in their dining room, and it literally feels like a restaurant. And there is the pub that I can see from here. So there are different types of retirement facilities, like, that there’s a spectrum. They can be nice still. It’s not like a nursing home that you think of in your mind. You know, there’s so many different options.

100%. Yeah. And you’re probably picking up all the activity that’s going on outside of the dining room.

There’s hustle and bustle still, which is nice.

Yeah, for sure. I remember when I was a kid, you probably did, too. So we went to Lutheran School. And we always did from like, first grade through, probably through sixth or seventh grade, we always went and sang in the nursing home. And in those days, when we went, it was a nursing home. It was not what is out there today. And so, to your point, it could seem like it’s not a lot of fun, but go back to “It’s kinda like a cruise” where the the dining room is here. They’ve got happy hours. They’ve got all that stuff.

They’ve got a bus that comes to take you to the store.