Taxes and healthcare will be your most expensive items in railroad retirement. Learn how to fund your long-term care.
Welcome everyone to another edition of the Highball Advisors Railroad Retirement Whiteboard. My name is John McNamara of Highball Advisors. And today, we're going to talk about long-term care. Very exciting, right? Uplifting. So, however, here's some reality. We'll just go through some stats. We don't want to press the panic button, but here we go.
So 52% of railroaders will need long-term care. All right? And then, so what is that? Really, it's those final years. So for women, it's two and a half years of long-term care is what they need, and men is one and a half. All right? And then finally, the median is $97,000 a year for a nursing home. Now, there's a lot of different ways to, I guess, dish out long-term care. You have in-home, assisted living, nursing, right? Skilled nursing, all those type of things. So those are just kind of the numbers. There's a lot more statistics about it, but you've just got to kind of plan for this eventuality, and I guess hoping for the best really isn't the answer, but hopefully everything will sort out.
So, here's six ways really to address your long-term care issue. Right? And then, hopefully as you go through this say, "Okay. Well, I've done that one and I've got that covered." But at the end, if you say, "I don't have any of these covered," well, then, really reach out to somebody and figure out how to get this done.
So the first one I have up here is self-pay, right? So basically, hey, take your whole nest egg, right? Figure out what you have, and then as you keep building that throughout retirement, you can draw those assets down. Also, I throw in there, obviously, your 401ks, your Roths. I'm a big fan of doing Roth conversions, that way you'll have tax-free money and you can use that for long-term care.
But also, for those individuals that might be house poor, as they say cash rich, you also have the house. You can do maybe a reverse mortgage and do it that way. Or if you are moving into assisted living, you can sell your house and then use those funds to help pay for assisted living. So that's the self-pay there. And to me, that's my favorite one. And I talk with railroaders all the time. Having that guaranteed retirement income lets you build some wealth, so you can do things like that, do the self-pay option.
Next one up is government benefits, right? So this is where I'm talking about Medicaid. So this is on the lower income bracket for people. All right? People of lower means, right? You can't have a lot of assets, and there's strategies to spend down the assets or put them away. You need to really reach out to an elder law attorney if you want to put that strategy in place. And also, remember your Medicare isn't going to cover your long-term care. It will cover, I believe it's 40 days of skilled nursing, but after that, that's out of pocket. All right? So that's important to remember. Don't say, "Well I've got Medicare." No, that's not going to help you.
And then, the next one up I have is long-term care insurance. You hear about that all the time. Not a big fan of long-term care insurance, but if you do want to get it, purchase it early, right? Because obviously, just thinking, "Well, I'm 65. I should get long-term care insurance." Well, we know that half of railroaders are going to need long-term care. The insurance company is just going to give you a huge premium number there. So you purchase that, early is the best.
The thing I also don't like about it is rising premiums. They might change every year. So an insurance company will just go the state insurance board and ask for big increases. And there's really not that many providers left. There used to be 100, 200 providers, maybe 25, 30 years ago. I think there's only a handful now that are in it, so I'd be careful of that. But that option is out there. And if you bought one long time ago, hold onto it, keep paying those premiums, because it's very valuable. Those insurance companies don't like writing those anymore.
So another one is life insurance with a long-term care rider. This is an interesting one. So if you die before the long-term care benefits, right, all the benefits will pass through to your heirs, tax-free, which is nice. And it's also important with a long term care rider that it's for long-term care, not chronic illness. But you also have to remember, so it's a life insurance policy with that rider attachment. So that's going to be also a little bit expensive on top of that, and you're going to have to be semi healthy, right? They're not going to give it to somebody who's going to say, "Oh, I've got six months or a year to live." So once again, another earlier purchase that you would want to look at.
The next one is an annuity with a long-term care rider. And that might be for individuals who aren't as healthy, can't get life insurance, but still want to have some long-term care protection. You need a lump sum to pay for that annuity, so that might be difficult for some, and then you can access those benefits straight away. And it's a fixed amount, right? You can't raise the premiums. However, remember that maybe they can't raise the premiums, but they're going to fix on what they can pay out. So you might still have to tap into your out-of-the-pocket expenses on that. So that's the annuity of long-term care.
And then finally, there's a life settlement. And this is really for those who have life insurance policies that unfortunately got bad news from their doctors. They understand that, "Hey, all the doctors agree. You might have six months or a year to live," that type of thing. There's ways to... Insurance companies will pay out early, so to speak, a viatical settlement, I believe they call it, and give you a lump sum of money.
And there's also things you could do with Medicare, Medicare life settlement, which will do the same thing. They'll bring down your assets and convert it into an FDIC account. That way your assets are down, then you can get onto Medicaid, and that won't affect your ability to get into assisted living on Medicaid.
So these are the six options that I have. I favor the first one. This is our ideal one, is the self-pay, so we want to work on that one the most. But the other ones are also out there. So reach out to me if you have any questions about this, all right? Please subscribe to my YouTube channel, click on the notification bell to get to the latest video, and share this also. That'd be great. And until next time, everyone, please stay safe, stay on track, and take care. So long, everybody. Bye.
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved from Highball Advisors, and all rights are reserved.