One Task Railroaders in their 50's Should Consider Before it's Too Late
Retirement Financial PlanningTranscript:
Before you start retirement, you need to at least pause and think about this issue.
Welcome everyone to the Railroad Retirement Whiteboard. My name is John McNamara of Highball Advisors. Today we're going to talk about a topic ... As you approach retirement, right before you retire, some of you go at 60 and maybe 62, that type of thing, but you really need to talk about this issue or one task. And what is that? I'm talking about end of life issues, long-term care issues. Sadly, it affects everybody, so it's going to happen eventually to everybody. That's just the way it works.
There's a lot of different strategies, but it's just important to take the opportunity now, because now, at this age, you have a lot of options. To me personally, when I make decisions, I like to have a lot of options. I don't want to be fenced in. I think if you address these issues later in life, you're not going to have those options, and it's going to hurt. At least you want to talk about this issue.
Once again, what I'm talking about is long-term care. So let's just talk about the reality of long-term care. Basically, long-term care, just from a high level, is you need assistance just with your daily activities, right? Feeding, eating, bathing, driving somewhere, whatever you need, taking medicine ... You need help to go about your daily activities. So that's long-term care in a nutshell.
But here's the reality, right? 52% of individuals over 65 are going to need long-term care. In the average number of years, that's what we're talking about. The average number of years, that's where the expenses accumulate. To be in a long-term care assistance facility, or depending on how you do it, for women it's a lot longer, it's two and a half years. Men, it's one and a half. Then, when I saw this, 20, 21% of those people in long-term care are going to need between two and five years. You start adding that up, it gets into a significant amount of money.
Here's what we're talking about from a financial standpoint, the problem. If you're over 65 and you're in long-term care, 4% are going to have out-of-pocket ... This is money that you've got to put in, between $150,000 and $250,000 to pay for this long-term care. And 9% are over 250,000, okay? So that's a lot of money for individuals, that's for sure, especially as you're dwindling your assets later in your life. You're spending your assets down for most individuals. If dementia unfortunately happens to strike, the average long-term care expense is $350,000. So that's very, very expensive.
When we talk about where are these expenses going, what's being required, so daycare, right? Adult daycare is ... These are annual costs, almost $20,000 a year. You have assisted living is $46,000, right? And these numbers I'm giving you are just the average for throughout the country, so depending upon where you are in the country, it could be a lot higher or maybe even a little bit lower.
Home health aide is $52,000 a year, and that's not really a full-time home health aide. That's just somebody coming in to help out. A nursing home is $102,000 a year. That can definitely be a lot higher in certain states, no doubt about that. That's what you need to think about and cover, so let's just talk about some of the solutions that are out there. Some are good, some are bad, but it's up to you guys to decide, and that's what I'm trying to say, is have that conversation and figure out what you guys want to do. You have Medicare, right? A lot of people say, "Oh Medicare, they'll cover it, so I'm good. I'm good on Medicare." Well, sorry. That's not the way it works. Medicare will cover 20 days in the hospital and 80 days of skilled nursing. And actually, those 20 days go into those 80, so basically 80 days of coverage. As we already know, one and a half years, two and a half years, so that's really not a good coverage.
You have Medicaid. A lot of people use their long-term care through Medicaid, but that requires a spend-down of all your assets. You have to have certain poverty or income levels, so to speak, before you can get Medicaid. At the end of the day, that's a state facility. You don't get your own facility, that type of thing, so it's not ideal. It's nice that it's there for individuals because they do need assistance, but it's not ideal.
Then we have what they call long-term care insurance. That industry has really been going through tough times, in that they wrote a lot of policies a long time ago, 20 years ago, where they really didn't understand the pricing of it. So the premiums lately have been going through the roof, 50, 60, 70% premium jumps. That's really affected a lot of seniors. So like I say, variable premiums. They're having a tough time trying to figure that out, how to price it.
Basically the way to look at long-term care insurance, I heard somebody explain it to me, is just prepaid. It's like prepaying your care, right? So you need, let's say, $200 a day in an assisted living facility. It's kind of like prepaying it, so to speak, and that's what it is. For a couple at 55, this is the average premium. It's $3,000, $3,050 per year. But even still at long-term care, it will only cover a certain amount of time. So you have the elimination period where you got to wait 90 days and then you go in, and then it's only going to cover up to how much the insurance is. The benefit might be $200,000, and that would be it. Additionally with your long-term care insurance, if you don't lose it, all those premiums you paid in have gone away. I want to say you're making a bet, but that's what insurance is at the end of the day. You're hopeful you don't use it, but at the end of the day, you still lose it.
Another product that's kind of doing real well, it's the most popular out of the insurance, is life insurance with a long-term care rider. So you feel like you're investing in a vehicle in life insurance, that you have a death benefit in life insurance that pays out, maybe cash value in it, that type of thing. And then you attach a long-term care rider. But once again, that's that prepaid card concept where, okay, we'll attach that and we'll pay out $100 a day for long-term care until all the money in the insurance policy goes away. That money goes into paying for your long-term care. So that's a popular way to do it.
Finally, another way to do is self-funding. Self-funding is, "Okay, well I have these assets, maybe equities, stocks, that type of thing, bonds ... Pare down my assets to cover my long-term care expenses." That's possible, and it can be done, but depending upon ... See, you don't know where you're going to be on this spectrum of spending, so you got to make sure you have the right amount of assets. That's if you're going to use your retirement funds.
Additionally, people will use their home equity, their house, figure, "Okay, well I'm in my house. If I get out, I might need to go into a facility." You can sell your house, that type of thing, and pay for the long-term care, depending upon if your house has appreciated. Or some individuals can even do a reverse mortgage, that type of thing. You've moved out of the house, so to speak, and you do a reverse mortgage to pay for the assisted living.
So there's some strategies there on the self-funding, but these are basically the options. And the point, once again, back to the big theme, is have these discussions now, because I just listed one, two, three, four, there are probably a couple more, five, six, right? Those are options that you can do now. Think about, "Okay, this is our strategy. If something unfortunate was to happen, we have this plan," because you don't want to be coming at 80 or 85 and say, "Oh, I got to go in a home. I haven't planned for any of this, and now I have one option." It might be Medicaid or something like that. So it's just something to think about.
I hope you found this helpful. Please reach out to me if you want to have discussions about this. It's not a great conversation, but it's a conversation that you want to have. As always, please subscribe to my YouTube channel. I appreciate that. Click on the thumbs up if you like the video. In the meantime, everyone please stay safe, stay on track, and take care. So long, everybody.