How to Determine How Much Long-Term Care Insurance You Need, with Eileen Dunn: Long-Term Care Series, Part #3

00:00:28 - Cameron Valadez
Hello everyone, and welcome back to Retired-ish. I'm your host, Cameron Valadez, and we are back again with part three of our four-part long-term care series with long-term care expert Eileen Dunn. Eileen and I are continuing the conversation from the last episode, where we talked about some popular long-term care insurance options and different types of policies, and today we're going over how to determine how much long-term care insurance you may need. Eileen, good to have you back and have you help out on the show. How are you today?

00:01:01 - Eileen Dunn
Thank you very much. Doing great.

00:01:03 - Cameron Valadez
As we discussed in previous episodes, long-term care insurance is all about protecting yourself in case you need assistance with daily activities, like maybe bathing, dressing, or even eating as you get older. And if you're like most people, you probably know someone personally who's needing long-term care services or who has needed them at some point in their life. Maybe you've been a caregiver yourself, and that has you wondering how you'll handle your own long-term care need. Will your family take care of you? Will you be able to stay in your home? Or will you be forced to go somewhere you don't want to because you will have to rely on something like Medicaid, for example. How will the need for care impact your retirement nest egg or the financial legacy that you might want to leave behind?

These are some of the questions that we hope to help you answer by putting together some steps you can take to determine what your own long-term care insurance coverage should be. Let's get right into it. First things first. Step one is to assess your risk. You need to assess your risk of needing long-term care by considering what a long-term care need could do to your other assets that are earmarked for other goals that you might have. You can start by considering your family history. So if your parents are superheroes aging gracefully without any health issues, well, congrats. You just might have that super gene, too. However, for most of us, that's likely not the case. Last episode, we talked about some of the more common conditions that arise as you get older and may cause a need for long-term care. So ask yourself, are there any medical conditions or debilitations that might increase your chances of needing long-term care, such as something like dementia, et cetera?

Eileen, when thinking of certain conditions that someone might be more susceptible to, does that dictate how long you should plan to be receiving care and, therefore, how long you'll need coverage if and when the issue arises?

00:03:09 - Eileen Dunn
Yes. But first, I'd actually like to address these super-geners. I'm saying that because I'm one of those. So remember, we've talked before that there are only three ways that we're going to die. It's either a sudden event, which of course, would be the fastest, the disease process, which could be a few months to a few years, or the aging process, and that can take a long time. So those super-geners might actually need it even more. And I say that because when I talked with my mother yesterday afternoon, as you know, Cameron, I live in the Adirondack Mountains in upstate New York, and my 90-year-old mother had just come down after a little hike on the mountain to get blueberries to bake a blueberry pie because she's driving to Vermont to see her 95 and 97-year-old sisters. I can tell you that my cousins have their hands full now because the 95-year-old and 97 year old, they're in very good condition, but they're just getting frail and are needing a tremendous amount of help. Luckily, I come from a very big family, but both of those people, if they had had long-term care insurance and they're kind of kicking themselves now, it would have helped the family tremendously. So sometimes those people with the super genes and longevity in your family who actually might need it even more. But, yes, I certainly think that you need to think about certain conditions that you may be susceptible to, and that should really be a consideration but not necessarily dictate how much coverage that you need. Unfortunately, there's no crystal ball. And to me, the long-term care planning is really all about balance.

00:04:43 - Cameron Valadez
Right, I would agree. And wow, 98, 97, I mean, high 90s. That's incredible, actually. And, yeah, like we've mentioned before, you may not see that super gene in your family history, but you never know. As our health care gets a lot better and we have a lot more advances in medicine and things like that, there's a chance that you, too, could live a lot longer than you expected or some of your other family members. So definitely keep that in mind, and don't just assume that you're not going to live that long and so you won't need any care.

00:05:16 - Eileen Dunn
Now, that's very true, Cameron, I don't know if I told you this before, but I actually grew up in a nursing home. My grandmother had one of those old-fashioned nursing homes in her house. So I remember 90 year olds, 50 years ago, if you lived to age 90, you had good genes. Now you live to age 90, and you're on a list of medications for things 50 years ago you probably would have already died from. So I do think that that's definitely something to take into consideration, as you said, just how far we've come in health care.

00:05:43 - Cameron Valadez
Yeah, great point. I agree. Okay, so let's get to step two here. Step two is to ponder your preferences. Picture yourself in something like a long-term care facility. What's your ideal setup? Do you want a private room with a flat-screen TV, room service, and even a personal masseuse named Sven? Or are you more of a social butterfly who wants to join the bingo club and rock some funky dance moves at the community center? Or maybe you're like most and would prefer to stay in the comfort of your own home and try to maintain your consistent lifestyle, your habits, and your hobbies. Regardless of what the ideal setup would be for you, I think it's important to know that not everything will go according to your preferences.
In those cases, Eileen, do you think it's a good idea to factor in maybe a year of stay at an actual facility in a semi-private or a private room, even if you prefer to be at home? Since we know that you can only receive care in your home for so long, if your condition gets severe enough, for example, maybe factor in two to three years at home but then one to two more in a facility. What do you think?

00:06:57 - Eileen Dunn
Yes, I do. But let's first define a long-term care facility. When we say long-term care facility, that usually refers to what we call an SNF or a skilled nursing facility. Assisted living facilities are actually considered home and community-based settings, not necessarily facility care. But you are definitely correct that having the long-term care insurance. Absolutely. And that's the main goal for people is they want to stay out of the nursing home and stay in the most homelike setting, whether that's your home or an apartment in an assisted living facility, that kind of thing. And the other thing is that most assisted living facilities now have what we call extended assisted living or enhanced assisted living. So that allows you to stay there even longer. But a lot of times, because care is on a continuum, people often sometimes do have to migrate to the nursing home for a year, maybe two. That is kind of a rule of thumb. Consider yourself in a facility for maybe a year or two. But certainly, to me, the most important component is the home care and assisted living component.

00:08:03 - Cameron Valadez
Right? And like we mentioned before in previous episodes, I think a lot of people underestimate the fact that a lot of them will probably stay in their homes, or at least at first. And I think this is really interesting. I have a little statistic here, although it may seem intuitive to many people, but according to the American Association for Long Term Care Insurance, there are around 7.6 million individuals who currently receive care at home because of acute illnesses, long-term health conditions, permanent disability, or things like terminal illness. And by comparison, there are just over 1.8 million individuals in actual nursing homes. So what that statistic is hinting at is to not fall into the trap of thinking that you don't need long-term care insurance because you think it is only used to cover your care in a facility like assisted living or something similar. In fact, the insurance is more likely to help keep you at home and out of those facilities for as long as possible. Would you agree with that, Eileen, or should we be thinking about this differently?

00:09:18 - Eileen Dunn
No, I would definitely agree with that. The long term care insurance definitely keeps you at home longer, without a doubt. But many people will choose to go to an assisted living because, well, most assisted livings have what they call independent living as well as assisted living. And a lot of people, and I've gone through this many, many times with clients, they'll start out in the independent living because they don't want to have to deal with home repairs, maintenance, all of those kinds of things, cooking, all of that. So they move to the independent living. Then as their care needs increase again, that continuum of care, they may move to the assisted living side. And I really think that that gap between the home care number of 7.6 million and the nursing home number of 1.8 million really does have to do with several factors. First of all, the explosion of assisted living facilities and enhanced assisted living facilities. When I was working in the hospital as a discharge planner, I wish there had been more assisted livings at the time. So I think that's a key factor. And, of course, healthcare delivery has changed significantly, so I think all of those factors have to do with it.

00:10:27 - Cameron Valadez
Great. Yeah. Thank you for sharing that. I have heard that there oftentimes are people waiting to go from home care to a facility just because there's not enough room at the facilities nearby. There just hasn't been enough. But yes, I have seen that there's been quite an increase in the number of facilities lately.

00:10:46 - Eileen Dunn
And I'm seeing, Cameron, that the nursing homes now, in many ways, are becoming for the sickest and poorest because face it, most people go to the nursing home when they've run out of money because they want to stay in their assisted living facility or they want to stay at home. But when you need the care, people don't work for free. So it's usually the last resort.

00:11:07 - Cameron Valadez
Okay, now let's move on to step three, which this is kind of where we start to get into the meat of things and how to determine actually how much care do we need and how do we put this together. And step three is to crunch the numbers. In this next step, you want to evaluate the potential cost of long-term care in your area. You don't want to be caught off guard when those bills start piling up. And trust me, they can stack up faster than a game Jenga. And just to give you an idea, the cost of home healthcare services, for example, has risen about 44% since 2010, with national averages exceeding nearly $62,000 per year in 2021. I say 2021 because I haven't seen any updated numbers from 2022 yet, and the average number of years people need that in-home care is around two to three years. And without even doing all the math yet, I'm sure you're cringing right now at some of those numbers I just spit out. Long-term care is no joke. You don't want to be Jenga’d out of your life savings. So do some research on the average cost of long-term care facilities, in-home care services, and even adult daycare programs in your area or the area you plan to retire and relocate to if that's the case. Simply get an idea of what you may be facing down the line.

Eileen, I've heard and read many things recently that say the average amount per year for in-home care is something to the tune of 62,000 per year, like I just mentioned. But obviously, this depends on how many hours a day you need care, how many days per week, which most people don't even think of considering if they haven't been through something like this. And obviously, you also have to look at the area you live, of course, because the cost is different in different parts of the states. So since you deal with this directly on a daily basis, can you give us some context on this so we know what to factor into our cost assumptions?

00:13:10 - Eileen Dunn
Yes, and I think that you're correct around the 62,000 a year for home care. However, I really would question the two to three years of home care. I'm usually with clients for at least three to four years. I have a client now, that I've been with her for six years. I have another one that I've been with for twenty years, but that also includes the time that I spent with his wife. Started with his wife when she had Parkinson's, and that went on for about five years. Then we had a little bit of a break, and for the last six years, he's been needing care.

He's now 94, and we have to have two people here 24 hours a day because when you look at those statistics, there's a lot of numbers that they just don't have. Those stats are usually coming from home care agencies, but there's a lot of care that takes place by family members before that. And I've seen some statistics that the average length of home care is actually eight years. When you start with just needing some assistance getting to the store. Some of those homemaker services that we talked about in the last episode. And a lot of times, families and friends will pitch in, or they'll just do independent caregivers because they might need it just for a few days a week. Once the care needs increase and they have to call the agency, well, that's when your statistics will start. But I always say what happened before that? What kind of care went on before that?

00:14:34 - Cameron Valadez
Is there a typical amount of hours per day that someone needs care? Obviously, that probably depends on if there's a family member helping out or not. Also, do you see a trend in different costs when it comes to states or areas of the US? Where care is definitely more expensive than it is over here?

00:14:53 - Eileen Dunn
Typically, and this is by far the amount of care that I put in place for most of my home care clients in the beginning. And it's usually six hours a day of care, and that means three hours in the morning and three hours in the evening. But when we look at what we actually mean by care, sometimes people think that that means somebody physically attending to you, but not necessarily. We have somebody that comes in. I have a case right now where it's a husband and wife. A girl comes in from eight to eleven. She'll throw in the laundry. The wife has already gotten the breakfast, but then she helps the husband with his bathing and dressing in the morning grooming. She gets him through the lunch hour. And I'll make sure the beds are done and cleans up after lunch. There's three hours right there. Then they're fine. We have somebody else that comes back from about five to eight. She'll put away the laundry, gets him through the dinner hour, helps him back into his nightclothes, does the evening grooming, makes sure the meds are done, gets him through dinner, cleans up after dinner. There's another three hours right there. But that's just basic care. And that's the type of care that can go on for quite a long time. And sometimes that's great if family members can help. But you have to remember most of these people, their adult kids are still working if they even live in the area. So they might be able to pitch in on the weekends, but a lot of times, they're not able to do that. In fact, that's why I have a job. That's why they call me because they need help.

00:16:18 - Cameron Valadez
Sure. So are things more expensive on the coastlines? So on the East Coast, in the New York area in California, I've often heard and seen that compared to our $62,000 a year statistic, I have heard some far bigger numbers with pretty similar care. Is that pretty accurate?

00:16:35 - Eileen Dunn
It is. I think most of the states are aligned with home care anywhere from twenty-five dollars to thirty-five dollars an hour. But if you're in a major metropolitan area like a New York City or San Francisco, or Los Angeles, I can see that those costs would be higher. But for most places, it is usually between twenty-five and thirty-five dollars an hour.

00:16:58 - Cameron Valadez
Okay. So I mean, someone could realistically expect to pay between, I don't know, five to seven thousand dollars a month currently for care, and that's in today's dollars, and that's what's important. It is critically important not to forget to account for inflation, specifically health care inflation, which has been known to rise higher and faster than most of the other goods and services that we use every day. Inflation is like that unexpected guest who shows up to your place and eats all your snacks.

One resource which I will include in the episode show notes today is Genworth's Cost of Care website. On that website, you can change a lot of these different variables that we've been discussing and get an idea of what it may cost you on an hourly, daily, monthly, or annual basis in your area. You can actually put in your zip code. And I have found this tool very useful for planning purposes, especially when also having to factor in inflation. You don't really need to do that math yourself. You can put it right in there and pick what level of inflation you want.
Eileen, do you know of any other resources or ways that people can get a good idea of the exact cost in their area or just, like, an average, other than experiencing it themselves, or maybe if they're taking care of a parent going through this right now?

00:18:26 - Eileen Dunn
Well, I do think that Genworth is a very good one. But another factor I think that people need to consider is not just the cost of care, but there's many ancillary expenses that come along with this. In other words, just the cost of Depends. A lot of times, we have to use chucks that we put on the bed and supplements like Ensure. I have clients that go through several hundred dollars a month just on some of these, and they're considered non-medical, but they're also very important. We just had to pay $150 for what they call an alternating pressure pad for someone that you put on the mattress that kind of alternates the pressure so that we don't get sores if he's laying in bed too long. But there's a lot of little things like that and a lot of the equipment sometimes that you need. But there are places that you can go and find equipment like commodes and walkers and things like that for free. But you need to consider an extra couple hundred dollars a month for these ancillary expenses.

00:19:25 - Cameron Valadez
Yeah, that's really interesting. I'm glad you brought that up. I have heard that before, especially when it comes to like you mentioned, things like Depends. People were pretty shocked that they had to go pay for a lot of these extra things. And the long-term care wasn't necessarily covering that. It's covering the care, not these other items. Thank you for reminding us of that.

Okay, let's step into step four. So step three was, again, we need to start crunching the numbers, and we've given you some averages, but again, we can't get into specifics in our own situation and exactly what that's going to cost just yet. Step four is to analyze your assets or your current assets. Take a look at, well, not only your assets but your income. Take a look at your income and your readily available cash savings, your investments, and any other liquid assets that you may have. This will give you a sense of how much coverage you can afford. You can factor in the value or income-generating potential of some non-liquid assets as well. But remember, we don't want you to necessarily sell your car and live in a cardboard box just to pay for long-term care insurance. This may be the step that you decide to go get some outside help involved if you're unsure or have a fairly complicated situation. Step five is to consider your future income and tax situation. Are you planning to win the lottery? Invent the next must-have gadget? Or think you'll be receiving an inheritance from a family member? If any of those things happened, you probably wouldn't need as much or even any insurance coverage. But let's be honest, the chances of those things happening are rare or as rare as finding bigfoot at the grocery store. So, of course, try not to make those assumptions. You want to plan for worst-case scenarios and things that you can control. Even if you own a business, let's say, and think you'll be able to sell it or walk away and have someone run it for you while you collect a paycheck. Don't rely on that going so smoothly. Things like that don't always work as expected, especially last minute. Trust me, I've seen it.

One thing to keep in mind, though, is that while your future income may go up or down for whatever reason, so will your tax situation, which may add or subtract money from your wallet, which of course, will also affect what you can afford in terms of insurance. What's even more interesting is that even if there is no significant change in income, if you go on a claim and pay any medical or long-term care expenses out of pocket, meaning that the portion of the care that a long-term care insurance policy is not going to be paying for due to being slightly underinsured, for example, or having to afford those things we just mentioned. Those expenses may be partially deductible on your tax return, depending on your income. We mentioned this slightly in more detail in our last episode. Again, this will depend entirely on your situation, and you'll want to consult with your tax professional to know the specifics of your situation. If, on the other hand, you want to have a really good idea of what this could look like when putting everything together so factoring in changes in income taxes, cost of care, et cetera, then consulting an experienced financial advisor or planner that truly does comprehensive financial planning might be a good idea.

Okay, moving on to step six. This is where we really get into the meat of things. This is calculating what I would call the insurance gap. So this is basically going to be the difference between what you need and what you have. Once you have these three pieces of information, the cost of care in your area, the desired duration of coverage. So you could say anywhere between four and five years, for example, at X amount of days a week, and you know, your personal assets and resources, subtract those personal resources from the estimated cost of care over that desired coverage duration. This will give you your insurance gap. If it doesn't, you may be able to self-fund a long-term care event without using insurance. And try not to be too surprised, as it will probably be a really big, scary number. As you can see, the math is fairly easy. It's getting everything together and making sense of it that takes some time. So once you've calculated this and you have an idea of what coverage you need, you'll then, of course, need to look at the cost of your coverage gap and look at the different types of the policies that can get you this level of coverage.

Now again, we discussed this in part two of this series. If you didn't get a chance to listen to that episode, I will put a link to it in the show notes. Now, if you're ahead of the game and may already have some long-term care insurance, you'll want to factor in those existing insurance policies, of course. If you know you have something, but you're not 100% sure exactly what it covers, find it ASAP. And don't forget to read the fine print. Some policies may have limitations or exclusions for long-term care specifically, so be sure to check with your insurance provider. I cannot tell you how many times I've heard someone tell me that they have long-term care insurance they got a long time ago, or say that they have it through their employer and then it turns out to actually be disability insurance, or that they actually lost the coverage when they retired. Take this seriously. Find out exactly what you have and request a copy of the real policy directly from the insurer. Eileen, I'm sure you've come across situations like this as well.

00:25:13 - Eileen Dunn
Oh, yes, I have. Particularly with employer-sponsored plans. What had happened is a lot of times, especially in the beginning, these people would go in and say, oh, you're going to get this discount, and look at this, it's only going to be thirty or forty dollars a month, and you'll have this long term care coverage. But the problem is, these people were really never properly educated about what long-term care is. And I think the result is they have a false sense of security that they actually have coverage. But most of those plans did not include the very important inflation factor. So they might have bought this thirty years ago at work and maybe had $100 a day, but with no inflation factor, that's still all you've got. But another thing I wanted to point out is that if you do own a business, your business can actually buy your long-term care insurance. And I think that that's very useful. Sometimes when people talk about self-insuring, I always say, why? Because why wouldn't you transfer some of that risk?

00:26:11 - Cameron Valadez
Absolutely.

00:26:12 - Eileen Dunn
And the other thing is that the benefits are non-taxable. So when you start receiving your benefits from your long-term care insurance, if you have to start pulling that 62,000 a year that we talked about out of your investments, well, that's going to be a taxable event. But if you have a long-term care policy that's going to cover some of that, that's going to decrease your tax. So that's a good thing too.

00:26:34 - Cameron Valadez
Yeah, absolutely. I would agree. And, of course, the cost of any insurance will also either have to fit into your monthly budget, so we're talking the premiums that you pay, at least while you're not on claim. Or, as an alternative, you'll need to see if there is maybe a lump sum portion of your liquid assets that you can dedicate towards your long-term care coverage shortfall specifically, which you can also use to purchase long-term care insurance if needed. Again, we did discuss this in our last episode, and when we were talking about some of the more common types of policies that are out there and how they're funded. So again, if you haven't heard that one, be sure to go back and check that out.

One other thing you'll definitely want to consider is that most policies will have a waiting period or an elimination period where you won't be able to start getting reimbursed or payment from the insurance companies until that time has lapsed. This is typically something like 90 days, but not always. Some types of policies will allow you to choose within a range of time periods. However, shorter elimination periods will likely cost you more since you will be in the insurance company's pocket sooner. So during this time period, you may have to plan to pay for initial services out of pocket. So be sure to keep that in mind when doing your planning.

So if we were to sum up the last few steps that we just went over, here's what that would look like. At the most basic level, the formula is to take the average cost of long-term care in your area, add in a healthy dose of healthcare inflation, I'd say four to five percent, subtract any existing coverage from other insurance policies, specifically long-term care insurance policies, sprinkle in your own financial situation where you have room to supplement the costs or the premiums for insurance, consider your health and family history, voila! You've got a rough estimate of how much coverage you might need. You'll never get the number dead on, so don't think that you will. It's not black and white.

Now, I want to run through a basic hypothetical example to help illustrate this and make it a little bit easier to understand. And remember, this is just a starting point to determine whether or not someone would want to look into insuring. So meet our fictional friend Joe. Joe is 55 years old. He loves working around the home and in his yard and making it the best-looking house on the block. And he also loves watching golf and football on TV. And while he dreams of retiring in a tropical paradise like most of us, he also acknowledges that he would be perfectly happy staying in his current situation, if possible, at home. So let's break down how Joe can figure out his long-term care insurance needs. Joe takes a look at his family history. His parents bless their souls, they had a fair share of health issues as they got older. Joe realizes that he might have a higher risk of needing long-term care in the future, and he doesn't want to have to be shipped off to some facility and loses freedom and his dignity. So he decides to proceed with determining his insurance needs.

Joe imagines himself at home with some occasional help from someone helping him get things done, like getting ready for the day, helping with medications, laundry, and possibly some cooking. He estimates that such a setup might cost him around $7,000 per month, which is pretty much in line with what we talked about previously. And Joe wants to plan for a minimum of three years of help and makes an assumption that there is a high probability of him needing care starting in his early eighties. Joe grabs his calculator and does some quick math. He multiplies the monthly cost of $7,000 per month by the number of months 36 months, representing the three-year stay, to get a total minimum cost of $252,000 or $84,000 per year.

That's how much Joe would need to cover his preferred long-term care setup for three years in today's dollars. Now let's analyze Joe's financial situation. He currently has 100,000 in non-retirement savings and investments, which is a combination of stocks, CDs, and cash, along with an IRA, a pretax IRA with another $150,000 in it that, again, has not been taxed yet. It's pre-taxed. He also owns his home outright. Joe's crystal ball doesn't show any lottery winnings or inheritance from his parents, so he can simply rely on his existing assets and his income. Joe also considers his future income. He plans to retire in five years and estimates that his retirement account is expected to provide $1,000 per month, or $12,000 a year in net income. So net income is after tax. Joe also has an expected net Social Security benefit at age 67 of $2,500 per month, or $30,000 a year. He accounts for the potential increase in healthcare costs as he gets older and adjusts his estimate accordingly.

Therefore, Joe has around $250,000 in liquid assets and currently expects to have around $42,000 a year or so in income after considering his retirement tax situation. However, keep in mind that the value of his $150,000 pretax IRA isn't really 150,000 to him since the IRS and possibly the state in which he lives has their hand in the cookie jar as well. So for simplicity's sake, let's just reduce that 150,000 to 100,000 and let's back that into a total of 250,000 in liquid assets.

Although it may look like Joe has enough to cover the three years, there are a lot of what-ifs to consider here. He will have to continue paying for other living expenses, such as food, utilities, various insurance coverages like homeowners insurance, and things like property taxes, et cetera, so he's not totally out of the woods. Plus, the most important thing is that what if his care goes beyond three years? You heard Eileen give some examples earlier of folks needing care a lot longer than that, and we just don't know. So if we cut his income in half due to those expenses and he's left with, say, $21,000 a year in supplemental income, he will essentially need to start supplementing the cost of care with those liquid assets to the tune of about $63,000 per year. This will obviously eat into any other goals he may have, such as leaving some money and security essentially to a spouse or any kids.

Or maybe Joe suddenly needs to buy a new car six years down the road or wants to help out a grandchild with a wedding or college expenses. If we assume he does, in fact, want to leave a minimum of, say, 100,000 to his spouse, should he predecease her, and maybe $30,000 for a grandchild, that leaves him with roughly $120,000 in liquid assets to pull from that he can earmark for care. Now at $63,000 a year needed from that money, that bucket of money would run out in about two years, which would leave him a year short of his minimum and with a total insurance gap of around $132,000, assuming again that he only needs care for three years. In addition, this also assumes that the assets are earning a return that at least keeps up with the assumed four to five percent healthcare inflation for the next twenty to thirty years before he hits his early eighties.

When it comes to Joe determining that gap, he wants to ensure, for which is the $132,000 in this example, it will depend on the assumed return he can reasonably expect to receive on his investments, as well as his other goals. If he wants to be relatively certain that he will have enough, he should strongly consider even more insurance and pay for it with his extra monthly income or by setting aside some of the $120,000 in liquid assets. Again, specifically for long-term care insurance. I share this example with you because even if the numbers look like self-funding is possible, as in Joe's situation, be very careful about the other nuanced factors in your life or different possibilities and outcomes.

And that leads me to the last step, which is to seek professional advice. If this seems like an insurmountable task, we would suggest that you find a knowledgeable, reputable professional who can guide you through this process. Even if you think you are fully capable of doing this planning on your own, consulting a professional is often a good idea because they will likely see things that you don't, or worse, you don't actually end up implementing your own plan, and then it's too late. We talk about that a lot on this podcast. You can know everything there is to know, but if you don't implement and act, it does nothing for you. And so, a professional can serve as a second pair of eyes and be able to bring to your attention any other financial issues that may impact the plans that you have in place. For example, they may be able to show you the impacts on taxes if you were to fund most of your projected long-term care need out of pocket. Like Eileen mentioned earlier, long-term care insurance benefits are tax-free, but if you pay for it on your own and you're just liquidating assets, it depends on where that money is coming from. If it's coming from pre-tax retirement accounts, well, that's really going to change your tax situation. Or maybe they can even show you how the entire picture would change should your spouse predecease you or vice versa while obtaining care. And when it comes to the insurance component, depending on the advisor's licensing and the capabilities, they may be able to help you actually shop through the various different policy types that are out there and the different insurance companies that offer them. The right advisor should consider all the factors we mentioned previously and help you determine an appropriate amount and definitely the affordability as well of long-term care insurance coverage for your unique situation.

00:37:13 - Eileen Dunn
Cameron, I would definitely agree with that. I think that the advisor part is very important. You need someone who works with all the carriers and all the different types of policies that we've discussed earlier. I know some advisors say, well, I have just two companies that I like, I'm just going to work for, those are the ones that I know, et cetera, and that's really not the best approach. Financial advisors are financial experts, but they're not long-term care experts. You're not going to go to your cardiologist to have brain surgery, even though they're both licensed professionals. You want an advisor that understands what I call the human element. I think sometimes advisors focus so much on the dollars and cents they kind of forget that human element when you're looking at your overall planning. You have the financial element, you have the legal element, but there's also the human element.

What really happens when people need care? Because I will tell you that long-term care is not an event that happens to an individual. This is an experience that happens to the family. So some of the questions they want to ask is, okay, if I did need care, who would be able to provide it, and at what cost to them? So you really do have to take a look at that human element. And I think a lot of times it's good to review everything you have because if you have somebody that's paying for a long-term disability policy and they're in their early 60s, well, the question then is do I need the long-term disability or is long term care because long term disability will end at 65. Maybe they would want to transition that premium into a long-term care insurance premium.

The other thing is taking a look at your life insurance policies that you currently have. Are you in a position now in life where you really don't need life insurance, but you need living insurance which would be the long-term care? So those are all the things you can kind of determine. But I also think it makes sense for people to work with their advisor and even say from the outset, based on my portfolio, what is a reasonable premium for me to pay? Then you can back out and get the most bang for your buck. Let's say you have someone that has $300 to $500,000 in assets and that's generating 5% $15 to $25,000 in interest, and they usually just reinvest that. Well, that whole portfolio is exposed. Would it make sense to then maybe use three to five thousand of the interest that it's generating, buy the long-term care insurance that then protects the whole thing, and then reinvest the rest?

00:39:50 - Cameron Valadez
Yeah, absolutely. Those are all phenomenal inputs. And I specifically like the one about, hey, look at the other things that you're paying for and try to understand why you're paying for them. And should you just because you have a life insurance policy or something that you pay what you think is a decent rate because you got it ten years ago? Well, you need to assess whether or not you still actually need it. And again, what's the likelihood that you continue living at least into your early eighties versus passing prematurely? Right. And so yeah, I think people really need to understand their cash flow and take a look, and again, if you end up not needing these different insurances or other things that you pay for, you can then use that money to reallocate towards a long-term care policy. So yeah, all great input.

00:40:44 - Eileen Dunn
I've had a lot of people that have had these life insurance policies, and they have a lot of cash value built up. They had that so that if something happened to the spouse, the house would be paid off, college would be paid, those kinds of things. Well, the kids are grown now, the house is paid off. You can also use that cash value of the policy to help buy the long-term care insurance with the 1035 exchange. So that's another helpful piece.

00:41:10 - Cameron Valadez
Yeah, absolutely. Well, I think we've covered a lot today. We know that this can seem quite daunting to plan for, and it's not an exciting thing to plan for. It's not like planning a day at Disneyland or something, but the numbers speak for themselves. This is why we say the cost of long-term care can be everything you own and often is if you don't plan ahead.

Eileen, thank you again for educating our listeners and providing your unique insights. We really do appreciate it.
Stay tuned into this series because, in a couple of weeks, we will return with part four, where we will discuss the claims process and how the claims process works for long-term care insurance when you eventually begin needing care. Eileen has first-hand experience and insight with the realities of this step. She lives and breathes this every day, so be sure not to miss it.

If you have a minute and find this information actionable and insightful, and you want to stay up to date on the latest and useful retirement planning content, please subscribe to or follow the show on your podcast app. If you'd like to learn more about the rules and strategies discussed in today's show, you can find the links to the resources we have provided in the show notes on your podcast app, or you can visit us at retiredishpodcast.com/20. There you can also sign up for our monthly Retired-ish newsletter, where each month, we discuss money and emotions, investing, tax, estate tips, Medicare and Social Security, long-term care, and even a brief discussion about the current markets in layman's terms. We always include something actionable in our newsletters so that you can implement them right away, such as how-to guides and other simplified strategies. Again, this can all be found at retiredishpodcast.com/20. Thank you for tuning in and following along. See you next time on Retired-ish.

00:43:22 - disclaimer
Eileen Dunn is not affiliated with or endorsed by Planable Wealth.
Securities and advisory services are offered through LPL Financial, a registered investment advisor, member FINRA, SIPC. The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

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