Navigating Long-Term Care & Estate Planning

12.6.24: Audio automatically transcribed by Sonix

12.6.24: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker1:
Welcome back to the federal retirement Show. I'm your host, Val Majewski with American Benefits Exchange. As always, I appreciate you taking the time out of your busy schedule to view our content. Learn about the tips and the the trades and the things that we believe you need to know as a federal government employee. Because just in my experience in working with folks like yourself, this is not provided to you when you first get hired. It's not generally provided to you during the course of your career. And the folks that I have the pleasure of speaking to, or presenting to or giving, uh, retirement benefit analysis to, they're extremely grateful that we're able to share this information. So really, thank you for showing interest in this and viewing our content. Now today, I want to share with you a couple of things that have come up in the course of my conversations with federal government employees and going over their benefits and retirement information. The first thing that we're going to talk about today is long term care and the federal long term care insurance program. If you've not seen a recently, this year, the long term care program that's provided to you by the government, um, was suspended, meaning there were no new applicants, no new applications taken, no new enrollments taken for this program. And it has been continued throughout the year and was just said that it was going to continue. The program was going to continue to suspend new enrollments going forward.

Speaker1:
Now, what does that mean? It means that the long term care insurance program and its carrier, John Hancock, they're trying to figure out if this is really a sustainable program. That's in my opinion, they say something slightly different. But I'm going to say if it's sustainable, meaning long term care claims have been through the roof, long term care policies in general on the group side and also on the private sector side, there have been very tough to get because of adverse claims experiences, meaning companies are paying more out in benefits because increased medical costs and the care, the cost of care that it takes, that it's really not sustainable, meaning profitable for these companies. These are not charities. These are for profit companies. So they want to make sure that it's beneficial and that they can continue to pay benefits and that it's profitable for them. It's worthwhile going through with it. Now, what does this mean for you if you if you need or want to look at long term care as an insurance benefit, then you're going to have to go outside of the federal government because you're not going to be able to currently enroll in the federal long term care insurance program, um, because it's suspended. So there are a lot of different options if you want to provide long term care insurance for yourself, which is actually a benefit for your loved ones. And so you're not a burden on them, and that your medical care costs are not a burden on them.

Speaker1:
And there's a lot of ways in which you can provide that protection. Now, first I have to say, long term care in general is is has been more difficult to get from an underwriting perspective, because if you're not healthy now, well, it's a lot tougher to get that insurance right. It's it's the insurance you got to get before you need it. Because once you need it, you're probably not going to be able to get it. I ran into this problem when I first got into insurance and financial services. I was not working in the federal market at this time, but I was trying to help my grandmother, and my grandmother was in a situation where she needed some help, you know, with long term care insurance. But it turned out that she was too far gone already. She was already diagnosed with several things that prevented her from getting long term care insurance. So I realized now that she needed it, she could no longer get it. So. Long term care in general is something you need to prepare for. Plan ahead. For most of the time, the people that see the, the value of or the benefit of long term care insurance are those that have gone through a long term care type situation. As I was just describing with my grandmother, I saw that she needed to have a long term care insurance plan, but she did not have one in place, and she had a 24 hour live in person for several years before she passed, and she was draining her own personal assets to pay for that, because she did not have an insurance program that was paying for that.

Speaker1:
So again, when she needed it, she couldn't get it. And since and if something you want to get but you can't because the federal government has suspended and the long term care insurance program provided by LTC feds, it has been suspended. And where do you go? What do you look at? There are outside plans that you can look at, private plans that you can go to. And these are things that we can assist with. You just reach out to us, go to our website federal retirement show.com. You can fill out the form, we can be in touch and we can go over these things. But there are ways that you can get not only long term care plans, standalone long term care plans. If that's something that you want to inquire about or get put in place. There are also combo plans out there, right? There are plans that are life insurance and long term care combinations. There are plans out there that are asset based. We've talked about this before on the show asset based long term care plans, where you take a a lump sum of money and you can convert that into long term care benefits. So that way it's not a use it or lose it type of benefit.

Speaker1:
It's a way that you can hold on to your money, but also utilize that to pay for some long term care down the road. There's long term care alternatives like living benefits. You know, things that are critical illness, chronic illness, benefits that you can get that are not true long term care, but they're long term care alternatives. Now, why do I bring this up? Because federal employees that I've talked to that are interested in this now understand that they can't just go to the federal long term care insurance program and get a benefit put in place or tried to enroll because enrollments are suspended. So where do we go? You've got to look outside. And who do you talk to? You got to talk to somebody who is an expert in long term care and long term care alternatives, and we can provide that to you. So if you are interested in that, if that is something that you are thinking, man, I really want to get this put in place. I really want to provide this benefit not just for me but for my family. So I don't become a burden on them if I become sick or if I need this type of care, then you want to make sure that you know all the options. In the end, if you decide are the the the cost is not worth the benefit or you know the value is not there, that's fine, but you need to know everything that's there.

Speaker1:
You need to see a plan. Put together a plan designed for you to determine if it's the right thing to do. Now, when should you put this in place? This is, you know, subjective, right? But I would say at least 50 and later, maybe even before, but let's say around age 50 start looking into these things. Because again, once you're at a point where you no longer qualify, then you're not going to be able to get this, um, type of coverage, or you won't get as comprehensive of coverage that you'd want to if you were or that you'd be able to if you were in better health. So it's kind of like life insurance. The younger you are, the healthier you are, the better it can be, the easier it can be to put something like this in place, but just understand it's something that I believe everybody should look into. Whether or not you move forward with it, that's up to you. But you should know all of your options. It's not something that you're generally educated on as a federal employee. It's not something that you get a whole lot of information about. But if you've been through a situation where a relative, a loved one, a friend went through a long term care type scenario. They needed to go into a facility. They needed somebody to come to their house and live with them. They needed to have an in-home care several times per week, and they did not have something in place.

Speaker1:
And you know what I mean by needing this coverage, right? I told you the story about my grandmother. I understand, because I've seen this firsthand, that she had to come completely out of pocket, where in her case, the plan would have paid a daily benefit to this, live in aide this live in person, and she would have paid pennies on the dollar for that coverage rather than coming completely out of pocket. So long term care insurance program from the government continues their suspension of enrollments. If you're interested in that, you're going to have to look outside, look at traditional long term care combo long term care plans or long term care alternatives. Number two topic that I want to talk to you about today has to do with taxes and retirement. And more importantly, the question I've been getting asked recently and this was by numerous federal employees, is is it more beneficial to put money into traditional type plans, like the traditional bucket of your TSP or traditional IRAs, or into the Roth side like your Roth TSP or Roth IRAs or Roth IRA alternatives? Um, I'm going to give you my opinion. Now, really what this came back to is should I pay taxes now or later? Now or later? My opinion, and this is again my opinion. I don't want you to take this as this is what Val told me to do.

Speaker1:
But what is my opinion? My opinion on this is I like to have as much tax free money as possible for my future. I know not everything is going to come out tax free, but as a federal employee, you're going to have a pension, you're going to have Social Security. Those things are going to be taxed at least federally taxed in some way, shape or form. You are going to have a taxable portion of your TSP because all of them, the automatic contributions and the matching funds that goes into the traditional portion. So where the concern has been is taxes in retirement. How do I mitigate taxes? How do I eliminate some of my tax obligations in retirement? Well, you've got to have tax free money. You've got to have tax free accounts. The other question comes which way do you think taxes are going in the future. Are they going up down or are they remaining the same? The the majority of people that I talk to say that taxes are going up in the future. Very few will say they're staying the same. And nobody has told me that they're going down. You've heard us talk about this, but the question of getting asked is, you know, what should I do? Should I put more money if I'm going to put more money aside for my future? Should I put that money into taxable or tax free accounts? And in my opinion, no matter which way taxes go, I know 100%.

Speaker1:
If my money is tax free, I'm not going to be affected by it. Taxes could go haywire. The more tax free money that I have, the less care I'm going to have on which way taxes go. Why? Because it doesn't matter to me. I know all that money that I'm saving that's earning interest, that's growing for my retirement. If it's in a tax free type account, it's not going to matter which way taxes go. That is not a worry. That is not a risk. That is not a fear that I have in the future for that portion of my money, because I know it can't be touched. I've already prepaid the taxes. Now I'm putting it in a place where it can grow. It can grow in a tax free basis. It doesn't matter which way taxes go. So that's my opinion on it. Now, when you look at the facts, though, there's an analogy. I asked people all the time, you know, would you want to if I'm going to ask you your opinion, would you rather pay taxes on the seeds or the harvest? Would you rather pay taxes on the seeds or the harvest? Let me explain. How does it work when I do put money into a Roth IRA or a Roth TSB, or a tax free type account? I pay tax on those dollars today. Those monies go in after tax. I've already paid tax and they hopefully will grow to several times the amount of the money that I've put in over time.

Speaker1:
Then when all that money comes out, it's going to come out tax free. So I pay tax on a little. The seeds and the seeds grew to the harvest. They grew to the big amount. I look at it like a popcorn bag. Right. You've got the little popcorn kernels in there. It's a very small bag. And then those popcorn kernels grow and boom, this bag is now huge. It's all puffed up. That's the way I look at my retirement account. I'm paying tax on the kernels, on the seeds. And now they grow. And I've got this big explosion of growth and all that interest that I've earned over time is going to come out tax free on the other end. I don't care which way taxes go. I know that I pay tax on a little and it grew to a lot, and now I don't owe tax on that bigger amount. I don't owe tax on the harvest. Look at it the other way. I can put money into a traditional account and get a tax deduction on the seeds. I get a tax deduction today, meaning I don't no tax on the money now. But that money is going to go in and it's going to puff up and grow. And now I owe tax on every dollar, not only the money I put in there, but also the growth that I experienced in there.

Speaker1:
I'm going to owe tax on on all of that. So I like that analogy of saying, oh, well, I'd rather pay tax on the little bit, no matter what the tax rate is. Now, even if I'm going to be in a lower tax rate in the future, the dollar amount that I'm going to owe on that money in taxes is going to be a lot more, because I'm anticipating that growing and getting bigger. So I'd rather pay tax now on a little and have that grow to a lot and not owe any tax on that in the future, no matter which way they go. Uncle Sam, the IRS cannot take any of that from me because I prepaid the tax and I put it into an account where it's going to be able to come out on a tax free basis. So just understand how that works, right. And this also goes into proper estate planning. Not everybody thinks about estate planning because they're like, well, I don't have a huge estate, right. I'm not I'm not subject to this big inheritance tax or estate tax because we don't have that many assets. But true. But you're still when you pass money down to your loved ones, they're going to be taxed on it assuming it's in a taxable type account. Right. You've got your TSP and your TSP is in the traditional account. And you pass that down to a beneficiary. It doesn't go tax free. If it goes to somebody else beyond that it doesn't go tax free.

Speaker1:
They still owe tax on it. Somebody's going to pay the tax. Right. That's that's a that's a given. That's a guarantee. So we can look at it from an estate planning perspective on the tax liability that you're going to be giving your loved ones, right? Whether it's your kids, grandkids, your spouse, whoever, if you want to, uh, do them a favor by prepaying the tax now and having it in a tax free account, it's only going to help them in the future, too. It's reducing the tax liability upon your death that your loved ones are going to take on. So that can help with estate planning and mitigating taxes. Now we can't eliminate taxes entirely, right? There's if somebody said, hey, we're going to eliminate tax. Well, we've we still have to pay tax somewhere, but we're going to mitigate the taxes. We're going to try to manage the taxes. We're going to try to limit the amount of taxes that we pay on our money, especially if it's money we're taking a risk with. Right. Imagine that. And I've talked about this before. You put your money into TSP. Let's say you put it all into the traditional account and you take the risk over time. And that risk pays off. And you earn so many more multiples in interest than what you put in. Your money grew ten times the amount. 20 times the amount that you put in there.

Speaker1:
You took all that risk. The government says great. Congratulations. You did a phenomenal job taking all this risk and making this awesome investment and seeing your money grow, grow, grow, grow, grow. That is so awesome. Congratulations. Now you're going to owe us a lot more taxes because your account has grown so much. What if you just said, hey, I'm just going to pay you on my deposits? That way you can't touch my rewards. That's the way I look at it. I'm going to pay you on my deposits. You can't touch my rewards. Whether whether I do great or I just do a little bit or whatever. You're not going to be able to touch that. And that's the way I look at it with tax free dollars now. There's a lot of different options that you could choose. If you want to put money into a place where it's not going to be touched by the government, no matter which way taxes go. It's not going to be touched in the future. Excuse me. The first thing is going to be TSP. Okay. Your your Roth bucket on your TSP that you can put into this is not a Roth IRA. You can put up to the limit the TSP contribution limit. You can put that amount completely into the Roth, including catch up contributions. You can put that into the Roth. Some people look at that and say yeah okay I might do that. You can look at outside Roth IRAs.

Speaker1:
Now the good news is you can have both. You can have both the Roth TSP and contribute the max to that and contribute the max to a Roth IRA as well. That's also a tax free bucket. Something you can have outside the government. There's a lot of different vehicles that you can utilize for a Roth IRA. You need help with that? Again, reach out to us. We can point you in the right direction. There are also ways that you can say, okay, okay, I put a lot of money aside in traditional investments. I did not utilize Roth. I don't have a whole lot of time left before I retire to contribute now to Roth buckets. What do I do? What can I do now? That's where you can do Roth conversions. So if you have a lot of money that's in traditional, either in a traditional IRA or the traditional bucket of your TSP or what have you, you can convert that money to Roth. The problem is, the only negative part is you need to pay the tax on that money. So once you pay the tax on that money, you now own that tax free. You've prepaid Uncle Sam, you've gotten him out of your pocket. And now all that money going forward is tax free. The problem with the Roth conversion you have to pay the tax. So whatever amount you want to convert, you've got to pay the tax on.

Speaker1:
And then going forward it's tax free. So if you're willing to do that you can convert traditional money which is got a tax liability to it to Roth money. And boom. Now all the growth that you're seeing going forward is, is tax free. We've talked about this in other other episodes. The other side of it is what I would call a super Roth, or what some do call a super Roth, or the best retirement strategy you've never heard of. And it is using a properly designed life insurance policy as a Roth alternative the benefits of this all the money that you grow and earn interest in in a cash value life insurance plan, assuming it is designed properly, is going to come out tax free again as long as that plan is designed properly and still in force, all that money comes out tax free. Now, there's not a limit to how much you can put into it like there is with a Roth IRA or your Roth TSP. There's not a limit of how long you have to wait until you can access the money on a tax free basis. There's not a limit on, um, again, the amounts, the age and all of those things, plus the death benefit part of it, since it's a life insurance policy, goes to your beneficiaries tax free. And it's a lot more than the cash value that you have in the plan generally. So you're giving your your death benefit or your your heirs better value.

Speaker1:
You're generating, um, potentially retirement income on a tax free basis, building cash value on a tax free basis. And that's why some would call it a super Roth, because it's not subject to those same guidelines like Roth IRAs. You know that the Roth IRA contribution limit. Um, the time frame to take the money out. Waiting until 59.5. The five year rule. There's a lot of things that are not part of utilizing a super Roth or a Roth IRA alternative, like cash value life insurance. That can be extremely beneficial. Now, which one of these is right for you? I don't know. Right. You can put into all of these things actually, but we need to sit down and review your situation. So going back to the beginning, if you're concerned about long term care and being a burden on your loved ones, uh, reach out to us. Let us run through some scenarios and see if a traditional or a combo plan or a long term care alternative is right for you. We'll try to get you the best value so you can put some coverage in place. That way, if something does happen, you're going to be very thankful that you have it. And that's the thing. Most people that think long term care in some way, shape or form is is a bad value. It's not a good investment. Um, you don't think that way when you wish you would have had that coverage in place.

Speaker1:
So it is one of those things if you don't need it, you want to make sure that you're getting value for it. It's not just money wasted, but if you do need it, you're going to be very thankful that it's there, because it'll help pay for those things that you don't want to come out of pocket for. Then on the other side, the question is do I go taxable or tax free, taxable or tax free? Uh, that's going to be a matter of your personal opinion. But mine I like tax free dollars. I don't like having Uncle Sam as my silent partner. Actually, not so silent. It's pretty vocal about it. Uh, in retirement. But I want to make sure that I have enough tax free dollars so that I'm not subject to any extra taxes or additional tax hikes, or I'm not going to be at risk if taxes go up in the future with those dollars. I want to make sure some of it at least as much as I possibly can. Um, when it comes to my future, retirement income is not subject to taxes. So that tax risk of the rate going up or, you know, the the brackets changing, which increases my, my tax rate, it's not going to affect me at least with that portion because it's in a tax free vehicle. It's in a place where I've already prepaid the taxes. I've got an Uncle Sam out of my pocket, and I can move on with my life and retirement and not worry about those kind of things.

Speaker1:
So if you have other concerns, also, you can reach out to us, right? That's what we're here for. We want to make sure that you have the right information. You have all the variables in place and you know all the answers so that you can make educated decisions and put yourself in the best place possible. So today I'm just talking about long term care and taxable versus tax free. You know, which way should you go if you have other comments other concerns. Just reach out to us again. Federal retirement Show.com fill out the form. One of our reps across the country will be in touch. Go through your entire situation. Answer any questions you may have. As always, I appreciate you viewing our content. Thank you for checking us out for for watching all of our previous episodes. We have a lot of different, um, topics that we've discussed over the years that's there for your benefit. So take some time. Whether you're in the car, in the office, at home, making dinner, just listen to it. Fill yourself with as much information as possible. So again, that you make sure you ensure that you are in the best position when it comes to preparing for retirement and going through your working career. Again, my name is Val Majewski with American Benefits Exchange. Thank you for stopping by and we look forward to seeing you on a future episode.

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