Understanding Asset-Based Long-Term Care

4.3.24 Asset-Based Long-Term Care: Audio automatically transcribed by Sonix

4.3.24 Asset-Based Long-Term Care: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker1:
Well, welcome back to the federal retirement show. I'm your host Val Majewski with American Benefits Exchange. Really appreciate you taking the time out of your schedule to learn about your federal employee benefits and retirement information. That's the purpose of this show. That's why we do what we do. So hopefully you found our content extremely valuable. I highly recommend going back and viewing a number of our previous episodes to learn the basics. And then we're going to dive into a topic today that I think is specific to a lot of you that you may connect with when it comes to long term care and and some of the reasons why we believe that you should be looking into this type of benefit, why it's important for you, your family, your loved ones. And joining me today is an expert in that. This is Roy Snar. He is the owner founder of Roy Star Retirement Solutions here in Texas. And Roy, really appreciate you taking the time to join us and have a conversation about your area of expertise. Yeah.

Speaker2:
Thanks so much, Val. I'm excited to help share some knowledge on long term care, the exhilarating topic that nobody really wants to think about.

Speaker1:
Well, that's true, right? We don't think about long term care or the need for this kind of, um, plan, or putting something in place until it's too late. Right. It's like that, uh, commercial Aflac commercial saying, hey, it's something you don't think about, you need until you need it, and then by the time you need it, it's too late. You can't get it. Exactly.

Speaker2:
You don't plan to fail. You fail to plan.

Speaker1:
Exactly, exactly. So you've you're understanding about, you know, federal employees and their benefits. You've worked with some of them in the past, uh, with your company. And you understand also, you know, we're having that conversation about the federal long term care insurance program, how they're not even taking applicants right now. They they've suspended their program. And why do you think something like that is why, as a company, you know, suspended applications is the long term care kind of that big of a deal that they don't even want to take any more people?

Speaker2:
Yeah, that's a great point. A lot of people ask, well, don't they want the additional premiums coming in? Like why would an insurance company not want to take somebody's money? Well, a lot of it is because they can't afford the payout factors, because an insurance company has to keep their promises. And the way that original long term care was underwritten and formulated, it was in a whole different world. Nobody thought that people would be as living as long as they are. They didn't think that they would need long term care for as long as they are. And in addition to that, it was a different interest rate environment. And so they also anticipated a lot more lapses in policies. So for example, a lot of the science behind it, the algorithms, they said, hey, look, the majority of people will end up canceling their term life coverage or outliving it. So we're going to base it kind of similar on that. But what they found out was most people were not canceling their long term care. They started experiencing family members that were going through it. They said, whoa, you know what? I better hang on to this thing. And so all of this was formulated in a different time frame. And so now the reason why a lot of these programs are ceasing to exist is because they don't have the money to pay out the claims in the future. So they said, hey, we can't take on any more. In addition to that, you'll notice, too, that a lot of the prices are increasing on current policies and some of the benefits may even be reduced. So it's a different time frame right now. But the good news is there are solutions outside of the group benefits where you can actually own long term care, protect your family and yourself without any type of rate fluctuations whatsoever. But those are served on the individual marketplace.

Speaker1:
Yeah. Then you're backing up just a little bit. I mean, I know my first experience with a long term care scenario was with my grandmother. Uh, she had Alzheimer's dementia. That's when I first got into the insurance world, you know, helping people out with, uh, Medicare before talking to federal employees full time. And I quickly realized, yeah, what? I thought I was going to be able to help my grandmother with. I wasn't able to she was too far down the road. You have a similar experience of where do you found an affinity towards long term care? And, you know, making this one of your your areas of expertise, what drew you towards that?

Speaker2:
Uh, great question. I've actually lived through it three times personally. So my whole background, my family, we were not in the financial services industry or the insurance industry whatsoever, but I lived through these experiences and they really affected me. I was like, wow, how can this happen? Why isn't it like this Medicare program paid for? Why didn't they have some sort of insurance coverage to help pay for these expensive services? Well, at that time, same situation. My grandparents were too old for me to even help them. But as I learned more about the industry, I was like, whoa, this is amazing. There are solutions out there for people, but nobody's talking about them. So we became one of the nation's leading experts in long term care to help thousands of people every single year protect their families through solutions that are not commonly marketed. You're not going to see a television commercial or Super Bowl sponsorship from an insurance company saying, buy long term care from us. That's not going to happen. It's the insurance industry leaves it to a couple nerds like myself that actually know. And understand it. And then it's our job to help distribute that education, to help the consumer know.

Speaker1:
And I understand the the need right to talk about it. But it's not something that people have in the front of their mind on a daily basis to say, oh, I got to make sure that I, I take care of my long term care needs. In the same way you get insurance for your car or your home or other things, you just do that because that's normal. That's what everybody does, and you've got that in place. You hope you never use it, but you're paying for it every single month, every single quarter, every single year. And when it comes to, yeah, protecting your quality of living your loved ones from being a financial burden, uh, down the road into retirement or when you get older, it's not something that people it's not as attractive, like you said, it's not this isn't the the, the highly talked about, uh, you know, much anticipated insurance that we want to use, but it's awesome when it's there for us in the end. Right. That's something. But we got to plan ahead, as you mentioned earlier.

Speaker2:
Exactly. I mean, nobody wants to think about a potential long term care situation. Like who's going to change my diapers in the future? That's not very fun, right? It's more fun to plan. What are we going to do this weekend? And a lot of people have the assumption that it may not even happen to them, but the statistics are there. Depending on which one you look at, it's anywhere between 50 and 70% of people will be affected by long term care, and the average stay on claim is close to five years. I mean, Alzheimer's and dementia is 6 to 8 years, Parkinson's is 12 years. And so with the advancement of medical technology, people are living longer, but they're living longer with chronic type of illnesses that lend them to needing long term care. And you have to think to yourself, I mean, a lot of people will say, I can just self-insure, I've saved my money, sure, but they don't understand the actual cost of long term care. Like even in today's marketplace, depending on where you live, it can be close to $100,000 a year for full time services. Just imagine what that's going to cost in the next 10 to 15 years, when a lot of these boomers and seniors may actually need the care coverage and so they have to ask themselves, do I want to work my entire life, build up this nest egg just to spend it all down on a health care system that, in my opinion, should be covering it, but it doesn't?

Speaker1:
Sure. And that's a big thing, is people underestimate, I believe, the cost of what that would be on themselves, on their families. Yes. You said up to 100,000 a year. I mean, I know people just don't want to live with the bare minimum and go into the, you know, the worst quality facility or worst quality care place. They're going to want to get the best care and live long in retirement, live happy in retirement. But they may need some additional help. And I know a lot of people immediately think, okay, long term care insurance. Um, that means that's facility care, right? That means I have to go into a nursing home. That means I've got to go somewhere and kind of be, for lack of a better term, an inmate. Right. In my old age. I don't want to do that. I'm not doing that. But that's not the case. I mean, there are plans out there that allow for people to stay in the comfort of their own home and get great care.

Speaker2:
Exactly. I mean, a lot of the reasons why people don't currently own long term care is ones nobody's ever brought it up to their attention or two, they have a preconceived notion that it's it's too expensive. Uh, they get to increase the rates the insurance companies never pay. It can cancel out on me, and I probably won't use it. And I don't want another bill. Well, nobody wants another bill. But this is literally the only bill that can help cover all of the future bills in the future. Right? And in today's marketplace, you can actually own long term care where if you don't use it, you can get all of your money back. If you change your mind, if you pass away, your family gets all of the money that you put in there, and sometimes plus more. And it's all 100% income tax free. And then if you happen to need it, then the dollars that you put in can be leveraged three, five, even ten times the amount of what you actually placed in there. And but best of all, you can use it however you choose. These insurance companies will literally pay you the cash for the family, and they can spend it however they want. They could. You could have your grandson pushing you around in Vegas and gambling all your money. They don't care. You just have to qualify health wise. So it's not like it used to be where you had all these cumbersome receipts and you're begging the insurance companies, please give me money. They have to review it all. The system has been a lot more streamlined, surprisingly, but also advantageously for the consumers.

Speaker1:
Yeah, it's not just a, you know, like you said, it's not a reimbursement program anymore and you can get better value for your money. That was a big stigma that when I've talked to people in the past, especially with the federal long term care insurance program, right, it's this is that that's a use it or lose it benefit. It is a a group style plan. You still have to qualify health wise, even though it's a group style plan with the federal government. Uh, but it was a true use it or lose it program. There was no equity built up in there. They did not have a return of premium type feature or anything like that. It was, hey, if I don't use it, what was I paying all this money for? But like you said, Roy, there's there are programs out there now. There are plans out there. It's kind of do you have the old long term care or the new long? Armchair that will give you better value whether you use it or not. So why not? Have you know the best of both worlds here, where if you do get into a situation which you hope not to, and you want to live long in retirement as a federal employee and, uh, not have to use anything, but if you do need it, it's there. And then, hey, if I don't use it, guess what? Uh, I've got the money and I can use that. Or if I use neither the long term care nor the money, my family gets it on a tax free basis. So somebody gets something here, like a transfer of wealth or a legacy thing. I mean, how do those how is that possible? How can these these companies do that? And how do these plans work, you know, to, to benefit, uh, the employee?

Speaker2:
Yeah. So the way they, they operate, basically the insurance company has an opportunity to hang on to your money for a number of years because in order to qualify, they know that you're you have to be healthy enough to get it. And then even if you're not, there are guaranteed issue plans that are state specific, but you're still opportunities that have guaranteed coverage on long term care. But on the the other asset based LTC that we're speaking of, the insurance companies has an opportunity to hang on to the money for, say, ten, 15 or 20 years. And so they base it all on the math. They say, okay, well, if you go in the claim, we're going to pay you back the money that you put in there first, and then we will come out of our pocket as the insurance company. And so they're able to make up enough profit to buy enough fixed assets to hang on to the money long enough that they can afford to do that. And the pricing matrix, they're all guaranteed today. And so when it comes to the asset based LTC, there's no hole the premium might increase or the benefit might decrease. It's all fixated. It's literally super boring. You see the numbers on the page today. They're going to be the exact same in the future. And that gives retirees confidence in knowing that, hey, I don't have any surprises in the future. I have either a fixed payment or I only pay for a few years, and then I'm all done with it, and I don't have to worry about it ever again. Because the biggest objection that usually occurs is people feel that they can self-insure and perhaps they can.

Speaker2:
But do you want to? You have to ask yourself if your home is paid off in retirement, would you not have homeowner's insurance? Most people say, well, yeah, I'd have homeowner's insurance. I simply answer, do you feel that it's more likely that you're going to get old and need help, or that your house is going to burn to the ground and they go, oh, that's a good point. And because long term care is going to happen to the majority of us, right. And if it doesn't happen to you, you're probably in the boat where you're taking care of somebody else, a loved one that is affected by it. I mean, it's a huge crisis that's going to really hit the country because the majority of people in the US, I mean, this year, in 2024, more people will turn 65 than ever before in global history. And if you think that 70% of those folks may need some level of long term care within the next 15 years, think about the supply and demand ratio. So it's going to get worse and worse. Moving on. This is why it's a prime opportunity to at least evaluate your options for coverage, just to see if it even makes sense for you. Ultimately, it's a personal choice, but for the majority of people that we work with, when we educate them on how the plan actually works, they try to get they try to do whatever they can to get as much leverage as possible while they can.

Speaker1:
Well, the the analogy that you make the comparison, I love that with people saying they want to self-insure. Right. So we're talking about federal employees and let's say they've got a ton of money in their TSP. Their their TSP millionaires. They've got it. They hope they never have to use it. And then next thing you know, they're saying, hey, I just I want to peel money from my TSP in case I'm in a situation like that. Like you said, I'm going to Self-insure. Right. And if depending on the type of care or, you know, the what happens in the market with their investments, I mean, that money can run out and then what do you do? Right? That's where you're you're kind of stuck saying, I'm self-insuring. Plus, at the end of spending it all, there's nothing there's nothing there, right? You got no extra value out of that money. But when you mentioned the word asset based long term care, the term asset based long term care we've talked about in previous episodes before, uh, just in general about what asset based long term care is, because most people think they've got to write a check every month to the insurance company for long term care. And most people don't want to do that. But how can they leverage or utilize assets they already have for this asset based long term care? I'd love to hear your description of what that is, what asset based long term care is.

Speaker2:
Sure. I mean, the insurance companies, they make it really easy to get a hold of your funds, so they give you multiple different options on how to create leverage within the portfolio. And then real quick stepping back one, one step here. Sure. If you're going to spend the money anyway, like a lot of people will have it earmarked. Right. They're going to I have 100,000 the portfolio or 50,000 that I'll let it grow safely, that I'll use that for long term care. You're going to spend that money anyway if you happen to need care. And we are big proponents of self-insuring because there's only two ways to do it. One way is with your own assets, without any leverage or any real tax advantages. That's unguaranteed. We don't know what the value of that portfolio is going to be in the future. Or the second way to Self-insure is through a leveraged, tax efficient manner that is guaranteed. And that's where asset based LTC comes in, because the insurance companies. They're not just going to give you free insurance, you're still insuring you're just doing it on a much more leveraged and tax advantaged platform than you are by trying to do it yourself at a money market account or a stock portfolio. Right? So it's all guaranteed.

Speaker2:
And so when it comes to long term care, there's really two options. You can do traditional long term care which is part of state partnerships programs a little bit more detailed there. But essentially traditional long term care has a premium that you pay either monthly or annually. If you pass away, there's no benefit to the family. They can increase the rates. And if you decide that you change your mind, there's generally not a return of premium option. Some of them have those features, but the biggest thing is, is that they can increase the rates. And we've seen that if an insurance company can do something, they most likely will, especially if it's in the favorability of profitability, they'll adjust it. So imagine doing the right thing, paying your bill for 15, 20 years, and all of a sudden you get a letter saying that they're going to increase it by 6,700%, because we've seen those rate increases before. Yeah. Versus the asset based LTC. What they say is, okay, it is long term care. But we're going to base it on a life insurance platform or an annuity platform. Right. And a lot of folks in the federal marketplace, they're already familiar with annuities. Right. They get a pension. That's the same thing. So there's a lot of varieties out there.

Speaker2:
It's just a product offered by an insurance company. But the value of having, say, a life insurance or an annuity platform, you get the guarantees. And if you pass away, your family receives the benefits. It's non probative because it's an insurance product. You have a direct beneficiary. And then you have uh, usually these insurance companies are over 100 years old and they're highly rated. So they're not going anywhere. And they can offer these strong competitive rates and these guaranteed coverages. Because if you think back, like if they're going to self-insure with 50,000, for example, or 100,000, what if you could take that same 50 and create 500,000 out of it, guaranteed and tax free for the purposes of long term care? They could do that. So when it comes to funding the policies, you can either pay annually or monthly. If you're a business owner, there could be tax deductions. Even on an individual level. There could be tax deductions on your long term care contributions. A lot of people don't know that you can use HSA accounts to fund them, so they make it very friendly, tax wise to get the policies, because the government doesn't want to spend the money. So they if they want to encourage you, they usually give you tax incentives to do so.

Speaker2:
Right. And so you can literally just pay monthly or annually, or you can say, you know what, I'm going to reposition some of my funds. I'm going to park it with an insurance company. Left pocket, right pocket, I'm going to park the 50,000. If I change my mind, I can get it all back. If I die, my family gets it all back. But if I happen to need long term care, that 50,000 could turn into, say, 500,000, depending on your age and how long until you need care. So it's a great way to leverage it. The really, if you look at it on the high level, the only real cost is opportunity. Could you have reinvested that same 50,000 and done better in the markets? Yes, absolutely. Sure. However, for the purposes of long term care, you cannot beat the math. And this is why we get referrals from some of the largest broker dealers and brokerage houses in the country, because they can't beat the math, and they refer business to us so we can help their clients protect their portfolio. I mean, we insure everything in life, right? But when is the last time we thought about ensuring our life savings? This is a way to help do that.

Speaker1:
Yeah, I agree on a number of things. You said basically everything you said, but the couple that stuck out to me was the leverage aspect. You know, you can turn said $50,000 where it's not going anywhere. You said just parking it in a different place instead of having to spend $50 on long term care down the road, now you've turned $50,000 into potentially 500,000 that could be used on a tax free basis for long term care. And as you mentioned, if you die, your family will get more than 50,000 in the tax free death benefit. And if you change your mind, like you said, they get that money back, which is great. But just the the thought also of well, yeah, what if I invested that money in the market? I had to take some risk to keep up with the math. And if I lost money on my 50,000, well, that's a bad deal also. So federal employees, federal retirees, most that we talk to are not in the risky mindset as they're nearing or entering retirement. Once they're in a position to start thinking about this stuff, they're not in that mindset of wanting to take too much risk. And there are some out there that still do, but this is a way to preserve, conserve, as you said, insure their life savings so it doesn't have to dwindle down in case they go through this scenario. And it's not an all or nothing deal. We're not talking about taking everything that they own, everything from, you know, their TSP or other retirement accounts and utilizing that for this kind of plan. But the bucket approach, it is good to take a portion of it and put it towards this or that. What if in life, right. They're not planning on needing long term care. Nobody really does. Nobody is excited to use long term care, like you said earlier. But they're. Grateful. The people that we've helped. Extremely grateful and extremely happy. And so are the family members that they have this in place when they do need it down the road.

Speaker2:
Yeah, 100%. I mean, hopefully you never use it. That's what we tell people all the time. I said, I hope you never use this thing. You just pass away naturally and your family just basically gets the money back. But if you do happen to need this, this is going to be one of the best decisions that you could ever make. I mean, think of it this way sometimes if I get resistance from folks on the understanding of the importance, I'd say if you were to go to a nursing home or assisted living facility and you were to do a survey and you asked everyone in there, hey, if you could go back 20 years, would you consider getting some level of long term care coverage? What do you think the majority of them would say? Absolutely don't have it. And so this is their opportunity to actually protect themselves and their kids, because a lot of folks that are getting into the retirement time frame, they have already experienced a long term care event with either their parents or a loved one. They already know how emotionally challenging it is and financially draining it can be. It's like, do you want to do that to your kids and your grandkids? Here's a way to help mitigate that risk. And a lot of times, once people actually see it, they understand the value of it. But most advisors out here, they don't bring it up because it's way more fun to talk about a lifetime income annuity or how much money you can earn in the markets and how you can travel to the Bahamas. But what if you get sick? I mean, if you just stop and ask yourself, how many people do you know that have developed some sort of a chronic illness in the last five years? You'd be surprised. It's like that. Hopefully that never happens to you, but if it does, at least you have some sleep insurance, some protection there. That way your family is not going to be financially strapped.

Speaker1:
No, I love it. You know, I think it's it is a conversation. It needs to come more, come up more often. Um, you know, representatives out there, if they're doing a holistic, comprehensive, they're doing what's right for the client. Uh, they're taking that kind of approach that it needs to come up. It needs to be a part of the overall plan. It doesn't have to be the entire plan, but it has to be a part of the overall plan. Because you said earlier, statistically, if people are going living longer and the longer you live, the more you have that risk of needing long term care, right? If everybody's life expectancy was 55 years old and people didn't start needing long term care until 65 or 70, well, okay, great. You know, the chances of me needing it are very slim. However, with people living longer, the longer you live, the more of that risk comes into play. Where I could need long term care. So, you know, that's the the big thing is why would I want to keep that risk on the table? And instead of having that attitude of, well, it's not going to happen to me, it might have happened to so and so, but I'm healthy. It's not going to happen to me. Well, things happen to healthy people, you know, get sick all the time. It's unfortunate, but it happens. So you're going to be extremely grateful, as I mentioned earlier, that you, the federal employee out there listening, has this in place in case something happens. Your family members are going to love the fact that they you have this in place. You mentioned earlier, you know, Roy, who's going to change the diapers, who's going to do this? People say all the time, well, my kids are going to do it well. Have you had the conversation with your kids?

Speaker2:
Do you want them to do it and you want them.

Speaker1:
To do it? Number one uh, or have you had the conversation? Are they willing to do it? Because I bet you if you sat them down, most would say, nah, I'd rather have somebody else do that for you. Um, let's put a plan in place where I don't have to be the one doing that or, you know, bathing you or doing things of that nature. So, you know, that's that's why we have this conversation. It's funny to think about, but in, in reality, in practice, it's not something most family members really want to do.

Speaker2:
Yeah, exactly. And then, you know, this this is why, uh, my business partner and I, Garrett Burrow, he, he and I wrote a book on long term care, became an international best selling book. It's on Amazon, but we give it away for free. So if anybody wants it, just go to the site, fill out a form and say, hey, send me that book. It's only 90 pages long, but inside of there I share my life experiences, my stories, and how it impacted me. High level breakdown of how the protection plans actually work. And if you're still on the fence about long term care, think of it this way if your, uh, homeowner's insurance broker called you and said, hey, Val, guess what? There's a storm that's going to hit your neighborhood. Might not happen for 15 years, might not happen for 20 years, and your house may not be affected, but there's a 70% chance that this storm is going to destroy your house and decimate it. Would you like to review your homeowner's insurance policy to get ahead of the game? Most people would be like, yeah, absolutely. Well, do you think it's more likely that your house is going to be affected by a storm? Um, maybe if you live in the coastal state, that's very relevant.

Speaker2:
But, you know, think of it this way about getting old, right? It's like nobody's having that. I mean, once you just explain it and share your stories and do simple comparisons there, it really helps people to understand the value of it, because we haven't been trained in understanding this. I mean, most people are taught, hey, just put money in the bank and put it in the 401 K, everything will work out. But our Medicare program is not going to cover all of the long term care. In fact, it's incredibly limited. And if you don't have anything and you have $1 to your name, then the state's going to come after and make sure you spend all that money down first. And then you might be eligible for Medicaid, a state run program. And most of the people we talk to, especially the federal employees, they've already worked for the government for a very long period of time. The last thing they want is to try to have them try to take care of themselves later in the future.

Speaker1:
Well, Roy, you mentioned the book. Uh, you mentioned the website, if people are interested. Hey, look, uh, this guy's an expert. He knows what he's talking about. Obviously, I want to chat with him. How did they get in touch with you? What's the website? How do they request a copy of the book? All of those things. How can they do that?

Speaker2:
Yeah, they just go to just type my name into Google. Roy sa s n as in NATO RR and then you'll see my website pop up other links. You just click on the site and then right there on the book section just say, hey, send me a copy on the contact form. It's really easy. We ship out books all the time all over the country. Uh, regardless of what state you're in, we work with pretty much every single state in the union, and that way you can get that information and at least get to learn something. It may not be for everyone, but at least you get to learn some non-biased advice and get some additional industry opinions on how this system actually works on long term care.

Speaker1:
Well, and I appreciate you making it easy to understand and fun because as we mentioned in the beginning, it's not the most attractive topic that people want to talk about. So, you know, if they if people can get your book, get an understanding, make easy to, uh, read, easy to understand, easy to comprehend, that would be awesome. So I'd recommend look, go to the website. Um, reach out to Roy, his team. They'd be happy to help and point you in the right direction, get you the answers that you're looking for, and just see if this is a. The good thing for you and your family, right? It's not a slam dunk for everybody, but you should at least have the conversation and look at all of your options, just like we've talked about on other episodes with other parts of your benefits. This is part of your overall package to make sure you're comprehensively taken care of. So Roy, I really appreciate you taking the time out of your schedule to share your expertise. Obviously, you have a passion for this and helping folks, but really, thank you for for joining us on the Federal Retirement Show.

Speaker2:
Thank you so much, pal.

Speaker1:
Well, everybody, thank you for taking the time again. I really look forward to seeing you in a future episode. Check out all of the previous content that we have out there. That is all for you. Reach out to us if you have any additional questions or topics that you'd like to see, and we'll see you next time. And.

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