Announcer: Welcome back, America, to Sound Retirement Radio, where we bring you concepts, ideas, and strategies designed to help you achieve clarity, confidence, and freedom as you prepare for and transition through retirement.
Now, here is your host, Jason Parker.
Jason: Seattle, Tacoma, Olympia, Gig Harbor, all the good people right here in Kitsap County, welcome back to another round of Sound Retirement Radio. I sure appreciate you tuning in to this little program. As you know, we are always looking to bring experts onto the program that can add real significant value to your financial life and especially with this topic. We’re going to be talking about healthcare costs in retirement today, which is a big deal. We have a couple of special guests that we’ll be bringing on the second half of the program.
This morning, though, I have the good fortune of having my friend, Dean Schennum, in the studio with us. Dean, welcome back to another round of Sound Retirement Radio.
Jean: It’s really a pleasure to be here, Jason.
Jason: To talk about one of your favorite subjects, Dean, healthcare costs in retirement.
Jean: Oh, my! Who likes to talk about healthcare costs? I guess we must do that. It’s important.
Jason: Absolutely, but before we get started, I know our listeners are just dying to hear this morning’s joke of the day. I’ve got one for you, Dean.
Jean: Oh, boy!
Jason: What is the best Christmas present in the world?
Jean: Okay, I give up, Mr. Parker.
Jason: A broken drum. You can’t beat it.
Jean: I can hear the audience rolling over in their sleep and groaning and moaning.
Jason: Isn’t that a good one?
Jean: I don’t think they’re …
Jason: A broken drum. You can’t beat it.
Jean: It’s not that funny.
Jason: I think it’s wonderful.
Jean: [Folks perhaps 00:01:42] you have to forgive this guy and his ability to judge what’s a good joke. Anyway, onward we go.
Jason: Hey, that’s a heck of a lot more fun to listen to than talking about healthcare costs in retirement. What a drag that is.
Jean: Yeah, [what 00:01:58] isn’t more fun than talking about that, but we must do that.
Jason: People, they go to work everyday. They work hard. They try to save as much as they can, and the reason that they’re saving that money, Dean, is they say, “I can’t wait for one day when the time comes when I can spend all of this hard-earned money on paying for healthcare costs.”
Jean: Yeah. That’s what everybody says when they get in their car every morning. I’m sure of it.
Jason: None of them are trying to save money for travel, or spending time with their family, or doing anything fun like that. They’re saving it all up so they can spend it on healthcare.
Jean: Yeah, that’s the way it seems, [though 00:02:31], sometimes. Once you start spending it, it certainly seems that way. What can we do about this part, Mr. Parker? What’s the alternatives here?
Jason: There are a couple things we can do about it. Like I said, we’re going to be bringing a couple of guests on the program to talk some more about it, but one of the things I wanted to just mention here real quickly Dean, there was a study that was put out by Fidelity. They do an annual healthcare cost study. In the study for 2013, they said that if you are an average couple [aged 00:03:01] 65, retiring today, you could expect to spend $220,000 out-of-pocket for medical expenses, not including nursing home costs as you transition through retirement. Think about that for a minute. $220,000 just on healthcare expenses as you transition through retirement.
Jean: Yeah, and that’s taking into account that most of these folks have Medicare, and then Medicare supplement, and a Part D. They have all those things. $220,000 doesn’t seem possible, but yet I think this study is really legitimate. I’ve witnessed a lot of this with my older friends.
Jason: One of the things I’m not 100% clear on, if that $220,000 includes the premiums that you pay for the health insurance or if it’s … That’s assuming that you don’t have any kind of Medicare supplemental coverage and you’re just paying your deductible’s and your out-of-pocket, because Medicare doesn’t cover 100% of cost. Medicare is an 80, 20 split.
Jean: It is, and then even when you go to the supplement sometimes depending on the plan you take, they might not cover all of them either. You have to elect that option if you want to cover extraordinary expenses above what Medicare might approve.
Jason: There’s … Once you turn age 65, you’re going to be eligible for Medicare, and I think that’s important to remember. For a lot of people, I find, Dean, that they get a little bit confused between Medicare and their Social Security income. For a lot of people retiring today, their full retirement age for Social Security purposes is age 66 or maybe 66 and a couple months if you’re born after 1954. For most people, starting Social Security is different than like in Medicare. Medicare, for most people, they become eligible at age 65, but there’s another little nuance that I’ve run into here, Dean, and this is with people that are choosing to retire early.
We meet with a lot of folks that are in their 50s, and they’re planning their retirement. This can really bite you. If you’re thinking about retiring early, you want to do some good planning here to make sure that you’re taking into account your healthcare expenses from whatever your retirement age is until age 65 when you qualify for Medicare, because I’ll tell you what, when you look at the health insurance premiums, Dean, that people have to pay from say like age 58 or 59 until 65, even those high deductible plans that we’ve seen can really be pretty, pretty steep in terms of the insurance premiums you pay. Insurance companies, they’re making their money on people from age 59 to 65, it seems.
Jean: Yes, I’ve witnessed that. I think before they retire from their companies, they should definitely find out what their COBRA Coverage is, and how long it lasts, because there’s a limitation on them. I don’t recall what that is. 15 months, something like that.
Jason: Yeah, I think you’re right. I think it’s about 15 months. In COBRA isn’t … From my experience again, COBRA isn’t usually the best price [deal 00:06:22] in town. Usually, your coverage is pretty good, and you get to continue the employer-sponsored plan, but often times when … I’ll be the first to admit, I’m not a health insurance expert. This isn’t something I spend a lot of time doing every day. We have a couple of people here in our community where we refer people off to get the answers that they need for healthcare. I know just enough about this to be dangerous, but it seems to me that when we refer people, private insurance is usually a lot more affordable than COBRA Coverage. It seems like COBRA’s usually one of the more expensive options for people.
Jean: Yeah, I would agree, but now … A person known to get a payment down takes a high deductible. That high deductible can be really, really expensive. Are there some ways to handle that high deductible?
Jason: They can be really expensive, but it has been a great option for people that have been retiring early. If you’re 58 years old, and you’re really healthy, you don’t go to the doctor a lot, you don’t take a lot of prescriptions, and we meet a lot of people like that, Dean. They’ve been very successful, and very healthy. They can afford … They’re willing to take on this risk of maybe having like a $10,000 healthcare deductible, because they know that they could cover that expense out of pocket if that came up. It really significantly reduces their Medicare or their insurance premiums until they get to age 65. The other thing that it does for them that I think is really, really a neat option that a lot of people don’t realize are the HSA accounts, the Health Savings Accounts that are available to people, Dean. That can really be a great tool for people, and it’s no longer available to you. Once you start Medicare, you can’t contribute to the HSA anymore.
Jean: I think that’s worth talking about a little bit, because not a lot of people understand what an HSA is, Jason. Can you give us a [brief 00:08:15] thumbnail sketch of that?
Jason: Yeah. A lot of people don’t understand them, and they don’t really understand how they work. Again, I’m not an expert on HSA’s. I contribute to one personally, so here’s what I know. For 2013, the family contribution limit is $6,450. If you’re 55 or older, you can add an additional $1,000 to that. The cool thing about the HSA is that it is tax deductible in the year that you make the contribution. It can help you reduce your overall income tax liability, but the money, as long as it’s used for future healthcare costs, can come out tax-free. In that respect, it works kind of like a Roth in that the money is tax-free as long as you use it for healthcare expenses.
I know a lot of people, Dean, that just treat this like another retirement account, but a retirement account that’s specifically set aside for future healthcare costs. That maybe they’ll maximum-fund their Roth IRA’s or their 401K’s or their SEP IRAs. but then they’ll also have their HSA account, which they get a tax deduction for, and when they use that money to pay for health expenses, the money comes out tax-free. A lot of times, they’ll be funding the HSA, and even if they’re going to the doctor and having medical expenses now, they won’t use that HSA today, because they’re just letting that account compound and grow.
Some of the HSA’s out there, Dean, they allow you to invest that money, so you don’t just have to have it sitting in a savings account earning almost nothing in today interest rate environment. You can actually have it invested. Like the plan that I have has several different mutual funds that you could invest in that you give you a little bit more upside potential if you have a long enough time horizon. Like I said, the thing about the HSA, once you turn age 65, once you start Medicare, you no longer have that option. If you’re healthy, and you’re younger right now, and you don’t currently have one of those, it’s definitely worth looking into and considering maximum funding and HSA. Think of that as an extra savings account, if you will, that can be used specifically just for medical expenses.
One of the other things, Dean, when I was looking over this report that Fidelity put out, is that they said right now, currently for retirees, the retiree’s today are spending more on healthcare than they do on food. That’s an amazing trend. It’s unbelievable how much money people are just spending on healthcare today. I’ll throw this out there, too. I know that as we talk, the whole ObamaCare thing, the Affordable Healthcare Act is still up in the air, but the folks that I’ve been talking to … We have clients right now that are in this world of not quite old enough for Medicare, but having to self-fund their own health insurance. So far, it sounds like they’re really having a tough time finding a decent premium to pay for those health insurance plans.
Jean: Yes. It sounds that way, but that’s where the high deductible comes in, and probably that measures really nicely with the health savings account that you’re talking about.
Jason: Yeah. The health savings account is going to be a big boost, but anytime there is change, and ObamaCare is kind of forcing us all into change … Nobody likes change anyways. I think most of us would get up and keep doing things the way we’ve always done them, so this ObamaCare is definitely shaking things up. So far, Dean, for the most part, at least for the people we serve and the people we talk to, it seems like people are going to be paying a lot more for their health insurance going forward than they did before ObamaCare. Has that been in the circles you run in? Have you heard anything from your friends or the people that you’ve been working with?
Jean: Yeah, and I’m a little bit older, Jason by a little bit … A lot more, but the fact is, yeah, everybody is concerned about it, because when you’re not working anymore, and your income is finite, it is coming from investments, and it has to be selective there too, because as you know, they’re not getting much interest from their savings accounts or their bonds. The money that they’re spending for healthcare is money gone, money they can’t use for something else. There’s probably something [they’d 00:12:29] rather spend it on.
Jason: I know my personal experience isn’t reflective of a retiree, because I’m still pretty young and working. My experience with the healthcare, Dean, with this healthcare change, my health insurance premiums that I pay for my family for our high deductible plan are increasing 70%. I’m going to be paying 70% more for my health insurance. My deductible is going to be increasing by 46%, so more of the cost is going to be shifted to me, because my deductible is increasing significantly. My maximum out-of-pocket is also increasing by, I think it’s 25%. All the way across the board, I’m paying almost double for my health insurance than I was before ObamaCare, and it’s covering less. It’s covering less in the sense that I have higher out-of-pocket expenses and max out-of-pocket, and higher deductibles. When you hear these guys saying that people … What I’ve heard, and how I’ve heard them spinning this is they’re saying, “You have better health insurance than you did before.”
It doesn’t feel much better to me sitting here. I know that a lot of the folks we serve as retirees, especially folks on Medicare, don’t seem like they’re being impacted by this yet but, it’s really having a heck of an impact on me.
Jean: The people [that will 00:13:55] be retiring have to be very cautious too, because I’ve heard a couple of people say they’ll be on Medicare when they take their Social Security at age 62, but that’s simply not the case.
Jason: Yeah. You don’t qualify for Medicare at 62. Medicare isn’t something that starts until age 65, so you want to be careful with that. Dean, I can’t believe we’re already running out of time. We’re going to be coming up on our first break, and we’ve got a really special guest that we’re going to be bringing on the program for the next segment here. We’ll be right back in just a minute.
All righty, folks. Welcome back to another round of Sound Retirement Radio. I’m your host Jason Parker. As always, I sure appreciate you tuning in. This morning we’re talking about the topic of healthcare costs, and I’ve got Jean Setzfand on the program with us. Jean is the Vice President of Financial Security with AARP. Jean, you wanted to … We have this great opportunity to have you on the program this morning to talk about some of the work that you folks are doing regarding healthcare. Share with our listeners some of the concerns people should be thinking about as they’re preparing for healthcare costs and retirement.
Jean: Great. Thank you. The main thing that you need to consider when it to healthcare cost is that you are actually going to have to pay out-of-pocket when you reach retirement age. Even though you’ve hit the [inaudible 00:15:19] age of 65, and you have access to Medicare, there is still going to be [copays 00:15:24], and doctor visits, and also paying for prescription [copays 00:15:30]. That actually has [to decoyed 00:15:33] a lot of money on average. For a couple, it’s well over $200,000. When you don’t take that into consideration, that’s just cutting yourself short when you’re planning for retirement. We released this new healthcare cost calculator to help people realize what the amount is, especially as it is customized to individual circumstances with different healthcare conditions.
Jason: I really found this fascinating. I actually got on the website this morning and plugged in my own numbers, and I was surprised to see …. I think one the things we should make sure our listeners know is when you’re talking about healthcare costs, you’re not including the potential for long-term care costs in those estimates. This is just prescriptions, out-of-pocket expenses for healthcare, not including long-term care.
Jean: That’s correct.
Jason: That’s a big deal, because when you are on long-term care …
Jean: It is a big deal, and I wish we could embed that within the calculator, but there is just too many variables to make it simple. In order for us to to really heighten the awareness around the need for healthcare consideration for when you plan for retirement, we wanted to, as we know through our other tools, we have to keep it very easy to use. When you start to [begin 00:16:51] long-term care expenses, it really is too wide of a variation based on where you live and other considerations. That’s very true. Long-term care costs are not included in the estimates that we provided through this health cost calculator.
Jason: A married couple aged 65 could expect over $200,000 of additional medical expenses. I’m sure our listeners are … One of the new things about the tool is it is interactive. You can go on and plug in some information about your current savings and your health and get a detailed report. Tell our listeners a little bit more about, if they’re interested in running that report for themselves, how they can do it.
Jean: That’s great. First thing to do is actually go to the website which is aarp.org/healthcostscalc, and there again, are four steps that you need to take. First one is to give us a little information about yourself in terms of profile. We’re not asking for individual information, so we won’t identify who you are nor ask for any sensitive information. We do want to know just approximately what age you are, your height, your weight, whether you smoke, when you plan on taking retirement, and based on family history, what your expected [rife 00:18:09] range will be. That’s the personal profile step. That’s number one.
Step number two is to look at health conditions. We have 82 different conditions loaded into the database there. When you select the ones that are most relevant for you, when you get to step number three, which is the overall estimates, it’s based on those health conditions that you selected. You actually see the overall estimate for that total healthcare costs, what the estimated expense that Medicare will take care of, and then leave you with the gap that you need to prepare to pay for in retirement.
Jason: Does the calculator assume that people have a Medicare supplemental insurance policy?
Jean: It does not assume that you have the supplemental plan. Again, there is too many variations in the supplemental plan that it makes it too difficult to add into consideration. If you do have that, it might alter the expense that you have to pay out of pocket, but again, you have to also consider when you have a Medigap Plan, there are premiums that you have to pay into in order to get access to that. It’s a little bit of … That is expense from a premium perspective, but there could be cost savings from expenses, but because of the wide variations, it is not included. Thank you for pointing that out.
Jason: The cost of paying for your Medigap Premiums is not included then, because I know a lot of the people that we come across, it seems like most people choose to sign up for some type of Medicare supplemental policy. I want to get into solutions. You’ve created this report. You’ve helped people understand the problem. Actually before we get into solutions, why was it important for AARP to tackle this? Why do you feel it’s important for people to know this number?
Jean: It is a relatively large number that if you overlook, it will eat into your retirement savings and also your retirement income. Health is something that people have to pay for more likely than not. What happens is you pay for what you need, but it actually [it feeds 00:20:18]into the life that you may want to live. We really want people to go into these decisions around the long-term with their eyes wide open. We want people to have the best information, make informed decisions, so that they can really have … Live the best life that they want.
Jason: Okay. Folks, if you’re just tuning in and joining us, I have Jean Setzfand on the program with us. She is the Vice President of Financial Security with AARP. She is a retirement expert. She leads AARP’s educational and outreach efforts aimed at helping Americans have financial peace of mind in retirement. Her work focuses on providing consumer-friendly information on money matters, retirement decisions, and protecting age 50 and over consumers from investment fraud. She holds a B.A. in Economics from the University of Pennsylvania, and an M.B.A. in Finance from the university of Chicago’s Graduate School of Business. Jean, on this topic of healthcare costs, we’ve talked about the problem. You guys have created a tool to help people identify it. What do people do? Are people just supposed to try to save even more money and kind of put it in a little piggy bank off to the side that’s only designed for healthcare costs? Should they be thinking about insurance? What’s the solution?
Jean: Great question. [None 00:21:33] of the things that you need to consider, and it took a while for us to actually even come up with this tool, because it’s relatively difficult to estimate. In terms of thinking about where you actually put money, money is fungible. You can use money to pay for multiple things. What we’re trying to show people is in addition to the sort of common expenses that most people take into consideration around just keeping life going, food, clothing, shelter, transportation, and then travel, and other things that you desire to do in the next phase of your life, this is also additional category that you need to also consider. In terms of the [suite 00:22:16] of resources that we provide to consumers at large as well as our member, and they’re ready for retirement [suite 00:22:22] of resources, there is a retirement planning calculator. If you run that past the new health cost calculator, it gives you a broader perspective of really how much money you need to set aside to give yourself really the greatest peace of mind when you hit that next phase.
Jason: Ultimately, really that’s what people are looking for, is peace of mind. I found when you can do strategic planning for people, and you can say, “Look, there is a possibility that you’re going to need 220,000,” or whatever the number is, “for retirement.” It kind of lets them know, “Some of this money is off limits,” but if they have enough, then they know they can spend the rest of it doing the things that are really important to them. Jean, I just want to say thank you so much for being our guest on the program, and I hope we can have you back some day.
Jean: Thank you very much. Bye bye.
Basically what I found for my scenario was that I would be looking at anywhere from … I think it was right around $230,000 of expected healthcare costs in retirement, of which they estimated that Medicare would cover about $180,000 of those costs. As you could imagine, this is a big number, and it’s important when putting together a plan, that we think about things like long-term care. What happens if something … To your health where you need a care for an extended period of time, or just healthcare costs? Does it make sense to buy supplemental insurance? I went through … I had discussion with somebody recently, a gentle man, who didn’t want to pay for long-term care insurance, but he was certainly willing to pay for Medicare supplemental insurance. He wanted to cover that risk of needing short-term care. Of course, most of our listeners know that for the most part, Medicare is not really designed to cover long-term care costs.
In the next segment of this program, we are going to talk a little bit more about long-term care and some of the things you should be thinking about, but for short-term care costs again, if you are curious and you’d like to know, I encourage you to visit AARP’s website, aarp.org/healthcostscalc, and get an idea for what this cost could be for you. Folks, we are right there at that time again where we need to take our next commercial break.
All righty, folks. Welcome back to another round of Sound Retirement Radio. I’m your host, Jason Parker. As always, I sure appreciate you being a guest on the program. As you know, this episode, we’ve been talking about healthcare costs in retirement. We had the good fortune to have Dean on the first half of the program, and then we spoke with AARP regarding the healthcare cost calculator that they’ve come with. One of the things that healthcare cost calculator does not take into consideration is long-term care costs. This could be a big expense for people as they transition through retirement. I want to give you one example of this. The other thing I want to say as you’re doing this type of planning for long-term care, I really don’t believe it should be done in a vacuum. I think that when you’re doing financial planning, we need to be considering all of the different items that make up your financial life.
Of course, short-term medical costs is one issue, long-term medical costs is another, just retirement income planning and what happens when one spouse passes away, what happens if one spouse needs care? Just to give you an example, today in the lovely State of Washington, the average cost of long-term care in our state is about $8,400 for a nursing home. I know most of you out there are probably saying, “I’m never going to go to a nursing home, so its really an irrelevant conversation. Jason, you’re wasting your wind,” but $8,400 per month is the average. I’ve heard stories from local facilities where people are easily paying $13,000 per month for a long-term care. It’s certainly possible that you could pay a lot more than the $8,400 per month. This is really a fascinating example.
Today, let’s say you are about 60 years old, and the cost is $8,400 per month. Assuming that you don’t need care until you’re 80 years old, and assuming that medical costs continue to increase at a rate greater than inflation. Just maybe 4.28% per year. By the time you actually need long-term care, instead of needing $8,400 per month to cover the nursing home, you would need $21,502 to cover that expense per month. $21,502 per month in future dollars with just a really simple 4.28% cost of living adjustment. If you end up needing care for four years, that means you will end up spending over $1.1 million on long-term. This is a significant potential crack in a lot of people’s nest eggs. We had a great response last time I had Steve Brown on the program. Steve Brown is somebody here locally that I’ve referred a lot of people to over the years. He is a long-term care insurance expert. This is an area that he spends a lot of his time. Steve Brown, welcome back to another round of Sound Retirement Radio.
Stephen: Thanks, Jason, really good to be here.
Jason: It’s great to have you on the program. Steve, why do you suppose … You are a friend of mine, and we talk a lot about this topic of long-term care, why do you suppose it’s so hard for people to just look at this non-emotionally and just say it’s a financial consideration instead of making this argument in their mind about whether or not they are ever going to need it?
Stephen: We all avoid bad topics, negative topics, and certainly this is a topic that impacts us not only emotionally or financially. It’s very easy to go into full denial mode to get out of it.
Jason: What are some of the [common 00:29:45] … When you sit down with people to do this type of planning and you talk about denial mode, what do you mean by that? What do you hear besides denial being a river in Egypt?
Stephen: I really haven’t been there, but denial can be traced back, people saying, “My family was healthy. My parents never needed this. I have children that will take care of me. I have the assets to provide for this if and when we need this,” and the list goes on.
Jason: Aren’t those legitimate concerns though? I mean, if somebody … If folks can point to their parents, let’s say, “My parents never needed long-term care.” Shouldn’t they be able to make the assumption that they won’t either?
Stephen: Jason, remember that long-term care is all about a change in your health. We also look at your health and say if you needed the doctor, surgeon or hospital, doesn’t that really involve the same change in your health and [that 00:30:40] many times it does. A change in your health is common to having health insurance and/or having a plan, should you need care.
Jason: That brings up another topic. I meet with people all the time that tell me … They say, “Jason, I have a Medicare supplemental insurance. I have Medicare insurance as my primary, and then I have a Medicare supplemental insurance policy, so I’m already covered for health insurance. I don’t really need to worry about this long-term care thing.”
Stephen: Let’s walk down the path of maybe one of your clients. I’m sure maybe one of your clients has had a stroke. When we have a stroke, do we need a specialist, do we need a cardiologist, do we need a neurologist? The answer is, “Of course we do.” Just with that, if somebody had a stroke, would it be possible if they might need care for a longer period of time?
Jason: Sure. Isn’t Medicare going to cover that?
Stephen: Absolutely not. That’s the number one … Now that we are into denial mode, we’ve never really looked into this, then we can also assume that the government will take care of us. Our ignorance is bliss.
Jason: There are a lot of people that think that, and that’s the reason I want to ask the question. I know the answer, of course, but a lot of listeners don’t. I just want to ask the kind of question that people ask me all the time, which is, “Isn’t my health insurance going to cover this?” The answer is simply, “No.” That’s why this other type of insurance exists, right?
Jason: The one that you brought up is, “My kids are going to take care of me.” Let’s talk a little bit about that, because I hear that all the time too. You say that’s denial. Other people say, “We paid for our kids to go through college, and we bought them their first towels, and we wiped their butt when they were a kid.”
Stephen: We kind of come into this world, and we go out just in a similar fashion, that we may need some help coming in and help going out. What we really find with people that really say that, their kids may have offered, but nobody is really [earning up 00:32:38] to the real burden of taking care of somebody for two to three years. What do we do with somebody that needs care, and their kids are working at [Boeing 00:32:50], and they need care at 11 o’clock in the morning every day?
Jason: Good point.
Stephen: We have a problem.
Jason: It is problem. In fact, I heard that this issue of long-term care was for the baby boomer generation, especially trying to care for their elderly parents. It’s a huge cost for people to be out of work and missing work, just because they’re trying to provide that care for people.
Jason: If you’re going to plan on the kids providing the care for you, I think it’s pretty safe to say that you should probably have that conversation with them, don’t you think?
Stephen: We should, upfront, and then becomes the choice of the person that might need the care to say, “Am I willing to put this burden on my child for two to three years, knowing that their fun activities, their vacations, everything they know that’s good and fun will be taken away from them?”
Jason: When we’re talking about long-term care too, sometimes I think people have this romantic idea in their mind that, “We would love it if mum and dad moved in with us. We’ve got this little guest house outback, and mum could come in and cook breakfast for us in the morning. We just love having her around, and it would be just a really great experience to have mum living with us.” I think we need to kind of make sure that our listeners understand that when people need this type of care, it’s usually not that kind of warm, fuzzy environment that they’re stepping into.
Stephen: No. We would usually find out after about a month when the rubber meets the road and the romance period is gone. Nothing against your in-laws, but Jason, how would it feel if your in-laws moved in with you today?
Jason: They’re probably listening to the program, so I would love it if they would move in with us. I just would absolutely think that’s the greatest thing that could ever happen.
Jason: The reality is, I’m not just talking about people moving in. I remember we had a family member that went through this with her mum, and the reality was that long-term care sometimes meant waking up at 2 O’clock in the morning to clean up some really gross stuff off the floor, because mum wasn’t able to make it to the bathroom in time. Long-term care isn’t necessarily mum cooking breakfast for us and living comfortably in the house outback.
Stephen: Talking about campfire stories.
Jason: We’ve got to make sure people really understand what they’re signing up for. I hate having this conversation or having people thinking about this kind of thing, but this is the reality of it. A lot of times, Steve, it happens behind closed doors. When people start heading down the slippery slope of needing care, they’re not generally out in public, something that we all see all the time. Because it’s happening behind a wall, we just assume that it’s not happening at all, I think.
Stephen: For most of us that are normal and healthy, if you will, and do our day to day [puff 00:35:57] from work or to the grocery store, we don’t really have an interaction with people that are in their home. As you know, 70% of the people getting care today are in their home.
Jason: Most people would say, “I never want to go to a nursing home.” Wouldn’t you agree?
Jason: If they never want to go there in the first place, then why plan for something that’s never going to happen? I hear people tell me that they’d rather just get in their sailboat, and head out, and lose their [inker 00:36:29], and never come back.
Stephen: I was thinking on the way down to the radio program today, the statistic from the government of the U.S. Department of Health and Services comes out with this number that 70% of the people over 65 between now and their endpoint are going to need care. My question is, I know you are a boater, and if you that going out on your boat, there was a 70% probability that you might face a catastrophic event, how much planning would you do before you went out on your boat?
Jason: I’ve got to tell you I do a lot of planning before I go out on my boat, even though the probability is not that high. 70% is … I don’t think I’d be taking my boat out if there was a 70% chance that I was going to go down.
Stephen: How about if … I know you like to go to Hawaii. How about if before you boarded that plane to go to your favorite spot in Hawaii, the pilot came out and said, “We have a 70% probability we might have a catastrophic failure.” What would you and Becky be discussing at that point?
Jason: I don’t think there’d be much discussion. I think Becky would say, “We’re getting off this plane.”
Stephen: Probably. You wouldn’t have another plan … Some sort of contingent plan.
Jason: Yeah. That’s what I want to transition into, Steve. We need to talk about, what is the plan going forward if people can just recognize that this is a possibility. We’re going to take a quick break, and we’ll be right back.
All righty, folks. Welcome back. This is Jason Parker, the host of Sound Retirement Radio. As always, I sure appreciate you tuning in. I really hope that the program that we’re putting together for you is adding significant meaningful value to your financial life. I hope it’s helping you to have some thoughts and some conversations with people that you care about, because this stuff is really important. I know it’s not easy to talk about. It’s not anything that any of us want to think about, especially on the topic of long-term care. When we’re doing retirement planning, we’re talking about travel, and vacations, and spending money, and spoiling the grandkids. That’s all good and fun, and I love to have those types of episodes as well. The reality is, today we’re talking about healthcare costs in retirement.
One of the big ones could be long-term care. I have my good friend and associate, Steve Brown on the program. Steve Brown has specialized now for over 10 years helping people with long-term care insurance, specifically. Steve, we want to talk about putting together a plan for people. Before we do, there’s probably going to be some people listening to this program that would like to learn more about you and the work that you’re doing. What’s the best way for people to learn more about you if they’re interested in asking you some questions about this stuff?
Stephen: Certainly a phone call is the easiest place to start. I’ll give you my phone number, which is 360-893-2172
Jason: 893-2172. Okay. Let’s talk about planning. What should people be thinking about as they are preparing for retirement and they are trying to make some provisions for healthcare costs that could hit them from your perspective?
Stephen: Jason, this correlates right into your business where you take long-term care and make it a component of their financial plan. In a similar fashion in my business, when somebody comes into my office and we talk about the financial component of long-term care, the burden I place on their lap today is say, “If this happened to you today, I’d be looking for about $200,000.” The question is, “Where would you like to go to get that?” If they aren’t really comfortable looking into their own estate or these questions about that, we do look at their other options, insurance and … Basically, the bottom line is, “How are we going to pay for that $200,000, and what would feel best to you?”
Jason: How much money do you feel people need to have before they just say, “I’ve got enough. I don’t have to worry about insurance”?
Stephen: Once again, regardless of what causes this $200,000 bill, the question is, how comfortable are you really letting go of $200,000 of your money regardless of the stock market [event 00:40:58], regardless of maybe you have health event like Cancer, stroke, and heart attack, maybe you have a long-term care event? It’s just an event to me that causes you to lose money.
Jason: A lot of people, Steve, would argue. They’d say, “That’s what I saved the money for anyways.” They’ll say, “I don’t want to leave my kids a lot of money. The reason we have this is for an emergency fund and to provide for us, so why not just spend what we have?” How much do we need in order to say, “Insurance is off the table. I don’t really don’t need this insurance?”
Stephen: In today’s dollars, I would probably put that number at $200,000 to $300,000 per person. If we had a couple, we probably would be looking at $400,000 to $600,000 that we can honestly say we’ll put aside, we’ll never use it for anything else, and if we use it for long-term care, so be it. If we don’t use it, it will just go into our estate for whoever we want to give that to.
Jason: If you have $600,000, a married couple, and you can take that money and set it aside. I think something you said that was really key. You’re basically saying that money is no longer yours to use it for things like travel, or spoiling the grandkids, or doing home repairs. That’s $600,000 out of your plan that has to be set aside just for this idea of paying for these future costs. That’s one of the reasons I think insurance is really an … I have to let our listeners know too. I am a proponent of long-term care insurance. I think it’s smart for people to buy policies. I personally own two long-term care policies, but if you buy insurance now, all over a sudden, instead of setting aside $600,000 to pay for this care or to leave the money for the next generation, now you can go spend the 600,000, because you’ve taken care of this risk in a different way.
Stephen: That’s right. That’s exactly right. It gives you, freedom and openness to do whatever you want to do with that money, when you want.
Jason: The other thing I’m reminded of is that long-term care insurance isn’t easy to get.
Stephen: That’s exactly right. You and I have worked with this for a number of years. 10 years ago, when we took a client, tried to health-qualify them, it was a pretty easy event. Today, the health underwriting and guidelines are brutally stringent. In fact, I had three calls today. People said they are healthy and two out of those three people cannot acquire traditional long-term care insurance. It’s probably about a 50% rate on people that come into my office to talk to me that I have to give them the bad news that they can’t qualify for insurance.
Jason: They think they’re healthy coming in to talk to you.
Stephen: They do. They are healthy, but by insurance standards, they aren’t.
Jason: My thought is, if you are healthy enough to qualify for the insurance, and you can afford the premiums without a change in your lifestyle, and that’s a big one, because there are some people that this isn’t appropriate for. If you don’t have a certain amount of money, you probably shouldn’t be thinking about insurance. What’s that number, Steve?
Stephen: The number is based on if you have to pay your insurance bill, and that is a compromise to your lifestyle, your basic lifestyle of food, vacations, whatever. In other words, a classic example would be I’m paying my insurance bill, it makes me feel nice and cozy, but now I’m eating tuna out of a can. Bad idea.
Jason: Tuna is better than [cat 00:44:22] food.
Stephen: Jason, one thing I want to mention on this, given that we know over the last 10 years how stringent the health underwriting is and how difficult it is, there are some new forms of long-term care insurance that are much more readily available to people with some problems in their health and can’t qualify for traditional insurance. These insurances are generally called “critical care insurances.” The underwriting is simplified, and probably 80% to 90% of the people that walk in my office that are turned down for traditional insurance can acquire insurance.
Jason: This critical care insurance, it is not long-term care insurance, but it could be a policy that could help them if they were to get a critical disease or illness like Cancer, or stroke, or Alzheimer’s, or something.
Stephen: That’s correct. We would still classify it as long-term care insurance. It’s just all the parameters and all the different options you can get are reduced down to a real simplified form.
Jason: It’s for critical care, so it’s not going to cover you for old age frailty, because I think that’s important for people to understand. It’s not technically considered long-term care insurance. It could help provide some coverage for some of those costs as long … I guess what I’m trying to say is, it’s more restrictive than traditional long-term care in terms of how you access it.
Stephen: It’s all based on having a critical illness.
Jason: Critical illness, right. You like that as an alternative. If people want some protection and they can’t get traditional insurance, this is an option for them.
Stephen: It’s a great option. We have many clients that just love this product.
Jason: If people have been turned down for traditional long-term care insurance and they are trying to find a solution that would help them, then this is maybe something that they should be considering.
Stephen: They should investigate this, and ask some good questions, and see if its right for them.
Jason: Steve, on this topic of qualifying, a lot of people cannot qualify for it. It’s my understanding that the insurance companies are getting more and more stringent all the time in terms of who they will accept for this coverage. At what age do you recommend people say, “Now is the right time. Now we have to start looking into this type of coverage,” when should people start considering [it 00:46:43]?
Stephen: Really, when we consider the premiums that are based on age, and it’s a very health qualified product, really the earlier the age, the better, because Jason, if I offered this product to you today, and you could get it, and you could financially afford it, and then something happened to you tomorrow, and you couldn’t get it regardless of the age, would you buy it today?
Jason: Sure. If I knew I wasn’t going to be able to qualify for it tomorrow, sure.
Stephen: Given that the health underwriting is so difficult, would it be fair to say that your health is going to change as time goes on?
Jason: Absolutely. My experience is, Steve, people don’t usually get healthier the older they get.
Stephen: I’m certainly not.
Jason: You look great.
Stephen: Thank you. It must be the [wig 00:47:33].
Jason: It’s a tough subject. If there was one thing that you wanted people to know, Steve, by being a guest on the program with us this morning, what’s the most important thing people should be thinking about as they are trying to get their hands around future healthcare costs and retirement?
Stephen: I ran a number today, and it was kind of a daunting number, just how big of a problem this is for people and for the country. Simply when we look at people that are 65 and older, we have about 42-43 million people. When we say 70% of those people between now and their death are going to face long-term care, and if we put a $200,000 price tag on that event …
Jason: In today’s dollars?
Stephen: In today’s dollars, and if we have 30 million people from 65 and older will face this problem, and we say budget-wise, what does that really add up to when we take 30 million people times today’s dollars of $200,000?
Jason: It’s a great big number.
Stephen: It’s around … I believe it’s around 60 trillion in my calculation. 60 trillion dollars, and the point of that is to say somebody is going to pay for that.
Jason: That’s a huge wealth transfer.
Stephen: It’s either going to be the government, it’s either going to be people’s assets, or it’s going to be the insurance company. If this is a risk to you, and you have some [reverent 00:49:10] fear of it, would it be worth your time to make a choice now today, while you have a choice to decide who you’d like to pay for that?
Jason: The other thing I think about people … When we talk about money, sometimes it’s just people think of dollars and cents, but really, Steve, people’s retirement assets is their life’s energy. Everything that they have accumulated in a lifetime is in many instances not only represented by dollars, but in some ways, they traded their time for this money. They traded being at their kids’ baseball games. They traded being going to their daughters’ ballet performances. They’ve sacrificed and they worked really hard. We’re not just asking about people’s money, but ultimately when you have to ask yourself this question, “Do I want to take my entire life savings, everything that I worked for, and at the very end of my life, transfer that money?” There’s going to be this wealth transfer that you are talking about.
I have a choice right now today. I can either transfer my life savings to my kids and my family, and leave that as a legacy, because most people seem to think that the next generation isn’t going to have it as easy as the past generation. Not that it’s been easy, but you just look out at the economic world today, and it’s looking pretty tough. You can either transfer the money to the people you love, the people that you care about, the organizations that are important to you, your church, if that important to you, or you can transfer that money to a nursing home. That’s really one of the questions that people have to be thinking about. For people that say, “I have enough money, and I just want to pay for this out of my pocket,” is that really what you want to do with your lifetime savings, is transfer it to a nursing home? To me that seems like insanity.
Stephen: Of course not. One think I really like about your philosophy in your financial planning in helping folks, in my view you are actually helping people live their lives today, and their dreams, and objectives, and their goals, and making sure their bucket list is actively worked on, and they’re living today with their dollars that they have today.
Jason: Steve, with that I can’t believe we are out of time, but I sure appreciate you being a guest on Sound Retirement Radio.
Stephen: Thank you very much, Jason.
Jason: All right, folks. That’s Steve Brown. [We’ll 00:51:24] have the information about him in the show notes if you missed the phone number. Thanks again for being on the program. Until next week.
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Jason Parker is the president of Parker Financial, an independent fee-based wealth management firm located at 9057 Washington Avenue Northwest, Silverdale, Washington. For additional information, call 1-800-514-5046 or visit us online at www.soundretirementplannning.com.