Terry Gerton We have a really important topic to talk about, and it’s one that a lot of people find, I think, difficult to talk, and it is long-term care insurance. Long-term care is really emotional. It’s how you think you’re going to spend the end of your life. Why is it such a challenging planning issue for federal retirees?

Thiago Glieger Yeah, long term care is, it’s usually not the first retirement risk that people think about when they think about retirement and longevity. They worry about the markets or taxes or income and Social Security, all those other things, because it’s kind of hard to imagine when there’s a day that we’re not independent anymore and we can’t take care of these basic necessities like getting groceries or cleaning or cooking or any of the things that we do and sometimes take for granted. And long-term care is a little different because it attacks a retirement plan from a variety of different angles, right? We’ve got financial stress, of course. There’s also emotional stress, like you mentioned. Sometimes there’s disruption to the family, and sometimes we have to make decisions about our money that we weren’t ready to make. And so over the years of serving the federal retirement community, I’ve seen the different amounts of strain that it can put on families, both financially and emotionally. So it’s a tough topic, like you said, but it’s really important.

Terry Gerton When people hear long-term care, many think of nursing homes. Is that the general gist of it or is that too narrow of a perspective?

Thiago Glieger I think it’s a little narrow, like you said, because it doesn’t always begin with a full-blown nursing care facility. Often it’s something a little bit more subtle, like just needing maybe some extra help to get some things done around the house or be able to provide for our basic necessities. So in the business of long-term care, they have this concept where you have activities of daily living, as they describe it. So things like bathing and dressing and eating and. Transporting yourself and so forth. And so sometimes it can just mean having a little bit of assistance. Sometimes people’s memory or mind might not be as strong as it was before, so sometimes memory care is a component as well or sometimes, and I’ve seen this with clients, Terry, you just slip and break your hip and it’s so much harder to come back from that event and sometimes the people in your life might not able to help you. So those are the things that can really begin to take hold and sometimes drive you into a long-term care event.

Terry Gerton And a lot of people think they can manage this at home, but aging at home still requires a plan.

Thiago Glieger It does, in particular because sometimes, do you have the physical support of people there that might be able to help you? We’ll think oh, well, maybe my spouse can help me. Well, that depends how much in good health are they in? You know, how old are they? Are they able to carry you if you need that? Sometimes our home is not physically structured in a way that supports the situation that we are in. You know, sometimes a lot of people like to retire to a single level home because of the ability that, hey, you know, going up and down the stairs is going to be more difficult over time.

Terry Gerton Thiago, we’ve talked in the past about health insurance. We’ve talked about FEHB and TRICARE, Medicare. Is that sufficient to cover long-term care or are there other provisions that people need to be thinking about?

Thiago Glieger Health insurance covers general healthcare services. And so it can cover some things that are related to long-term care. For example, something like physical therapy, if you fall and you have an injury or some of the medication that you might be on. But the assistance that somebody might need to get to physical therapy or any of the day-to-day normal things like grocery shopping, like we talked about, none of that is gonna be covered by traditional long- term care. It’s a pretty big misconception that people have that healthcare is just gonna cover my longer term care needs. I think what people often confuse is the skilled nursing coverage that is a component of Medicare. Medicare has a specific provision that under certain conditions, you can get skilled nursing for about 100 days. But even beyond that 100 days, the cost then completely goes to you as the patient. And so even then it’s not covering them for long term.

Terry Gerton Thiago Glieger is a certified financial planner with RMG advisors. Thiago, some of us may have had experience here with our older parents, but now we’ve got to think about this for ourselves. What are the main ways that retirees can plan for this risk?

Thiago Glieger There are three ways that people can plan for the risk. And the first is the easiest, which is you just self-fund. You’re going to use your own assets. You can use the income that you’ve got from Social Security pension, the first pension. You can adjust the amount of spending that you’re doing, tap into home equity, use your investment portfolio. A lot of different ways to solve for that risk. The challenge with that is that it does carry the highest amount of risk. Because one, the markets are never guaranteed. So you have to be careful about how you’re using your assets. And number two, you don’t necessarily know how long the long-term care event is going to last. I believe the average amount of time that it lasts is somewhere between two and three years. So sometimes it can be more, sometimes it could be less. We have to careful with that. The second approach then is gonna be, okay, I don’t want to take all of that risk on myself. So I’m gonna pass on some of that risk to an insurance company. So we insure or transfer, as we call it, that risk to an insurance company. And that’s where things like the long term care insurance components come in. So a lot of feds, now this is no longer available, but a lot of feds are in the formerly available federal long term care insurance program. It’s now closed to new applicants, but people who are in. That’s what you have, right? It’s going to cover a lot of those expenses. The challenge with long term care insurance is, well, it’s expensive. And traditional long-term care insurance is kind of like fire insurance, where if you never use it, thank you for your contributions to everybody else, right? And so the third approach then is the ability of having some sort of hybrid. The insurance companies started to realize that people wanted maybe some skin in the game, not insuring the whole risk. And so they’ve developed these newer plans where it’s maybe a slightly smaller benefit, but it’s a finite cost, or you’re just not insuring for all of the risks that you think that you might have. Maybe you get $100,000 to $200,000 of long-term care insurance, and then you plan to cover any additional cost yourself. So those, I think, are the three biggest ways people address that need.

Terry Gerton Self-funding can work for some people, maybe with those with significant assets, but how do you figure out how much money you need or whether you have enough?

Thiago Glieger That’s a really good question, Terry, because one very important detail about self-funding is that we have to remember if we’re in our mid-50s and 60s and we’re planning for retirement right now, what is the cost of long-term care today and what is it anticipated of being when you’re 80, which is statistically the highest probability of your needing it? The cost of healthcare services don’t rise like regular inflation. It’s about twice the rate of inflation. And so it’s more expensive, faster. So we have to say, if I were to be in a long-term care situation today, then I need to adjust that for inflation, but healthcare inflation for, I don’t know, maybe 20, 30 years from now. What would the value of my need financially cost in that future? And then figure out what do I need to do with my money today? How much do I need put aside? And how do I invest that so that it will be there and available for me in the future.

Terry Gerton What about my strategy of just planning to move in with my children? That sounds like a pretty cost-affordable approach.

Thiago Glieger Yes, the family plan is always, I think, one of the options people try to rely on, and it can be a good option, but I think we need to be careful in fully relying on a family, because we never want to be a burden to the people that we care about. And caregiving can affect people’s careers, it can affect marriages, it can effect the relationship that you have with your children, and so we want to cognizant of how much care might we actually need. And what impact might that have? And is that even a worse situation? It might solve a temporary problem, but create a whole nother issue in the background.

Terry Gerton If someone is going to think through their funding strategy and they don’t plan to move in with their children, how can they make sure that their retirement plan can survive a long-term care event?

Thiago Glieger I think this is where doing some scenario planning might make a lot of sense. And if you can model something out, like a long-term care event, and just throw some numbers to it, what would I potentially need in terms of care, do some research about what the cost might be, and it doesn’t have to be complicated, but just start looking at, if I’m living my life this way, if I am earning a modest return on my investments, if long-term care is going to cost X in the future, is there a situation where I can afford to, myself or my spouse have the care that I need for two to three years? What if one of us has to go to an assisted living? Obviously, that’s going to be a higher level of care than if we just get some help at home. Or, what if one of us needs full nursing care at this point? And start to run through all of these scenarios and see are we going to be financially okay? Do we start to have financial problems down the line? Are there other assets like selling the home? Is that an option for us or are we going to be in a pinch and then potentially become a financial burden to our family?