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Long-Term Care: Should I Insure or Self-Fund?

Transcript:

Crystal Oculee:

Hi, I know you joined us a couple of weeks ago, or I should say probably a month ago, not even a couple of weeks ago. Time flies by when you’re on a lockdown during 2020, right? Sometimes it freezes, sometimes it passes by. We had a longterm care Q and A session, and a lot of people were asking questions. After that, I got a lot of questions about people wanting to self-fund. I have a lot of clients that are also self-funding. Really, the big question at hand was, is there a way I can self-fund in a smarter way? Because I want to have access to my money where it’s liquid, and I don’t want to give it up if I don’t use it. So, that’s why I’m bringing Brian back really quickly to give you this little quick tip of, Brian, is there such a thing? Can you explain it to us a little bit?

Brian Kelca:

Absolutely, and thanks, I’m always happy to talk to the clients at Confidence Wealth, or people that are considering being clients. The first thing I want to do is really, so everybody can understand what self-funding means, self-funding is typically when somebody thinks, well, I have plenty of assets to pay for long-term care, and I’m just going to spend down my assets over time to pay for that coverage. That obviously is one way to do it, but there are some significant benefits with having a long-term care plan through an insurance company. For example, one thing I want to talk about is, if somebody does have significant amount of assets, there’s a plan out there that, let’s say you had $100,000 in a CD or a money market, is that you can actually transfer that over to your other pocket and get a long-term care plan. Because this long-term care plan gives you 100% liquidity of money. You can get at it at any time. It also gives you a death benefit, so at least that money’s going to come back to your heirs. Thirdly, most importantly, it gives a long-term care benefit on top of it, which is significantly more than you actually put into your other pocket. So, by transferring money from one pocket to another, you still have 100% liquidity, a death benefit in that amount or more, plus long-term care benefits. That’s really what we’re looking for.

Crystal Oculee:

Okay, so the best example, I think, because sometimes we learn from example, Brian, the reason I brought this up is because you helped one of my clients where that’s exactly what she did. She had extra cash sitting aside, $150,000 earning less than 0.1%. So, now she has it in that policy that covers her for seven years, giving her, I think about $7,500 a month, approximately, give or take, and obviously [inaudible 00:02:35] free.

Brian Kelca:

Plus she has the inflation rider on that one too. So, the benefit does go up year by year, whether she’s on claim or not, because there’s inflation in-

Crystal Oculee:

Thank you for pointing that out. Absolutely, because she’s in her mid fifties. So, by the time she’s 80, that $7,500 has grown to a lot more, and she always has access to that $150,000. The $150,000 she put in, she’s always able to access it if she chooses that she doesn’t want the policy and take the money back. From what I learned, was that if she doesn’t use it at all, that $150,000 goes back to her heirs, correct?

Brian Kelca:

That’s absolutely correct. Or if she uses just a portion of it, maybe she uses $75,000 or $80,000 then unfortunately passes away. So, the balance of that $150,000 would go back to her heirs. So, in every instance, either she or her heirs will have access and be able to have that money.

Crystal Oculee:

Yeah, and you know what’s really funny is, I’m super sizing my savings to this long-term care plan. It was really funny because I didn’t think about it that way because it’s literally taking her cash and supersizing it for the cost of long-term care and have it always be available. Now, I know you said something also that it allows care coordination. Can you explain that a little bit to me?

Brian Kelca:

Yeah, in fact, a lot of people that purchase long-term care that are a very high net worth, they say, I really don’t need this. But one of the main reasons I’m getting this is for something known as care coordination. Let me just ask a question to the audiences, let’s say your doctor comes in and says, you’re going to need assistance, you’re going to need home health care or nursing home, who’s the first person you call? I mean, if you ask your doctor that question, no. Okay, what do I do now? They are not experts in that particular area. Well, most of the carriers, not everyone, but most of the carriers have what is known as care coordination services. These care coordinators, what they do is they’ll help you understand the benefits of your policy. They’ll guide you through the claims process and also all the claims, papers, and forms, which can be very daunting. They’ll also give you indication or tell you where the best care is because there’s many nursing homes, especially in the greater LA area, but which ones have the best reviews, which ones have the worst reviews, the cost for them. So, things of that nature. They also work with your family to construct a plan so that it meets not only the family needs, but also your needs as well. So, that’s just a few of about a dozen different benefits under care coordination.

Crystal Oculee:

Actually, you just mentioned the family. I was reading this blog about ultra wealthy families and why sometimes they use insurance. It was interesting, and it’s all about how is your care going to be if it’s covered by insurance versus if it’s your assets. Can you go a little bit deeper into that and tell me why someone who has money that can self-fund chooses to self-fund through a product like this? What’s the purpose behind this coverage, and where it leaves the family in a better situation?

Brian Kelca:

Yeah, let’s just first summarize the fact that the care coordination for these wealthy people that can self-fund, the care coordination is really, really [inaudible 00:06:00] because to rely on your family members to do that can can be difficult. Then you may have some squabbling amongst the family members on how that care coordination could [inaudible 00:06:11]. Now you have a third party doing that for you. One of the other things is these private nursing homes, the first thing they’re going to ask you is, do you have private insurance, because they want to be paid promptly. The private insurance does, they pay promptly on time. Whereas, if you’re relying on a family member to make those payments, it may be delayed sometimes.

Brian Kelca:

The only way I can say this is just giving you an example. I actually have a client that is in a nursing home right now, in a wonderful, wonderful nursing home, getting great care. The son came up to me and he said, Brian, I’m so happy that she purchased that long-term care policy from you. I said, well, [inaudible 00:06:56], he says, because I would never put her in such a nice place. I said, why wouldn’t you? It’s your mother? He says, well, she’s now spending my money because he’s looking at it from an inheritance standpoint, she’s not spending my money. Maybe she would have been better in something that’s a little bit less expensive, but instead, now she’s got the best care possible and he doesn’t have to worry about his money being spent.

Crystal Oculee:

That’s a really good point. That’s a really good point, Brian, because you’re absolutely right. We don’t think about this, but when it comes to money, people start thinking that way. It may not be the son, it may be the wife, it could be anybody else.

Brian Kelca:

The daughter-in-law.

Crystal Oculee:

That’s right, the daughter-in-law, yeah. That’s what I mean, exactly. Hey, why do you need your mom in such a nice nursing home, because this is going to eat away $100,000 per year or $80,000 per year and that’s coming out of inheritance. So, that’s a really good point. Maybe this is exactly why the ultra wealthy uses insurance, so they can have the best care without the family interfering in the process. Oh, that’s funny. Money does make things…

Brian Kelca:

People react differently when it comes to money.

Crystal Oculee:

Absolutely. So, I’m excited that we got a chance to talk about this really quickly. I think it’s so important for people to see and be educated, because obviously, these also you have to qualify for, it’s not like you can go in and they take everybody. So, Brian, what would you say would be the next step? If someone is hearing this and they’re like, this sounds like something I want to do. I want to self-fund through an insurance company with some of my own money, what will be the best way for them to get ahold of you?

Brian Kelca:

Yeah, the first thing we need to do is have a conversation. The best bet is to give me a call at (424)273-8844. If we both have time at that point in time, we can talk. If not, we can set up a time where it’s convenient for both of us. We’ll discuss a custom plan specifically for you, everything from how much coverage you need, assets, everything’s customized for you individually.

Crystal Oculee:

Perfect, that sounds great. So, learn about it. You have a go-to person, you’ve been hearing Brian in the last Q and A session a few times. I have a lot of clients that love talking with him and really educates them very well. I’m super excited that I learned about this particular fund, because I really liked the fact that you don’t lose your money. That’s important. That’s one of the things that we’re always passionate about, keep your hard earned money and don’t just give it up in case you don’t use it. So, thanks Brian, for being in this quick little tip of the week segment with us today.

Brian Kelca:

Thank you.

Crystal Oculee:

Have a good one, everyone.

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How Secure Is Social Security?

If you’re retired or close to retiring, then you’ve probably got nothing to worry about — your Social Security benefits will likely be paid to you in the amount you’ve planned on (at least that’s what most of the politicians say). But what about the rest of us?

The media onslaught

Watching the news, listening to the radio, or reading the newspaper, you’ve probably come across story after story on the health of Social Security. And, depending on the actuarial assumptions used and the political slant, Social Security has been described as everything from a program in need of some adjustments to one in crisis requiring immediate, drastic reform.

Obviously, the underlying assumptions used can affect one’s perception of the solvency of Social Security, but it’s clear some action needs to be taken. However, even experts disagree on the best remedy. So let’s take a look at what we do know.

Just the Facts

According to the Social Security Administration (SSA), approximately 68 million Americans currently collect some sort of Social Security retirement, disability or death benefit. Social Security is largely a pay-as-you-go system, with today’s workers (and employers) paying the benefits for today’s retirees. (Source: Fast Facts & Figures About Social Security, 2019)

How much do today’s workers pay? Well, the first $137,700 (in 2020) of an individual’s annual wages is subject to a Social Security payroll tax, with half being paid by the employee and half by the employer (self-employed individuals pay all of it). Payroll taxes collected are put into the Social Security trust funds and invested in securities guaranteed by the federal government. The funds are then used to pay out current benefits.

The amount of your retirement benefit is based on your average earnings over your working career. Higher lifetime earnings result in higher benefits, so if you have some years of no earnings or low earnings, your benefit amount may be lower than if you had worked steadily.

Your age at the time you start receiving benefits also affects your benefit amount. Currently, the full retirement age is in the process of rising to 67 in two-month increments, as shown in the following chart:

What Is Your Full Retirement Age?

Birth Year Full Retirement Age
1943-1954 66
1955 66 and 2 months 
1956 66 and 4 months
 1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 and later 67

Note: If you were born on January 1 of any year, refer to the previous year to determine your full retirement age.

You can begin receiving Social Security benefits before your full retirement age, as early as age 62. However, if you retire early, your Social Security benefit will be less than if you had waited until your full retirement age to begin receiving benefits. Specifically, your retirement benefit will be reduced by 5/9ths of 1 percent for every month between your retirement date and your full retirement age, up to 36 months, then by 5/12ths of 1 percent thereafter. For example, if your full retirement age is 67, you’ll receive about 30 percent less if you retire at age 62 than if you wait until age 67 to retire. This reduction is permanent — you won’t be eligible for a benefit increase once you reach full retirement age.

Demographic trends

Even those on opposite sides of the political spectrum can agree that demographic factors are exacerbating Social Security’s problems — namely, the number of retirees is increasing and the birth rate is decreasing. This means that over time, fewer workers will have to support more retirees.

According to the SSA, Social Security is already paying out more money than it takes in. However, by drawing on the Social Security trust fund (OASI), the SSA estimates that Social Security should be able to pay 100% of scheduled benefits until fund reserves are depleted in 2034. Once the trust fund reserves are depleted, payroll tax revenue alone should still be sufficient to pay about 77% of scheduled benefits. This means that in 2034, if no changes are made, beneficiaries may receive a benefit that is about 23% less than expected. (Source: 2019 OASDI Trustees Report)

Possible fixes

While no one can say for sure what will happen (and the political process is sure to be contentious), here are some solutions that have been proposed to help keep Social Security solvent for many years to come:

  • Allow individuals to invest some of their current Social Security taxes in “personal retirement accounts”
  • Raise the current payroll tax
  • Raise the current ceiling on wages currently subject to the payroll tax
  • Raise the retirement age beyond age 67
  • Reduce future benefits
  • Change the benefit formula that is used to calculate benefits
  • Change how the annual cost-of-living adjustment for benefits is calculated

Uncertain outcome

Progress on addressing Social Security’s financial challenges has been slow. However, the SSA continues to urge all parties to address the issue sooner rather than later, to allow for a gradual phasing in of any necessary changes.

Although debate will continue on this polarizing topic, there are no easy answers, and the final outcome for this decades-old program is still uncertain.

In the meantime, what can you do?

The financial outlook for Social Security depends on a number of demographic and economic assumptions that can change over time, so any action that might be taken and who might be affected are still unclear. But no matter what the future holds for Social Security, your financial future is still in your hands. Focus on saving as much for retirement as possible, and consider various income scenarios when planning for retirement.

It’s also important to understand your benefits, and what you can expect to receive from Social Security based on current law. You can find this information on your Social Security Statement, which you can access online at the Social Security website, ssa.gov by signing up for a my Social Security account. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60.

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U.S. Government Sends Millions of Economic Impact Payments by Prepaid Debit Card

In May 2020, the IRS sent Economic Impact Payment (EIP) prepaid VISA debit cards to individuals who qualified for a stimulus payment under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and didn’t receive a payment via direct deposit.

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