What’s Your Plan? Protecting your most important asset: Your family

The agenda…  Why planning for long-term care must be discussed with your family  What the consequences are if you don’t  Developing a plan to protect your family and finances  What will pay for your plan

My goals are to…  Give you insight into the consequences your needing care over a period of years could have, not on you, but those you care deeply about.  Speak to the consequences an illness will have on your best thought out retirement plan.  Discuss the options for protecting both your family and finances should you need care over a period of time.

Living a long life could well be in your future. Planning for it is now a necessity.

I believe that reasonable people…  Understand they could live a long life.  Believe that it’s possible they could become frail and need care if they do live a long life.  Are willing to consider taking action if they understand that needing care could have serious consequences to their family and retirement portfolio.

That said, I’ve had clients tell me…

 What if I don’t live a long life? Very few in my family made it past their 70’s.  Or…  Even if I do live a long life, what if I don’t need care? Everyone in my family was healthy until the day they died.

 You very well may be right…  The risk of you living a long life may be low because of your family history.  The risk of you needing care may also be low because of your family history.

But have your thought about the consequences to those you love if you ever did need care over a period of years?

 Failure to develop a plan for care likely will create two sets of consequences… To the emotional and physical wellbeing of your caregivers; and To your retirement portfolio which was never intended to pay for care.

Who do you think is most impacted by needing care over a period of years?

Ironically, it’s not you…  It’s your family.  The nature of long-term care demands your family’s attention because a cognitive impairment or an inability to perform the basics activities of daily living are all consuming.  And since that attention may not be shared by your children equally, it may very well tear the family apart.

 Not one of my clients has ever told me they wanted their children to put aside their lives to take care of them.  To which I’ve replied…  “Respectfully, what choice will they have if you don’t have a plan?”

 Put simply, if you ever need care over a period of years, your life is not going to end…  Someone else’s life is going to end.

Are you aware that your life savings is not going to pay for you care?

 Your retirement portfolio is going to pay for care.  Your portfolio is allocated to generate income to support lifestyle. Reallocating the income likely will have two serious consequences…  First, to your ability to keep your financial commitments; and  Second, if the illness lasts long enough, to the financial viability of your spouse and or children, who depend on an inheritance.

 From this point, I ask that you not focus on your risk of needing care over a period of years…  But rather the consequences to those you love about if you ever did.

What’s the plan?

It’s twofold…  To maintain your independence in the community for as long as possible without risking the emotional and physical wellbeing of those who will provide your care.  To preserve your retirement plan so it can execute for the purposes you intended Supporting your lifestyle and keeping continuing commitments to your family and community To make sure your surviving spouse (in any) never has to turn to the children Leaving a legacy to those who deserve and/or need it

Paying for your plan… How paying for care can impact your retirement portfolio

During working years…  You create and fund a portfolio that will both support a lifestyle during retirement and keep continuing commitments to your family and community.  The portfolio is allocated precisely for that purpose. It’s not likely there is a lot of income left over.  Like many of my clients the implied promise is that principal will remain intact because you don’t know how long you and your spouse will live and what may happen.

And during working years, that portfolio is protected by…

Asset & Income Portfolio Protection Portfolio Automobile  Family  Wealth  House  Salary  Auto insurance Life & health insurance More life insurance Home owners insurance Disability income

What is protecting your retirement portfolio, which includes your wealth and home, from the risk of needing care?

Alan & Camille are 43 years old. They have 2 children…  Their combined income is $200,000 per year.  The house is worth $850,000. It has a mortgage of $200,000.  Their retirement portfolio is just under $500,000.  One child is in private school, the other in college.  In addition they belong to a club, have modest credit card debt and purchase a car every 5 years.

Alan dies suddenly of a heart attack

What has been allocated from the retirement portfolio and/or equity in the house to pay for the continuing obligations that his wife will face?

Nothing…  Alan purchased life insurance.  Alan didn’t think he would die during working years. In fact, statistically he was correct.  He knew, however, that even though the risk might be low, the consequences would be catastrophic to his family.  Alan purchased life insurance for the same reason everyone purchases life insurance…

He loved his family.

Alan & Camille make it to 78…  His passion is golf. Camille rides horses. Both love to travel and they have a house in Florida.  Their house is paid off and worth $1,500,000. Their portfolio, worth $2,000,000, generates $100,000 per year. Combined with social security, it is $145,000 per year.  They have a child who has not made the best decisions and are helping to pay for their grandchildren’s education.

Camille is diagnosed with Alzheimer’s.

What has been allocated from the retirement portfolio and their income to pay for her care over the next 8 to 10 years?

All of it. Where else can it come from?

Alan is now faced with how to pay for his wife’s custodial care. He looks into…

 Medicare but finds out that it is health insurance. Health insurance pays for skilled and or rehabilitative care only.  The VA is not an option for custodial care.  Medicaid. He is told it will pay for custodial care, but almost exclusively for care in a nursing home. Alan promises himself it is the last option. He is also learns of the tax consequences associated with gifting low cost based assets and qualified funds.

 Since nothing was allocated to pay for care, Alan is now forced to reallocate the couple’s income to pay for it.  At a minimum, their lifestyle is devastated and he is forced to make difficult decisions on what to spend money on.  Alan is now faced with the possibility of invading principal.  His children are now faced with re-orientating their lives to help provide care.

Camille has Alzheimer’s…

Her husband and children suffer from it.

A thought…  Take a moment to estimate what your income is likely to be when you retire.  Now subtract your estimated expenses.  Is it fair to say that there is not much left?

Finding the right solution Looking at long-term care insurance as an essential tool which protects your family and retirement portfolio.

Many people believe it protects them if they need care over a period of years…

It doesn’t

Long-term care insurance doesn’t protect you, it protects your family…  It provides income which can be used to pay for the types of care your family will find the most time consuming, stressful, and perhaps, embarrassing.  By providing income, it allows your spouse to maintain her relationship with you as a spouse, supervising your care, not as a spouse providing it.  And allows your children to maintain their relationship with you as children, supervising your care, not children providing it.

Many also believe it protects assets.

It doesn’t do that either.

It protects your Retirement Portfolio…  Your portfolio generates income to support your lifestyle and the prior commitments to your family.  Since nothing has been allocated from the income portfolio to pay for care, it likely will force a reallocation.  At a minimum, lifestyle could be seriously compromised. In a worst case scenario, you may have to invade the investment portfolio, thereby placing a surviving spouse at risk financially.

“I’ve been told I have enough assets to pay for the cost of long- term care”

From this point, I would like you to think about income paying for care, not assets paying for care…

AssetsIncome  $1,000,000=$50,000  $1,500,000 =$75,000  $2,000,000=$100,000  $2,500,000=$125,000

Take a sheet of paper  Draw a line down the middle…  On the left write: “Estimated Income”  On the right: “Estimated Expenses”  Your income is $125,000.  What do you think you expenses are?

Where is the income going to come from to pay for care?

One more thought about wealth…  If someone has $10,000,000 in assets…  How much of that is liquid? Perhaps $3,000,000?  $3,000,000 generates about $150,000 per year.  Liquidating other assets may produce substantial income or capital gains taxes.

“Maybe, but I’ve been told that if I need care I won’t have much of a lifestyle, so the money saved can be used to pay for care.”

It stopped being your lifestyle, the day you got married and had children.

Some final thoughts…

 Successful people who love someone, purchase life insurance to mitigate the consequences of an unexpected death during working years… Not because they expect to die during working years.  Successful people who love someone purchase long- term care insurance to mitigate the consequences of both providing care the impact paying for it… Not because they plan on needing care.