← AICPA Personal Financial Planning (PFP)
Loading summary
Transcript92 lines
- [00:01]
A
Welcome to AICPA's Personal Financial Planning Podcast. This is Kerry Sinnott. On behalf of the AICPA Personal Financial Planning Division, the home for professional personal financial planners, we're happy to bring you insights from experts in tax, retirement estate investment, risk management, practice management and client relationships. Be sure to Visit us@aicpa.org Pfp to find more resources and tools designed to help you guide your client. Today on the podcast we're going to have Dr. Carolyn McClanahan. Now, she's a physician and a financial planner now for over 20 years. Is that right?
- [00:48]
B
Yep. I started my practice in 2004.
- [00:51]
A
That is amazing. You've been on the front line of the intersection of personal health and personal financial health. And I know that concern is very relevant to clients of financial planners, but also the financial planners themselves and even myself. My wife and I have four adult children. And if we don't prepare in advance for healthcare needs, which everybody is going to encounter, there's pretty significant statistics on how often people have even a long term health care event that happens. It's pretty significant, isn't that right?
- [01:34]
B
Yeah. I say 70% of people have a long term care need, 30% of people die quickly. So you gotta pick, which one do you want to be in.
- [01:43]
A
Oh my God, that sounds great. Now you're at this intersection of both of these very significant pieces of information and there really should be a stop sign at this intersection for us to go, all right, let's pause here and do something about it. Financial planners, often in our experience there are things that are maybe a little bit easier to talk about. Carolyn, how do you approach the conversation? Maybe you have an added advantage because you're a doctor, but how do you approach the conversation and talking about these important healthcare issues?
- [02:26]
B
But I've been talking to financial planners and speaking at conferences for, gosh, most of my career in financial planning. And that is the number one complaint I get from financial planners is I don't feel like it's my place to talk about health, that health is like one of the biggest factors that's going to affect a happy retirement or a happy life. Because if people aren't taking care of their health, you have to plan for that very differently than, than people who are taking care of their health. And we've got to plan for who people are, not who we want them to be. And so the way I tell advisors to become comfortable with speaking about health is just one realize we're all human beings. Think about old people, what do they talk about? All the Time they talk about health complaints. Yeah. And it's amazing the number of guys that like to tell me about their prostate. It just know you're comfortable talking about health, they will be comfortable talking to you about their health. And it's important to them. And so the number one question I tell advisors they need to ask or say to clients is, tell me about your health. What do you do to take care of your health? And then you can preface it with, I know it doesn't seem like something a financial planner would ask, but it's really important to make sure that we're planning appropriately for future healthcare needs and for all your projections, because health plays very tightly in all of this.
- [03:50]
A
In fact, healthcare events could be the one unplanned piece that can really take a financial plan off track. Is that right?
- [03:59]
B
That's correct. And the problem is, is you don't really know when a health event's gonna happen. You'll have people who live these crazy, healthy lifestyles that'll get cancer in their 50s and die. And then you have people like the Rolling Stones, they burn their candles from both ends and have lived wildly. They look like they're going to live forever. And so you just don't know what's going to happen. But you can go on statistics. If you have a person who eats right, exercises, has normal weight, stays away from toxic people and toxic substances, and they have longevity in their family, that you've got to plan for long age for that person and you have to plan for the possibility of dementia because the longer you live, the more likely it is you're going to get dementia. The risk of dementia doubles every five years after age 60. Now likewise.
- [04:54]
A
That's amazing.
- [04:55]
B
Yeah. And I, I actually heard this very early in my career at AICPA conference I had, there was a guy speaking that said we should plan for everybody to live to age 100. And realize I was probably like three or four years of my career at that point. And I immediately stood up and asked a question. I said, what if your client is a 300 pound person with diabetes who smokes and refuses to take care of themselves? And the guy actually said, yes, you should still plan to 100. I said that's wrong because that person is not going to live forever and you need to plan again for who people are, not who we want them to be. And so that's totally different planning. And that's why one of my talks that I do is are you happy now? And if you have clients who aren't taking care of Themselves, there's a reason why. And instead of trying to plan for this unpredictable future of a life they're probably not going to have, we need to focus on what is keeping them from current life satisfaction. Now, that's making it where they're not taking care of themselves.
- [05:57]
A
Yep. Carolyn, how do you help people see that they need to put together a plan for that unpredictable nature of healthcare events. And even people who maybe are not taking the best care of themselves. But just like your analogy of the Rolling Stones, they may live longer than either of us anticipate.
- [06:20]
B
This is why, and it's an argument I have screamed about forever, is that we need to focus more on planning for the present instead of trying to spend so much time predicting unpredictable futures. And so when I have a client, let me, I'll take you through a trajectory of how we would plan for different types of clients if I have a client in their 50s. Because that's what a lot of people really start getting serious about financial planning. That comes to me and I find. And they say, I really hate my job and I want to retire at age 55. Let's say they're 50 and I'm trying to save all this money. It's. Let's think about this. Why do you hate your job? Tell me, tell. And I always say, tell me about like your career. What are you doing? What would you prefer to be doing? Because the problem that you get into is. And I tell people retirement was invented in the 1930s when Social Security came into being. Because back then people lived in. They worked until they died. If you made it to 65 back in the 1930s, which the average life expectancy was 65 in the 1930s, then you had a 50% chance of making it to 72. And we were not meant to live. Now life expectancy is like in the late 80s. It just depends on your health. But we were not meant to live 30 years in retirement. That for a happy life trajectory, you need a sense of purpose and you need some sort of thing to keep you going. And staying financially engaged in occupation helps happiness and it creates financial security. So with somebody like that, I would say let's step back and think about what would bring you life satisfaction. Because the other thing you can't count on is the market's taking care of you for 30 and 40 years. We've been very lucky in our lifetime in that since the 80s, the markets have done remarkably well. The recessions have been short. Even the Great Recession of 2008 ended up being pretty darn short 2009. And so people are so used to markets bouncing back, but it's like, what if we have a Great Depression again? It took the markets 20 years to bounce back. So it's your safest asset is your human capital. So if you want to quit work early, then we need to do something to make sure you've maintained your human capital so that if the world doesn't turn out as expected, you have utility to the world that you can still earn money.
- [08:58]
A
That's brilliant. And Dr. I, I saw a statistic just the other day on the continuing extension of longevity. Kids born today are likely to live well into their 90s on average. And so exactly the predicament that you're talking about, where there's perhaps an extended period of retirement that really makes the case for even more deeper and sophisticated financial planning to make sure people are protected.
- [09:34]
B
Right.
- [09:35]
A
One of the issues in healthcare and caregiving is not only do we have to plan for ourselves, but sometimes we have to plan for our aging parents. If there were some key financial steps that families should take when planning for long term care for aging parents, what would you recommend?
- [09:54]
B
The first is a conversation. And it's like too many kids put their heads in the sand about how their parents are doing. And especially you look at the older generation right now in their 80s and 90s, 90s, they did not talk about money, they do not like to talk about money. There's a lot of family secrecy and what ends up happening. And I see these disasters all the time. I just spoke at the Boglehead conference, which is all the do it yourselfers. And my topic is when do it yourself or should quit doing it themselves. And I shared, yeah, I shared all these disasters I've seen just from people don't know when to say when. And older people are, they think they're more capable than they are and they don't realize that they're starting to slow down. And so you have to have a conversation. And we recommend starting this when people are in their late 50s, early 60s. So when your parents are, I don't know who's listening to this, but if you have parents in their 50s, early 60s, have that conversation. And I call it the our Aging plan where we discuss where are you going to age? At home. Is the home aging friendly? Do you plan to move to assisted living or skilled care at some point? A lot of people unrealistically want to stay at home when it's no longer safe to stay at home. But they say to the kids, never Put me in a nursing home. And that puts the kids in a tight spot. So having that conversation about where you're going to age, when you're going to get help with financial decision making, when are you going to get help with healthcare decisions, and when you're going to quit driving and when you have those conversations, when people are healthy, when there's not a problem, there's the defensiveness, isn't there? But if you wait until there's a problem, then everybody's angry. So it starts with a good conversation.
- [11:41]
A
And have that conversation early. It sounds.
- [11:43]
B
Yeah.
- [11:44]
A
And then if you're having it with your parents, you might as well have it with inside your own family about what you're going to do. But doctor, how should families prepare for the fluctuating needs of caregiving? From just like you were talking about initial home care to maybe a transition to potential skilled nursing, how do we prepare for that?
- [12:07]
B
Yeah, the challenge is you never know what people are going to need and when. And again, you have to go on statistics. If you have a very active, healthy elderly person, the chance that they're going to need care soon is not as high. But still, to have an initial conversation with the entire family, if mom or dad ever gets into help, who's going to do what? And usually it's a continuum. Older people first just need help with their house maintenance. As if you're going to age in place and you have a yard, who's going to help take care of the yard? Who's going to help clean the house? You lose your eyesight. You don't realize that things are really grungy. And I'll never forget the neighbor's house I walked into when we first moved in our house 30 years ago, and their house was still. This was like late 90s and their house was decorated like the 60s. And I made my husband promise that we were not going to do that. We were going to keep our house updated. Who's going to help with the house upkeep, making sure it's clean, and then who's going to help with the financial stuff? So you actually lay out a preliminary plan and it prevents reactive, expensive decisions. And especially with the house, is it aging friendly? Only 10% of homes are truly aging friendly. And so you can.
- [13:26]
A
Aging friendly means like widening doors and maybe the bars in the bathroom if you need help getting in or out of the bathtub. Is that what you're referring to?
- [13:38]
B
Yes. And so it's little things like making sure the doors are wide enough that a walker could fit through because it's hard to go and reconstruct a door. The bathroom. You talked about the grab bars. You don't have people think of aging friendly as. As ugly. You don't have to put the grab bars in yet. You just have to make sure that your bathroom is that you can install the appropriate equipment to make that bathroom friendly for somebody who's say on a walker or in a wheelchair. And so have. And there's occupational therapists that'll actually come evaluate a home and tell you, here are all your hazards. It's amazing. A six inch step can be a huge problem. And so how can that stop step be mitigated? How can the location of a toilet in the wrong place be mitigated? You do all that when you're well because it's so much easier to do remodeling and things that need to be done before you need it.
- [14:34]
A
Absolutely. As opposed to in the moment something happened. And you have to wait in order to try to get that work done when it's already needed.
- [14:46]
B
Right.
- [14:46]
A
Carolyn, what happens though? How do you recommend handling if a family disagrees about the care decisions? What do you do then?
- [14:58]
B
Yeah, the first part is this is why you have the conversations early before that elder person actually is in trouble because they're.
- [15:08]
A
Or if it's you to make sure.
- [15:11]
B
Yeah. Because when you have the ability to be able to make those decisions both emotionally and from an energy level, when you're sick and you're having a lot of trouble, it's hard to make decisions and you become defensive and stick your head in the sand. You just want to avoid all conversation. So ideally you do this early. Now the problem is most people do not address this early. You are stuck in this situation of how do you negotiate if families fighting how care should be. That's where if you can't come to a good agreement together, it's good to get a geriatric care manager involved.
- [15:48]
A
I see.
- [15:49]
B
Yeah. And a geriatric care manager will help people see the reality of the situation. And if placement needs to happen, they will help with convincing the elder person that placement needs to happen. They can help arrange home services. And so getting an outside third party can be invaluable in getting people to do the right thing and to see the situation for what it is.
- [16:14]
A
It sounds like maybe something like a personal care agreement might be valuable. Can you tell us a little bit about what that is?
- [16:24]
B
A personal care agreement actually is something that can be done by an attorney to help for Medicaid planning. That's where you're actually paying the family to take care of, of the person so that it, that they can spend down their money in a legal way so that they won't be disqualified for Medicaid. So that's, that's a personal service contract. So I don't want to confuse that with an agreement, an intra family agreement where they are in advance agreeing who's going to do what. It's always good to document this, put it on paper because people forget, people change their mind. Everybody recalls conversations differently. So yes, having a family conversation and documenting who's going to do what, especially if one person is going to be a primary caregiver, what consideration are they going to be given for that? Are they going to get a bigger inheritance? Are you going to pay them like through a personal service contract? Are you going to give them help, respite care? Are they going to be able to hire people to help when it becomes too much? So laying all those logistics out in advance makes it a lot easier when the events really happen.
- [17:34]
A
It sounds like you are going from the very big conversation. First, just have a conversation about it second, now talk about who will take care of what and when and then maybe if necessary go into these more detailed type of areas depending on are you paying for yourself or will you need Medicaid to pay for it? That makes a lot of sense. But first have that conversation is right what it sounds like you're saying.
- [18:03]
B
And it's important to talk about the money too while everybody's well. Yes. And so you got to look at if somebody's going to age at home. That's the most cost effective place to age up to a point. If you need to hire paid caregivers, you can go to the Genworth cost of care site for your area to find out. How much does assisted living cost? How much does skill care cost? How much does it cost to hire somebody? And I actually did this analysis of different cities. What's the break even point? That it becomes less expensive to move. And it's amazing. If you need more than about six hours of care, then assisted living is going to actually probably end up being cheaper. Six hours of care per day, that's surprising.
- [18:46]
A
So at six hours that becomes what I hear you saying is the break even point between living in assisted living versus trying to take care of it in your home. Is that correct?
- [18:58]
B
And now if you need a higher level of care, care, so skilled care, that's the break even for that is about 11 to 12 hours.
- [19:07]
A
Okay. And how Is it? What's the difference between assisted living and skilled care? So help us understand, when does somebody need skilled care?
- [19:17]
B
So assisted living is when you could pretty much get around on your own. You can dress yourself, bathe yourself, feed yourself, but you may need somebody to check on you, you may need reminders to take your medicine, you may need help prepar meals, so you could still do stuff, but you don't need people to change your underwear. Skilled care is when you need help, more significant help with the activities of daily living or and you are, let's say you need more intensive medical care, say dressing changes or if you're wheelchair bound, you have to have bed sore precautions, things like that. And nursing homes and assisted living facilities, they definitely, when you apply to these places, when you're looking to go find out what is considered when I need more than assisted living. A lot of facilities, they, they want to bump you up to skilled care because they get paid more. And so you got to make sure if somebody is, let's say that your person that you love is in assisted living, maybe you can actually keep them in assisted living if they'll let you hire additional care. So you got to be prepared for that. Sometimes you may have to hire additional services that are not covered under the primary assisted living contract.
- [20:37]
A
That makes sense. And in the news recently related to that long term care insurance premiums, it sounds might be going up. What practical tips do you have for managing the increasing cost of care, especially when we see fee hikes in those insurance premiums and even at assisted living facilities. What should we do?
- [20:59]
B
The insurance policies, long term care policies sold in the 2000s, they're beautiful policies and they. Now we know they seemed expensive at the time, but now we know they were a bargain and severely underpriced. So they have had over the past few years very significant premium increases. And I tell people if you have one of those beautiful policies, keep those beautiful policies, accept the increases because if you compare them to a lot of those policies, you can even get on the market now. And if you were able to get something even close, it'd be so prohibitively expensive you wouldn't even think about buying it. Do what you can. And your children ask if you are on fixed income because a lot of people who are retired, it's like, gosh, I only have so much. See if your children will help pay for the costs. This could help preserve your inheritance. But I'm having a hard time affording this now. See if they'll help pay as far as the actual Assisted living and skilled care costs. Yes, it's getting more and more expensive. We have a dire situation to me in this country about the state of long term care. Care providers are underpaid, they don't get benefits. So it's hard to find good home caregivers. Hopefully that'll change. I don't know if you saw the announcement by Vice President Harris about her goals for a home long term care benefit through Medicare, which would be. Yeah, it'd be huge. And so it would be available to everybody who's on Medicare. It would be means tested so poor people would get a bigger benefit. It's just like Medicare, IRMAA premiums or means tested.
- [22:35]
A
Okay.
- [22:36]
B
So it would be you'd get less benefit the more wealthy you are, but still even most middle income people would get a significant benefit. And it's all to help people age at home. So those are things that hopefully help mitigate long term care costs if we can ever get them passed. I've been around a long time and I've seen so many different politicians take a stab at the long term care problem. Nobody's done it successfully because it's going to be expensive. But I tell people in the long run we really need to do something because this is hurting us economically and it's keeping our elders from aging in the manner they should.
- [23:15]
A
So with dignity it sounds.
- [23:17]
B
Yeah, yeah. To have a workforce that's dedicated to our aging population would do huge things, not only for the patient, but it allow those people who are staying at home, giving, doing, caregiving to go back out into their jobs.
- [23:33]
A
That makes a lot of sense. And let's assume for the moment you have the ability to choose between home care and, and nursing home or assisted living. How do you evaluate and select the right place?
- [23:49]
B
So the first thing you've got to think about is is it somewhere you want to be and though that would depend on. Or do you have friends close by? Because a lot of people end up going into assisted living but they still have friends that live in the community. One of the most important things to do to age successfully is to stay socially engaged. So you have to make sure that you're going to be around people who can still help you enjoy life.
- [24:16]
A
So make sure you have friends. Right.
- [24:17]
B
And always try to get younger friends so everybody didn't die off before you. Yeah, I have, I'm very intentional about keeping all age groups of friends. I have very old, very young friends and, and you got to tend to those relationships. The second thing is who's going to be your, the main person looking out for you. So if it's a daughter or son, you don't want to be in a nursing home that's a thousand miles away, if possible. So you've got to decide, do I want to live close to be in a place close to where the person's watching out for me or do I want to risk them being a million miles away and it's going to be harder for them to manage care? So that's another very important thing to think about. And then of course, you want to look at the quality of the home. The there, there are checklists available through AARP and, and you can look at Medicare ratings. I'm not the Medicare ratings for nursing homes. I'm not fond of them because a lot of nursing homes know how to game the ratings.
- [25:20]
A
Okay.
- [25:21]
B
But if a nursing home has a really bad rating, it's probably not good. But if it has a really good rating, you have to take it with a grain of salt. So go in with that, with a checklist to say, does it have all these things that are important to me?
- [25:34]
A
Excellent. How can, let's say we decide to have our family member maybe move into a place. How do we make sure that they are still an active participant in their own care plan?
- [25:53]
B
Yeah. So being what I call an engaged patient is very important. The more engaged you are in your care, in your health and well being, the better care is going to be provided to you. Because it's hard when somebody's not interested. And I know as a doctor, when you have people who don't want to take care of themselves, they don't care about what medicines they're taking, it's much harder to take care of these people. Much more frustrating than somebody who actually comes to me and say I'm on this medicine and do I really need this medicine? I welcome that because when people are actually invested in their care, they're going to, they're going to do better.
- [26:31]
A
And the opposite side of that. Go ahead.
- [26:33]
B
No, you go ahead. The opposite side of that.
- [26:35]
A
The opposite side of that is a phenomenon called the dwindles. And so how do you deal with somebody who's maybe not an active participant, just like you were talking about, and is doing some dwindling behaviors. Tell us a little bit about that.
- [26:54]
B
Yeah, so the dwindles are actually, it's a medical diagnosis and it's basically when an elder person is starting to dwindle away. They just don't care anymore. They're not engaged, they don't they're withdrawn, they don't want to eat. They just don't want to take care of themselves. And dwindles occur for a number of reasons. One big reason, though, is lack of social engagement, lack of a sense of purpose. So if you can get the person involved and engage, a lot of times that'll turn dwindles around. But it's really hard for the most part, because oftentimes dwindles is the sign that the person really is ready to move on to whatever the hereafter is. And I don't think we talk about that enough in this country, is that we are all going to die at some time, at some point. And most of us love our parents. We don't want to let our parents go or we don't want to go. But there comes a point, and they've actually done studies on this, that of why people want to die. And one of them is they're just really tired of living. They you're in your 90s, you don't get to do anything. You don't have friends. And it's, I've lived a great life. Let me do. Let me go. Another is intractable pain. As you age, you start to get things like arthritis and stuff when all your bones are basically paper thin and everything's arthritic, doesn't feel good. And it. And my question at that point, what I. I try to get families to recognize, is you might want to get off what we call the medical treadmill.
- [28:23]
A
What's that?
- [28:24]
B
That's. So usually you have what's called a seminal event when you're old. You slip and fall, break your hip, or you get a really bad case of pneumonia or Covid that knocks you on your butt for weeks. Right. And the problem is older people are not as resilient. So if you're bedridden and you can't do things, then you just, you lose muscle mass quickly, you get weaker more quickly, and so it's hard to bounce back. And so you'll have somebody that goes into the hospital, they'll come out, they'll be weaker. If they're not engaged and dedicated to taking care of themselves, they're going to have another accident or they're going to get sick again. If they're staying in bed all the time, they're going to get pneumonia. So they end up back in the hospital. So that's the treadmill. They just bounce back and forth. And it's usually over a period of a couple of years that if they don't become engaged they just end up falling off the treadmill. And that's the end. And sometimes towards the end of the treadmill, the families just. And the doctors are the. And the medical system is just very reluctant to let people die. It's just our job is to keep people alive. But if families stand up for what's of value to them, that mom is no longer enjoying life. Mom Mrs. Dad, Dad's already died. It's, can we just keep her comfortable? And you want mom engaged in that decision too. And that's why families need to have these hard conversations when you're on, when the treadmill has gone on a lot farther and the person no longer has a quality of life to just next time they get pneumonia. They used to call pneumonia the old man's friend because it killed you quickly. Instead. Yeah. Instead of treating the pneumonia, you go, you call hospice. You keep the person comfortable. Yeah. And we don't talk about that enough. We're so busy just trying to stamp out anything that could kill a person. Unless it's just super bad, then finally we'll let them die.
- [30:24]
A
What's the difference between hospice and palliative care?
- [30:30]
B
Yeah, that's a great question. Hospice has been around for quite a few decades. And with hospice, that's when you're admitting that you have a terminal illness that has less than six month life expectancy and that you're giving up all curative care. And so they keep you comfortable and then you die. With hospice the problem, nobody likes to admit that they want to give up or that they're dying, especially people who have been fighting cancer. I hate the whole fight motif around cancer because at some point there comes a time where it's no more treatable and people are still reaching for everything and they wait too late and they suffer and they only spend a few days in hospice. Now, palliative care is where you're getting the same goal towards comfort, but it's not just for the disease. It's for people who still want to go through treatment and are trying to fix whatever problem they have. It also treats the side effects of the treatments, like if you undergo chemotherapy. It's much more dedicated to people keeping people comfortable throughout treatment of their disease. And so there's no timeframe on it. And the goal is not for the person to die, but it's to focus totally on comfort. And what we're finding is now, because palliative care has become a thing in the past, a little over a decade now, is that people who get early palliative care when they have serious illness, actually live longer and have better quality of life than people who don't.
- [32:07]
A
Okay, that sounds great.
- [32:09]
B
So the other nice thing about it is that because it's already. It's done by the same doctors, hospice doctors, that when it actually is time that they know that their illness is no longer treatable, it's. They go into hospice much sooner.
- [32:25]
A
Okay.
- [32:26]
B
Yeah, but still, remember they've had better quality of life and they've lived longer than people who never accessed that care to begin with.
- [32:33]
A
Yeah. We've talked about a lot of different kinds of care facilities. Are there any legal precautions that we should be taking as we sign contracts with care facilities?
- [32:47]
B
Oh, so yes. So you gotta make sure that you understand the contract, you understand what's going to be paid for, where you might have to pay extra. A lot of facilities have different levels of care, say within the assisted living. If you need somebody to check on you a little more often or you need. You have a more complicated medication regimen, whatever it is, they may charge more. So make sure you understand that up front. Understand when they can kick you out, because if you're not a fun patient that they like dealing with, they may find a reason to kick you out. This is. There used to be laws against, and there's still rules and regulations, but they were definitely loosened during the last administration and we need to pay attention to when they can kick you out. What the bed hold is. Let's say your parent ends up in the hospital and how many days can they be in the hospital before they'll take your bed away? And now you got to find a new nursing home.
- [33:46]
A
Wow. I couldn't imagine. You're in the nursing home. You have to get more care and so go to a different facility. And in the meantime, you've been gone too long. We had to put somebody else in the room. Yeah.
- [34:00]
B
Yep.
- [34:00]
A
All of these different types of care cost a lot of money. What role does life insurance, reverse mortgage, estate planning play in making sure that we can afford these things?
- [34:15]
B
So first off to me, everybody should do income planning and know how much they have in reserve to use for things like long term care. And. And I break people into three buckets of they have so much money, they're going to be okay. And even if they have to spend $140,000 a year on a long term care facility, and then I break people into the other end of there's no way they're going to be able to afford much care. And so those people, you're thinking Medicaid planning and you have those conversation or conversations early to help families prepare, then everybody else is in the middle where it really depends on how long are they going to need care, how well they would do. I have a goal of making sure that everybody has enough money to pay for two years of care.
- [35:07]
A
Two years. And why did you select that time frame?
- [35:10]
B
Because nursing homes, when they look at whether they want to admit you, they look at how much money do you have to pay for care and for how long. And if they see in the average care need is two to three years. Right. So they see that you have the money to cover a couple years, they're going to take you. So you want to make sure that you can afford that in some way, whether that's going to be through your cash flow. Because remember, if you've moved in a nursing home, I don't. It depends on whether you have a spouse that still lives in your home or whether your primary caretaker was living in your home. But ideally you wouldn't have the home expenses anymore. You've got. Every situation's different and you have to look at those situations to determine how is this going to be paid for. But we make sure that people have two years worth of care. Then the other thing though you want it, that's when you look at health also. And if I have a person who has significant health issues, they're not taking care of themselves. I really don't worry about long term care needs past two years because the chance that they're going to need more than that is not real high.
- [36:20]
A
Okay. So plan for two years and that's probably a safe amount of time. And, and the appropriate number that should be included in a financial plan is what I hear you saying.
- [36:31]
B
Yeah. Making sure they have the cushion for a lot of, for a lot of our clients in that boat. To me the house is the cushion.
- [36:38]
A
I see.
- [36:39]
B
Yep. And. But if somebody is super healthy, then you gotta plan for the other risk factor of dementia, which the average long term care need for dementia is about five years.
- [36:50]
A
Wow. That's much longer than a other types of healthcare events.
- [36:56]
B
And it couldn't win a small percentage of those people. It could extend well past that. And so that's where you have to plan the family, help the family think mentally about are we ready to pay for this? And the problem with self funding is that you can have, you have people who have the money, but when it comes time to write those checks, they don't want to write those checks. It's like the kids are Saying, oh, my inheritance is going away or whatever. And so those are the situations where it's nice to have a long term care policy because that's a bucket of money. If used for long term care, you can get a much bigger bang for the buck. And so we actually lean towards people getting hybrid life long term care policies and lump sum like $100,000 down. Especially if they have an old life insurance policy and do a 1035 exchange on, you can put it in a new long term care life insurance policy where the life insurance isn't that great, but they don't need the life insurance, but at least the family's getting something back. But the long term care benefits there. And for those policies, I analyze if the person ends up needing care early, let's say they get early dementia in their 70s, you're going to be so glad you have that policy because the rate of return on that policy is going to be very high. Now if somebody doesn't need care until like their early 80s, then it's like you bought a bond, but still you've got a good return on, on the money. Right. And, but if they end up not using it until later, it's, you would have made more money investing it. But still the family, they're, they're happier to use a policy than they are to write a check out of your bank account.
- [38:42]
A
And there's also an advantage to knowing here's how much we have for that care. It really identifies, especially if the person that we care about played a role in getting the long term care policy. That's their way of also identifying, here's the kind of care that I want to have. Is that accurate?
- [39:04]
B
Yes, yes, absolutely. Yeah. When you have that money segregated and set aside, it gives you much more mental flexibility.
- [39:13]
A
Absolutely. Well, doctor, this has been great, Carolyn. You have really illuminated some important points that I think we will all take to heart and add to our financial planning. You've been doing this for decades now and it sounds like the one big thing that was really important is start that conversation when everybody's healthy. Yes, absolutely. When everybody is healthy, have that conversation. What's the thought that you want to leave us with to really be thinking about as well?
- [39:49]
B
So in addition to having the conversation, make sure you're creating family transparency around everything around your finances, around your health directive choices, which we didn't talk much about, but everybody needs to have good healthcare directives and make sure that you, the family is on the same page about everything that's going to be done. It'll save you a world of heartache and money, too.
- [40:16]
A
That's great. How do you get to that? Transparency around healthcare directives and anything else that you might need in this area.
- [40:26]
B
So as far as the healthcare directives that you know, there's what people call living wills. There's something I like to use. It's called prepare for your care. You can Google that and it's a free. You don't need an attorney to fill it out. It's legal. They have a legal version for every state. It's a nonprofit, that organization that puts all this together. And it does. It allows you to name your healthcare surrogates and also put in what's important to you about quality of life. And by. And so by filling that out, it opens the door for conversations and so you share it with your family. So I just want to make sure everybody's on the same page of this. And if people have a hard time having hard conversations is a great book I always recommend called Fierce Conversations by Susan Scott.
- [41:14]
A
Conversations.
- [41:15]
B
Fierce Conversations. And she basically provides a framework for how to have hard conversations where everybody's glad that you had them after they're done.
- [41:25]
A
Yeah, absolutely. All right, so let me put those two things together. Start the conversation early while everybody is healthy, and then build transparency in what the healthcare is going to look like and the finances for healthcare. That way everybody is on the same page. And that's when you would walk away happy that the entire family and everybody who needs to be involved is on the same page. Knows what's going on and all moving in the same direction.
- [41:57]
B
Correct.
- [41:58]
A
All right, excellent. Thank you so much for your time Today we'll put up resources along with this podcast on our AICPA website. Thank you so much for your time. You have been an invaluable resource yourself and can't wait to talk with you again in the future.
- [42:15]
B
Well, thank you so much.
- [42:18]
A
Our hope is that you got a valuable takeaway. Check out the Show Notes to find resources related to this episode. To learn more, visit the AICPA pfp section@aicpa.orgpfp we'd love to know your speaker and topic ideas for future episodes. Send an email to us@financialplanningicpa.org if you get value from this podcast. We would appreciate your support by following the podcast in your favorite podcast app. Thank you for listening and I look forward to next time.
- [42:58]
C
This content is designed to provide illustrative information with respect to the subject matter covered and does not represent an official opinion or position of the aicpa, the association, or cima, it is provided with the understanding that they are not engaged in offering legal, accounting or other professional services. If such advice or expert assistance is required, the services of a competent professional person should be sought. The aicpa, the association, and CEMA make no representations, warranties, or guarantees as to, and assume no responsibility for the content or application of the material contained herein and especially disclaim all liability for any damages arising out of the use of, reference to, or reliance on such material.