Join Kelly and her guest, Nic Nielsen, CFP®, Co-Owner of Know My Plan.
In this episode:
🔹 How LTC can affect the retirement plan
🔹 Ways to pay for care
🔹 Considerations to make if people self-fund
🔹 How Health Savings Accounts (HSAs) can be used
Watch this episode on YouTube:
https://youtu.be/jtALIzDpAGA
Find out more about Nic:
https://knowmyplan.com/
For additional information about Kelly, check her out on Linkedin or www.SteadfastAgents.com.
To explore your options for long-term care insurance, click here.
Steadfast Care Planning podcast is made possible by Steadfast Insurance LLC,
Certification in Long Term Care, and AMADA Senior Care Columbus.
Come back next time for more helpful guidance!
Join Kelly and her guest, Nic Nielsen, CFP®, Co-Owner of Know My Plan.
In this episode:
🔹 How LTC can affect the retirement plan
🔹 Ways to pay for care
🔹 Considerations to make if people self-fund
🔹 How Health Savings Accounts (HSAs) can be used
Watch this episode on YouTube:
https://youtu.be/jtALIzDpAGA
Find out more about Nic:
https://knowmyplan.com/
For additional information about Kelly, check her out on Linkedin or www.SteadfastAgents.com.
To explore your options for long-term care insurance, click here.
Steadfast Care Planning podcast is made possible by Steadfast Insurance LLC,
Certification in Long Term Care, and AMADA Senior Care Columbus.
Come back next time for more helpful guidance!
Kelly 0:02
Hey everyone, welcome to Steadfast Care Planning where we plan for care to live well. I'm your guide, Kelly Augspurger. Today I have with me Nic Nielsen, Certified Financial Planner, co-owner of Know My Plan and author of Visual Finance. Thanks so much for being here. Nic!
Nic 0:18
Kelly, thanks so much for having me. I'm a big fan of all of your work, and so excited to be on your podcast.
Kelly 0:24
Likewise, Nic, you are a killer at visual finance and breaking down really complicated topics, and making them easy to understand. And you do that through a lot of your illustrations. So I would highly recommend, just give you a quick plug here, everyone to check out your Visual Finance book, I think it's so helpful. And then obviously, on LinkedIn, you're constantly on there explaining topics and illustrating and so props to you. I think you do a great job with that.
Nic 0:51
Thanks, Kelly. Luckily, one of the skills I have is people tend to like these little sketches that I do. So there's what they say a picture's worth 1000 words?
Kelly 1:00
Absolutely. It really is. And yeah, you do a phenomenal job at that. Well, Nic, really excited to have you on the show today. Let's just jump right in. Can we set the stage? Before we get into funding extended care, let's talk about how a long term care situation can affect the retirement plan.
Nic 1:20
Yeah, a lot of times when I meet with families, we have this really well constructed plan. And the one question that I ask or I present is, "What is the one thing that could go wrong to make all of this planning kind of go up in smoke?" and I just sit back and let people kind of look at the board of what we've done? Or what they've done already. And it's almost always that major health event, right? Some people can self-fund, but I think even the people that can when they really get educated about what folks like you do, they don't want to. And usually when you have that major medical event, it's what do you sell first? Then what do you sell next? And the ramifications on that are substantial, whether it is creating substantial tax events or less legacy to your children or or charitable organizations. It just creates that snowball effect of unintended consequences.
Kelly 2:15
Right, yeah, financially, and then obviously family, you know, if family is going to have to provide that care. Who's going to do that? Is that going to be the spouse? Is that going to be your children, your adult children? Can they do it? Are they physically able to? Do they want to do it? Do they want to be involved in your care? Logistically? Does it make sense? But yeah, it can really derail the retirement plan, right?
Nic 2:38
Absolutely. For most people that are entering retirement that have, you know, a couple million dollars saved, everything looks good from a 3.5 or 4% withdrawal rate. The one thing that can always derail the plan is that major medical event and you know, Tom Hegna, said it perfect, you know, no financial plan is complete without long term care. And I think he's absolutely right on that.
Kelly 2:59
That's right, you gotta have some kind of plan in place, whether that includes insurance or not. Everyone needs a plan for extended care. How are you going to pay for it? Who's going to provide care? Where do you want to receive care? Those are really the basics of getting your plan together for an extended care situation. Yeah. Thanks, Nic. Nic, tell us what are the different ways people can pay for care? What do you generally see with your clients?
Nic 3:24
I think, you know, my favorite way if you can get people young enough is to start funding these health savings accounts at a young age is kind of that holy grail of you can put in contributions that are pre-tax, they can grow tax deferred, if you use them for qualified medical expenses that come out tax-free. There's no other investment vehicle that can do that. We do a lot of work in, you know, the life insurance policies that have a long term care or chronic illness rider on them. We think those are really good for folks, as well as we still have some families that have the traditional long term care policies as well, especially the legacy ones. Maybe they have the unlimited pay. I mean, you just can't purchase a policy like that today.
Kelly 4:07
And besides, besides insurance, are you seeing other clients look into reverse mortgages? Look into self-funding? What are the other avenues that you that you see?
Nic 4:17
We've had several families evaluate reverse mortgages. I've never worked with a family that's actually implemented a reverse mortgage. You know, there are families that are fortunate enough to have rental income or they have dividend income from their portfolio that they feel is sufficient to cover any long term care needs or medical needs that could happen. So we have a large number of those folks, but luckily, even the people who can self-insure, once I've kind of taken them through the process when they understand the leverage that they can get through some of the various options that are available, we feel really good about having those things in place because with a lot of these plans, you get coordinated care and they're not the ones on the hook for putting it all together. I think that's maybe an understated value of having that long term care plan is it's more than just my spouse is going to take care of me and then my kids because I think anyone who's ever been in that caregiver role, the vast majority of them don't want their kids or their family members to be put in that role when they need the care themselves. I mean, it is a mentally and physically draining job. And it's hard to pick up your spouse, or it's hard to be the caregiver. You know, for an ailing parent, when I was younger, I firsthand saw my mother taking care of my grandparents and I know how physically taxing it was on her.
Kelly 5:40
Yeah, it really can be taxing, if you are that physical caregiver, especially day in day out, if you are the full time caregiver, there are major burdens that are put on you. And oftentimes, I mean, that really is the default plan. If you don't have an insurance policy, if you haven't had these conversations with your loved ones, and you don't have an actual plan in place, your default plan is, "Well, it's going to be a family member. They're the ones that are going to provide care." And then eventually, you know, if you spend down your income, you spend down your assets, and you have to rely on Medicaid, God forbid, then that ends up being a kind of a backstop there, but definitely not an ideal situation. The goal is to let's sit down with our family and our financial planner, and figure out what is the most efficient way to pay for care. What am I eligible for? What makes sense for our situation, for our family? And you know what, let's take care of our family first. What does that mean?
Nic 6:41
Yeah, absolutely. I think for most people, this is about independence and dignity. And you know, most people want to stay in their home, where they're comfortable, and where they have their familiar settings for as long as possible. And you mentioned earlier that I do like to draw pictures, one of my favorite pictures that I draw, we call it our Stairway to Heaven. And so if you just think of the stair steps, generally it's the spouses first, then the children, then maybe you bring someone into the home, then maybe you progress to assisted living, nursing home, and then the various stages, you go up, you go up, you go up, we call that the Stairway to Heaven. Sometimes you take the escalator, right, and you go through all of those different steps. And sometimes you take the elevator and go right, and go right to the top. So you never know what life is gonna throw at you, but you have to have that plan in place today when you're young and you're healthy, and you can make those decisions because life happens fast. I'm sure you deal with it as well, we have a lot of families, unfortunately, that are dealing with the early onset cognitive issues today. We see that more and more often we're working with young families, like yourself, are actually making the premium payments for their parents, or aunts and uncles, because they know that if they don't make those premium payments to get a plan in place, that the plan is ultimately them going in and providing the care at some point down the road.
Kelly 8:02
Yeah, let's talk about that more because that is an option and I don't think most people probably would even consider that. But if you have parents that you're really concerned about and they just can't afford the premiums, or maybe they can't afford their premiums on their own, and you really need to share in that expense. Oftentimes we do see children, adult children, pitching in because at the end of the day, they know it's really for them. They know it's for their other parent, the spouse, but then it's also for them as the adult children. So they don't have to physically provide the care and they can really supervise that care, and not have to physically hands on provide that care. So I'm glad you said that Nic because that really is an option. Or even I don't know if you see this on your end, Nic, but sometimes grandparents will actually purchase policies for their adult children and then depending on if there's some type of a life insurance component in there, then make the grandchildren the beneficiaries of the policy.
Nic 9:00
There's all different ways to go up and down the family tree and I think it all goes down to who has the resources to make those premium payments. I mean, it could be an ultra affluent grandparent, you know, go and working down the family tree. It could be the young high earning executives that kind of work up the family tree because it's easier for the young, younger high earning executive types. They have the cash flow, but what they don't have is they probably don't have the time and resources to be the full time caregiver or can't afford to give up that high paying job to step in and be that caregiver and I think for most people, and I know you and I have young children today and you have young children, I don't want my kids to ever have to be my caregivers. I want my kids to be my kids for as long as possible.
Kelly 9:50
Right! You want to you want to maintain the integrity of that relationship because once you become caregiver, that relationship has changed for better or for worse. It really is. I mean, I've experienced this as a granddaughter, caring for my grandma for a couple of years part time, and I wasn't even a full time caregiver, but it really does change the dynamic of the relationship. And so if you do want to maintain that, for your spouse to remain your spouse or your daughter to remain your daughter and not caregiver, then you need to have a plan in place to protect that relationship.
Nic 10:25
Absolutely. And you have to do it on the front end, right? I think Tom Hegna said it, I've listened so many podcasts recently, but if you're the one proactively reaching out to families to make sure that these plans get in place, the probability is these plans actually get implemented. If you wait until the calls start coming to you, you know, hey, Aunt Suzie, is having some cognitive issues, we need to make a plan, right? At that point, you may not have all the options available to you. If you proactively start when everybody's happy, healthy and can make their own decisions.
Kelly 10:56
That's right, yeah, we have to, as agents and advisors, financial professionals, reach out to our clients and their families and bring up this topic. And I know it can be awkward, it can be difficult, but it needs to happen. It needs to happen to be able to really protect their family and to protect the finances, because you don't want them to come back to you in 20 years and say, "Why didn't you talk to me about this? Because right now, guess what, my husband, needs care and how are we going to pay for this? Who's going to provide that care? Why didn't you bring it up?" I mean, that really is a fiduciary responsibility, right?
Nic 11:34
Absolutely. I think there's two conversations like that no parent wants to have and they're on different barbells. Like younger in life, you never want to think about who's going to be the guardian of your children.
Kelly 11:44
Yea.
Nic 11:45
If something bad happens, you know, when you got young kids and then on the other hand, you're thinking about these end of life, what happens if I get sick? What happens if I pass away? All of those things like the two different barbells, but they're incredibly important as financial professionals. We can't ignore them and this is where we add massive value is getting people to work through the things that they don't want to. That's where the magic happens, but I also I know that you see it as once people can get these plans in place, you just see the weight of the world lifted off their shoulders, and they may not even realize that it was a stress that they carried until it's gone away. And they know that they have a plan.
Kelly 12:24
Oh, my goodness. Yeah. So much peace of mind, right? It's like you can take a big breath and relief. Like, "Okay, I feel good about this." I mean, I know when when we did our estate plan for our kids, I was like, "Oh my gosh, what a relief. I am just so thankful to have this done." Obviously, we'll need to update that as time goes on and as kids grow older and all that sort of thing, but it's just such a relief to know that okay, this is in place, we can rest assured that we have a plan and my family and my finances are well protected.
Nic 12:57
Yeah. And I'll quote one of my favorite financial planners, actually, in the great state of Ohio, James Mayer in Cleveland area, says "Make a plan, review it often, and make changes when necessary." Right, but you have to start with a plan, it has to be reviewed and as your life situation dictates, you'll make changes. I think that's what the financial planning process is all about.
Kelly 13:18
Oh, yeah. Couldn't couldn't agree more and at the end of the day, you as a financial professional are going to be in a great position because you know you're doing the right thing and your clients are going to feel relieved and know that they are well taken care of, and so is their family.
Nic 13:32
And that's the gift that keeps on giving as a financial planner. That you want to work with the whole family tree. It's so hard to get clients and what you want to do is you really want to take care of everyone inside of that financial tree to make sure that you take care of mom and dad during their lifetime, but you want the children to be clients, you want their children's children to be clients. And whenever we go into a financial plan, we always have the mindset of, "Hey, if we do this right we can really create intergenerational wealth." So this money isn't just about Mom and Dad, it's about your entire family tree up and down to make sure that generations are taken care of, even potentially generations that you'll never actually meet. But they can always say, "Hey, this is what Mamaw and Papaw or what Mom and Dad did 50, 60, 70 years ago." It's all possible, but you can't just wing it. It takes careful and thoughtful planning.
Kelly 14:19
Yeah. Which is all the more reason that you need to work with a financial professional because doing this on your own if you're not well qualified, it's just not going to be an efficient, effective plan.
Nic 14:29
Yeah there's so many possible missteps, right? There's so many hidden landmines in the process because it's the coordination of unbelievable skill that you have in the long term care space, with tax planning, investment planning, they all have to be coordinated. You all have to have your important people at the table singing from the same hymnal to make the plan work over decades of time.
Kelly 14:51
Yeah, yeah, spot on. Agree, Nic.
Kelly 14:53
And now for a brief message from our show sponsor. The Steadfast Care Planning podcast is sponsored by the CLTC, Certified in Long Term Care training program, which gives financial advisors tools to discuss extended care planning with their clients. Look for the CLTC designation when choosing an advisor.
Kelly 15:11
If you have clients that let's say maybe they don't health qualify for long term care insurance, or that's not a good fit for whatever reason, and they have to self-fund, what kinds of buckets of money are you seeing clients use in order to self-fund their care? What are those look like?
Nic 15:30
Yeah so we are big equity advocates and we believe in dividends. We love, you know, investing in the best companies in America and the world. Companies that have been through the ups and downs in the market. So we love companies that pay dividends and have a history of increasing those dividends. So you know, $1,000 of dividends today, we hope is $5,000 of dividends 20-30 years down the road. So we like that predictable nature of reoccurring dividends that we can turn that into possible stream of money to pay for health later in life. There are annuities with incredible benefits, more than just the traditional living benefits, you know, benefits that could double or potentially triple with some companies, depending. There's always an option, not everybody has every option, but just about everybody has at least one option that's out there. We think that the greatest risk that most people face is not having enough equity exposure, but we think that the two asset classes that have historically outpaced inflation, which is what we're trying to do our equity investments, ownership in companies, and real estate. So we want our client base to have the best potential to outpace that dangerous lurking force of inflation. And healthcare is a big part of that, you know, for folks in retirement. So if we have proper exposure to those two asset classes, we think that gives you the best chance to live up to that independent, dignified retirement.
Kelly 16:57
Yeah. That's great, great advice. I like that approach, Nic. What about let's dig a little deeper into health savings accounts. I know that for you this is oftentimes a preferred method for people to fund long term care if they're young enough. Obviously you're not getting those added benefits, like the care coordination and caregiver training in the home, home modifications, all that with an insurance policy, but and especially if it's not even an option for your health, let's talk a little bit more about health savings accounts (HSAs), even outside of paying for long term care, extended care. What else are you seeing clients use this for? Besides extended care?
Nic 17:32
Yeah. So first of all, I think it's important just to note that within most health savings accounts, your premiums that you're putting in can actually be invested, sometimes there's a limit, you have to have $1,000 in cash or money market, but balances above $1,000 can actually be invested. So these are dollars that we can get the long term return of the market. You're putting $7,500 a year and over 20-30 year period of time, you get that 8-10% historical trend line return of the market. That's a big sum of money that's available to you. We always encourage our families that have access to an HSA to not spend it, pretend it does not exist, do everything possible to pay all of your medical expenses out of pocket. Keep a receipt, keep the bill, put them together, put them in Dropbox, or some cloud storage device, or worst case scenario, put them into an envelope and staple it all together. In retirement, if you choose to, you can obviously reimburse yourself at any time for those expenses, but you do have to keep good records. But for folks, you know, 35-45, who can get 15, 20, 25 years of Health Savings Account contributions invested, that might give them a big enough pool of money that they don't have to go out and purchase a long term care policy. You do lose the coordination. Now you might take that money that's grown substantially and you might leverage that to go and purchase a long term care policy at that point, but having that HSA available is an incredible funding mechanism for a couple of different ways that you could go for health care costs.
Kelly 19:13
Yeah, I see that sometimes people that do have an HSA, they are using that to fund their insurance premiums because the eligible long term care insurance premium is considered a qualified medical expense. And so not to get into deeply with the nitty gritty, but there are age bands and amounts that you can actually use depending on how old you are in order to fund a policy and for it to count towards that. So if you are eligible, and you want to get long term care insurance using your HSA, those dollars in there, you can fund a policy with that, but obviously, you don't have to, you can use your HSA for other things. So you did mention, Nic, that if you're eligible for the HSA. Who can use an HSA? I think we should talk about that. Who can't? And who can access an HSA?
Nic 20:06
Yeah so first of all, you have to have a high deductible health care plan, right? Like my myself, I don't have a high deductible health care plan. So as much as I'd love to have an HSA, I can't. So it depends on how you have your health insurance through work and that might be a husband and wife are both working and they have different benefits to choose from. That might be one of the things to take a close look at is the husband's company provides a high deductible health care plan that has an HSA and maybe the wife doesn't, or vice versa. So you really have to do your due diligence during that open enrollment season to figure out what's going to work best for you and your family, and you might have some medical expense that's coming up where you know, you're going to spend, you know, $7,500 to $10,000, maybe that's not the year to have it, to have the HSA too. So with the younger families, there's a little bit of planning that goes in there, but if you've had all your children that you think you're going to have, and you have a long window to potentially save, and you have free cash flow, the HSA is just an incredible option for both health care and investments.
Kelly 21:11
Great. Nic, any other advice on how people can plan for care to live well?
Nic 21:16
First of all, take care of yourselves, right? I think that's often neglected. You know, get out, exercise, take care of yourself, find a sport like I did, pickleball.
Kelly 21:27
Yeah.
Nic 21:30
You know, get out play pickleball as much as possible, but stay active. Eat good food. We always tell people, it's a lot easier to invest in your health than to get the bill for not investing in your health. So people say, "It's too expensive to eat organic food or it's too expensive to get the unlimited yoga membership." But you think that's too expensive, wait until you get the health bill for the rest of your life.
Kelly 21:51
Right.
Nic 21:51
So go out, invest in your health, that's probably more important than the right long term care policy or the right health care plan. Invest in your own health.
Kelly 22:00
Yeah, I think what's often neglected, is "Okay, well, we need the right medical plan, we need to have all these other things in place." But if you're not taking care of yourself, exercising and eating well, they're going to be serious consequences down the road. I do want to add, though, what I see with people that need extended care, it's not always a health event. It might be just due to the frailty of aging, you know, we just lose mobility and strength. Now certainly, if you are continuing to exercise as you age, we advocate for that absolutely, but even with all those things, just due to being human, right, we lose strength, we lose mobility. And so you still may need extended care, no matter how well you eat, how much you exercise, it's definitely still a possibility. But I love that you know what, we need to take care of ourselves, and we need to take care of ourselves well, financially, physically, mentally, emotionally. We want to minimize stress. I think that's really important too. So great advice, Nic.
Nic 23:07
Awesome, Kelly.
Kelly 23:08
Where can people find out more information about you, Nic?
Nic 23:10
Awesome. So probably the two easiest ways they can follow me on LinkedIn. Nic without a K, Nielsen, and our website is www.KnowMyPlan.com.
Kelly 23:21
Perfect. Well, Nic, thanks so much for your time. Always a pleasure talking with you and have a great day!
Nic 23:27
Kelly, thank you so much. It's great to be here!