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Understanding Long-Term Care and the Secure Act 2.0

(01:03):
Hello and welcome to this week’s episode of the Her Retirement Podcast. I am a day late, but I don’t think I’m a dollar short. My mother used to say that expression all the time. I think it was something my grandfather used to say. And speaking of my mother, one of the reasons I’m delayed in getting my podcast out this week is that I was helping her. As many of you know that listen to my podcasts and have participated in some of my master classes, my mom has been successfully battling ovarian cancer, and this week was a Dana Farber week and a procedure and so many other things. Also, this week, one of my twins left for college in California, and the other one left for college in Amherst, Massachusetts. So I am once again an empty nester, and then you throw in a little hit-and-run on my car and an appointment for me and a whole bunch of work stuff.
(01:58):
And yeah, I think I have a legit excuse for being a day late on getting my podcast out to all you faithful listeners, but I’ve got some good stuff to share with you. I’m going to be talking about long-term care and also giving you an update on the secure 2.0 update that was passed late December in 2022 and some of the things that you need to be aware of with that secure act and the changes. But first, let’s jump into long-term care needs. I’m going to walk you through a case study with John and Mary Sample, and this is gonna provide a general overview of some aspects of your personal financial position. It’s designed to provide educational and or general information, and it is not intended to provide specific legal accounting, investment, tax, or other professional advice. That’s not what I do. I just educate you and then give you some personal financial coaching should you need that.
(03:05):
So for specific advice on these aspects of your overall financial plan, you need to consult with registered professional advisors. That is my advice. And, of course, because I co-own a financial advisory practice called Your Retirement Advisor, I would love for you to speak to the folks there. There’s Brian, who’s a registered investment advisor who’s an expert at retirement planning, and then also recently hired a certified financial planner or C F P Kent Cooper. And Kent is a fantastic young guy, knows his stuff, and can do fee-only financial plans, which is a tremendous new offering for your retirement advisor. But we’re really not here to talk about that. It just occurred to me as I was talking about talking to a financial advisor that they are a couple of great guys with an exceptional team to help you plan your retirement. And if you happen to need long-term care advice, they can definitely look at your situation and give you some ideas for how you can plan for long-term care.
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Now, I did touch upon long-term care last week in my podcast with Dan McGrath. He actually brought it up and suggested that we’re going to have some challenges as we face any long-term care needs in our future. And I’m talking about more Gen X folks like myself because the problem is, there’s going to be a huge population of us retired and perhaps needing long-term care beds, but will there be enough beds for us? So that may mean, in many cases, that we have to age in place, and we’re going to have to get that care at home, which Medicare does not cover care at home. So what we need to do is we need to be proactive, and we need to plan for those long-term care needs. So that’s why I wanted to emphasize some educational components of long-term care. Review this case study with you and make sure you understand your risk for long-term care and if you’re willing and able to protect yourself from the risk of long-term care needs.
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Basically, long-term care is sustained medical or custodial care, either in a hospital, a nursing facility, or equivalent care at home. And this care meets the needs of people when for whatever reason, they cannot care for themselves. Long-Term care insurance provides coverage for costs when the need for care extends beyond a pre-determined period. And benefits start when certain conditions and timeframes specified by a long-term care insurance policy are met. So generally, the needs requirements to obtain insurance benefit falls into two categories. Number one, an inability to perform two or more activities of daily living or ADLs and activities of daily living are basic functions of daily independent living. And these include dressing, bathing, eating, toileting, transferring, and continents. The second category is impaired cognitive ability. So this is where you have a loss of mental function, which can result from stroke, dementia, Alzheimer’s, and Alzheimer’s is a disorder that progressively, as we probably all know, affects one ability to carry out those daily activities.
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Now I wanna talk about the cost of waiting to plan for a long-term care incident. 40% of all long-term care recipients are under the age of 65. Over 45% of seniors who reach age 65 will spend some time in a nursing home. And over 70% of seniors who reach age 65 will need some form of home healthcare in their lifetime. One out of four families provides care to an elderly relative or a loved one. And I am smack dab in the middle of this. I am the definition of sandwich generation as I have kids and pretty much adult kids and college kids who need support and financial support and advice. And then I have elderly parents. My mom’s 87, and as I said, she needs a lot more of my time, which I am giving it to her wholeheartedly. It’s, it, it’s what I, I was born to do was to help my mom.
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And I will continue to do that as best I can, but she will probably get to a point where she needs more care than I’m able to give her. Oh, and speaking of my mom, I forgot that this week I was also talking to my dad, who happened to have been in the hospital for five days down in Florida because he’s got congestive heart failure, and he was dealing with that and a complication. So it was just, it was just one of those weeks where it rained and it, and it poured, and we all have those, but we have to keep on swimming. Alright, next statistic. 25% of people will stay in a nursing facility for more than one year, the average nursing home stay is two and a half years, and the average Alzheimer’s stay is seven years.
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So without benefits from long-term care insurance or compatible plan or you know, funding these, these incidences yourself, the cost of providing these services could definitely devastate many people’s lifetime savings or your relative’s life savings. So, you know, certainly, you can share this information with a relative who is not prepared for this. On average, one year in a nursing home costs a lot, and it can easily, easily exceed a hundred thousand, 200,000 depending upon the nursing home costs continue to skyrocket depending on the care required. Most of these expenses for long-term care are paid for by the patient and or their family. And Medicare may contribute towards the first 100 days of expenses in a skilled care facility. And there are no Medicaid benefits available for intermediate-term or custodial care unless the state finds the patient to be impoverished under local guidelines. So the bottom line is if you impoverish yourself, perhaps you can get Medicaid coverage.
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But what does that care look like? What does the facility look like for Medicaid folks? So even then, though, care options are restricted to care facilities, like I just said, what kind of facility they’re restricted to care facilities that accept the very limited benefit payments that Medicaid offers. I want to share a few Medicaid and Medicare facts. Medicaid is a welfare program designed as an emergency safety net to pay the healthcare costs of the impoverished. Medicare is a part of social security and helps pay for the general healthcare needs of retired persons. Medicare typically only pays for doctors, hospitals, and short recuperative stays in nursing facilities. Private health insurance is designed for medical doctors, hospitals, et cetera, not long-term care expenses. Most people end up relying on their own or their relative’s resources to pay for long-term care expenses.
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So now I wanna talk about long-term care needs analysis. It definitely requires long-term planning, and the sooner you start, the better long-term care insurance is available to cover these expenses, protect your assets and your independence, and control the quality of the care you receive. You’re able to choose the specified daily benefit level as well as the types of medical and care services covered. When is the best time to purchase long-term care insurance? I know I’m smack dab in the middle of trying to figure this out. I’m 57, and according to this, I’m a couple of years past the ideal age. Generally, the premium stays level once the policy is purchased, much like level-term insurance in practice, the earlier you buy a policy, the lower the premium. And since the odds of becoming disabled increase with age, purchasing coverage before the age of 55 is pretty prudent planning, consider the premium cost of several coverage levels to determine which is right for your budget.
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Okay, so what I want to talk about next is that there are some alternative options to long-term care insurance if you find that the cost is prohibitive to your budget. But definitely talk to someone like the folks at your retirement advisor to figure out if there are some affordable options for you within the insurance space. So, for instance, index universal life policies that carry a long-term care insurance writer may be a more affordable option, but they can cover all of the various options to see what is actually realistic for you and your budget. But the alternatives are a few, of course, self-insurance. This alternative to purchasing long-term care insurance is using your existing investments to pay for long-term care if needed. But what happens is, let’s say, a couple husband and wife, the husband typically will pass before the wife. He uses up all of their savings and investments to care, you know, for his care, leaving the wife without money for her own care and, in some cases, leaving her impoverished.
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So for us women, you know, sometimes that’s not the best plan. This approach of self-insurance would be appropriate if sufficient assets are available. And the potential loss of those assets to heirs if you are planning to leave that as a legacy is acceptable. Of course, this means that you’re willing to liquidate your assets, and if you don’t have sufficient funds, you transfer the financial burden onto your spouse, that survives you when you pass if you pass from this long-term care incident or your loved ones. And while this may be more flexible and quote affordable at 55, long-term care insurance would be more beneficial if the coverage is eventually needed. The second option is a reverse mortgage. I’ve talked a few times on my podcast about reverse mortgages, and it’s certainly one of, you know, one of the three prudent ways to fund a long-term care incident.
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It’s, it’s your emergency bucket of money, you’re leveraging a dead asset in your home, and many people plan to stay in their homes. So, in that case, a reverse mortgage definitely makes sense because if you’re not, you know, typically it doesn’t make sense, but a reverse mortgage can allow you to age in place and to have that emergency pool of money to fund a long-term care incident. But some people don’t wanna a reverse mortgage, they don’t qualify, you know, for whatever reason. And then the third option is qualifying for Medicaid. Medicaid was enacted to provide healthcare services, as I said, for the impoverished recent legislation has made it very difficult for a person of modest means to qualify for Medicaid benefits by gifting or otherwise disposing of personal assets for less than fair market value. So if you’re thinking, “oh, I’ll just impoverish myself and get Medicaid,” you need to really take a close look at that and make sure that you are approaching that intelligently, I guess, is what I’ll say.
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Now, I do have a long-term care cost case study. You can certainly ask for a cost analysis from your retirement advisor. So definitely reach out to me for either of those. But in summary, so in summary, be aware that the potential loss of financial assets to pay for long-term care costs is definitely due to increasing life expectancies, especially for US women, and advances in medical treatment for the elderly. So longevity is definitely a double edge sword. This represents a risk to your life savings and financial future. L T C insurance is available at varying levels of coverage and corresponding premiums to meet these risks. Should you want to mitigate the risk of long-term care needs, long-term care insurance can allow you to maintain your desired level of independence and preserve personal assets. However, premium costs will certainly be a factor in your decision. And as I said earlier, consider discussing these needs and options with the team at your retirement advisor.
(17:00):
Or if you have an insurance agent already, somebody looking out for your best interest, definitely chat with them about this. Fully understanding available options can help you make the most informed best choice for you and your family’s future. As I always say, it’s all about knowing more and having more. All right, so that’s long-term care. Next, I wanna chat about the secure Act, and I’m going to give you a really quick snapshot of the changes in that legislation that went through in December. So let’s jump in. It was signed into law on December 23rd, 2022. There are hundreds of changes affecting retirement accounts, including but not limited to 401ks 4 0 3 [inaudible], 4 57 s, TSPs, and IRAs. And these are just a few of the changes to that legislation that you need to be aware of. Again, if you would like to read the full overview of the secure Act 2.0 update, definitely reach out to me at lint@herretirement.com, and I can get you access to that.
(18:15):
So first up, auto-enrollment and auto rollover beginning in 2025 with some exceptions for small businesses, the act requires auto-enrollment and DEF four ohk and 403 [inaudible] plans unless the participant opts out. You know, most people would think this is a good thing as many people fail to sign up, and they miss out on years of investing. So yes, however, if you are already, you know, significantly invested in a 401k, you might want to look at some tax-savvy vehicles that allow you to have tax-free income in retirement because, as you know, 401ks and 4 0 3 Bs are tax-deferred, which means you, you’ve got a, a bill coming due from Uncle Sam and you’re going to have to pay it well so that all your eggs aren’t in that tax-deferred bucket. You need to consider other ways to invest your money. So you need to look at it and say, how much is enough in my 401k, and when should I turn off the, turn off spigot going into the 401K and turn on the spigot into a tax-free account?
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Right? So definitely think about that and consider that retirement plans can also offer rollover services when you leave your job. So they will handle the transfer to your jobs, new jobs, and new plans. All right, let’s talk about student loan matching. An employer can choose to make a matching contribution to your retirement account based on your student loan payment. This will allow more people to invest while still paying off debt, which is a good thing. Next, catchup contributions begin in 2025. These catch-up contributions will increase to the greater of $10,000 or 50% more than the regular catchup amount if you are 60 to 63 years old. So this will allow many older workers who may be at their peak earning years to put away more tax-advantaged money. Next, emergency fund booster and match, starting in 2024, employers can auto-enroll you in a saver’s account that you can use for emergencies up to $2,500.
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An employee can make up to four withdrawals per year. They would be tax and penalty-free. These could also be eligible for an employer match and Roth treatment so the money can grow. Tax-free employees can also withdraw up to $1,000 from their retirement account without having to pay the 10% penalty. All right, next up, Roth option for an employer match. This is a big one. Employer matches have always been pre-tax, even when the employer offers a Roth option. Now employers may offer the option to make these contributions post-tax, which allows you to grow it tax-free. So not only are you getting free money from your employer, but it will also be free and clear of taxes. The next option is to roll a 529 plan into a Roth IRA. Lots of caveats on this one, so don’t get too excited. It starts in 2024, but a 529 plan must be open for 15 years, and there’s a lifetime limit of $35,000.
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Changing a beneficiary will restart the 15-year clock. The rollover is treated like a contribution, so you can’t add any more money to that account. You also can’t roll over any contributions or earnings made in the last five years. Those are the highlights that I wanted to give you on the Secure Act 2.0 update. So like I said when I started, if you would like a copy of a full overview of the Secure Act 2.0 or you’d like to sit down with a CFP at your retirement advisor or go over your retirement plan, financial plan and how these changes impact your financial situation, definitely reach out to me at Lin tea@herretirement.com. And as always, here’s to getting or done and thanks for listening to this week’s episode.

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