Steve Savant's Money with Sean Humeston

SYNOPSIS

The odds are high that you will need some form of eldercare in retirement. It is estimated that over 70% of current seniors are receiving long-term care benefits. If the trend in retirement longevity continues, that percentage is going to increase dramatically. Watch the interview with financial planner Sean Humeston.

FULL TRANSCRIPT

Steve Savant

00:01

Hello everyone, I'm Steve Savant, syndicated financial columnist and money color commentator. On today's show, planning for assisted living in elder care, part five verse series on building a firm financial foundation for retirement, the financial advisor, Sean Humeston. Sean, we're all going to probably need it. I mean, 70 percent of seniors today are using some form of long-term care. And remember, if we're going to be living longer, longevity now is the number one risk to retirement. That means we may put it off, but we're not going to probably get away from it. So some form, my goal, Steve wants to do Steve Savant, less to be assisted home living. I don't ever want to go to a nursing home. I don't know if that'll happen or not, but that's my wish. Now when we're talking about it, I've noticed there's three things on the market and then I want you to address it. One is the traditional long-term care contracts. They're not cheap, they are hard to get it. You got to be healthy to get them, if you can get them. I did when my wife and I, we're both healthy. We have full blown long-term care contracts, but we have a lot of people that say, you know, Steve, if I don't use this, if I don't use my long-term care, it's like throwing money away. I don't get anything out of it. So in terms of the idea of hybrid products, long-term care with annuities, we talked about this a couple segments back, and long-term care with life insurance. Now, I believe we need this. We need long-term care something. So if you can't get a full blown plan like the one line wife and I have which is again, there's hardly any carriers out there to do this anymore. I think you need to look at long-term care with a hybrid annuity or a hybrid life. Now, I know there's not a brighter wrong or better or worse on this. So let's walk through the annuity first. What do you get with an annuity with a long-term care rider on it?

Sean Humeston

01:47

So traditionally you're going to get some sort of benefit that increases what your income was already. So if you're receiving a thousand dollars a month, if you need long term care or any kind of a situation that arises where you're going to need cognitive care, whatever the case may be, then net income will usually increase whether it doubles, triples, et Cetera. So there's a lot of different plans out there.

Steve Savant

02:06

Okay. So, I'm seventy years old. I've been taking my annuity payment and spending income. All of a sudden I'm having a little hassle. I can't do two out of my six daily activities of daily living and I have to call the company and say, hey listen, I'm going to have to trigger that benefit. So if my benefit was a thousand, that benefit could be 2000, maybe $2,500 whatever, right?

Sean Humeston

02:28

Yep.

Steve Savant

02:28

Now, how long does that benefit go? Is there a time certain?

Sean Humeston

02:31

Yeah, so most carriers or most insurance companies that underwrite these plans. Usually, we'll have a period to where it won't last forever, but you might get a five year benefit. That's pretty common, you know. So if you at least have that increase, you'd get that for at least more than what the average a life in a facility or a care at home would be.

Steve Savant

02:52

Yeah, I would say if you were in the home of your dreams and you're not going to be moving, you need to think about retro fitting your home for geriatric living and do it now while everything's good and you have a little bit of money. But I do like the ability of still getting my thousand dollars and now I'm getting an extra amount of money and I'm going to have to visiting angels come to my house, take care of me once or twice a week. Things that I cannot do myself or help me with. Think about this, how are you going to do this? My client says to me the other day, I'm just going to take care of my husband. That's what she said. I said, show me just for a second, pick him up off that chair and move him three feet over to the couch. Could she do it?

Sean Humeston

03:30

No.

Steve Savant

03:30

No. If you can't do it now, how are you going to do it at 75, 80. So long-term care at the minimum at assisted home living. I think you're going to need it. Now, while I'm using annuities, do you have three or four annuities in your head that you use because not only is the benefit that, but I'm still getting a rate of return on the annuity.

Sean Humeston

03:46

Of course.

Steve Savant

03:47

Okay. So talk to me about that. I'm still getting income, it's guaranteed for life. Now I have this add on, it might be five years if I had to use the system on living. Generally, that happens towards the end of life, not In the middle of your, generally speaking. So talk to me about that ramifications because you sell this. Have you seen any beat on you? You have clients that are already doing this? They have to take their benefits now.

Sean Humeston

04:08

Yeah, so I think you really have to first establish when you mentioned in the beginning, some form of care they're going to need, right? So that could be where somebody simply breaks a hip rehabilitates after a year or it's somebody who's developed Alzheimer's or dementia that's going to be maybe requiring care for years and years and years. So generally there are going to be some cutoff times with these benefits, but at least it covers the average. What do they say about two point four years in a facility is the average life expectancy?

Steve Savant

04:36

Yeah, I mean you're thinking about, and especially mother is the person that's really going to need this more than if you're going to join annuity. I would say you need to look at this because, usually the morbidity tables on males are pretty quick. Hey, when dad finally he starts going down, he goes down, right? Very fast. I don't mean to minimize it, I'm just saying it's just statistically. For mom stays on a long time, I mean there's a lot of evidence for human longevity on the basis of female survivors fighters.

Sean Humeston

05:04

Woman are fighters.

Steve Savant

05:04

I know. Think about this thought. We had a contract out called second to die It pays on the second death, It's been around since 1990. We had listened $500 debt claims all in American carriers for the whole 20th century. Guys died on time, Mother didn't. So it's really important to think about this in a tandem thought. You know, you make your social security decisions on based on your wife. You're making this decision on putting long-term care benefits on your annuity for you and your wife, jointly held contracts at this age and this stage of our life. This should be on there.

Sean Humeston

05:38

Right

Steve Savant

05:38

Now, you also use this, I noticed you have life insurance with this, so you could do life insurance and talk about that.

Sean Humeston

05:44

So we call it asset based planning, which I think is really the revolutionary step to what you'd mentioned earlier as the traditional type of insurance where you pay and you pay and you pay and you may not ever use the plan. We're here now, people can just take a chunk of money outside of their estate, put it into this account, and then it will spring up anywhere between three to possibly five times its value for your long-term care costs. But the beauty is, if they never need it, that money is always available to either the spouse or the years. So it's kind of like you're almost getting it for free by simply earmarking that chunk of money for the what if.

Steve Savant

06:18

Now, is it better than two If I'm a person that sees and here's the value of what you're saying and buys into it? Is it better to get the life with the long-term care? Or is it better to get the annuity which will long-term care?

Sean Humeston

06:33

Traditionally, you're going to see a better value with the life insurance type of program is asset based program.

Steve Savant

06:39

Why is that Sean?

Sean Humeston

06:39

I think it just has to do with the mortality and the average life expectancy of an individual that's going to need it. I think the insurance companies have priced it out to the point where it makes total sense for them and for the consumer. So you gotta really kind of weigh it out.

Steve Savant

06:53

Now, there's still underwriting life insurance last time married, you got to underwrite, you gotta look at your life, you're gonna have to maybe take an exam for some of this, right?

Sean Humeston

07:00

Not necessarily, a lot of the companies now are simply, we'll just do a 1 hour or 45 minute phone interview. I mean, they're going to ask you every question under the sun, but the way that they actually qualify these individuals is very simple, right? They test cognitive missed mostly, right? But they're not going to have you to get your blood work done and they're going to pay, you know, pull your physician statements from your doctor. That's the older style. This is kind of the newer version now. So it's actually a little bit more liberal.

Steve Savant

07:27

Well, I'm glad to hear that because I think there's a lot of people that need that kind of benevolent underwriting just to get the product line. Okay, so when you're looking at this, I call in, and I noticed that these have, there are just you could buy these life insurance contracts even with more than just a long-term care benefit. You could actually be buying it for, you know, if you had an imminent death, you had a disease, you were given 24 months, 18 months to live. Then actually take an advance on the life insurance death benefit. Do you know if there are things about that?

Sean Humeston

07:55

Yep.

Steve Savant

07:55

Have you done that before?

Sean Humeston

07:57

Yep.

Steve Savant

07:57

Well, talk about that.

Sean Humeston

07:57

Yeah. So the concept here would be in the event of cognitive care or needing some sort of benefit, you can actually, what I call rob the death benefit for that reason. Again, it's not as common as some of the other strategies, but they're definitely out there.

Steve Savant

08:12

I also noticed with life they can throw in things like cut catastrophic care?

Sean Humeston

08:16

Right.

Steve Savant

08:16

I mean there's little things that you can add on, on the life contract that the great majority of Americans' seniors are going to run into some time in their life, especially during their retirement. Now, are these expensive policies? Do am I going to pay a lot? I mean, I know the regular standalone long-term care, they're pretty expensive anyways, but is this any cheaper than traditional contracts?

Sean Humeston

08:38

So if you compare the annuity naturally with that annuity benefit, you're going to pay some sort of rider fee for that cost or for that benefit, right? There's going to be a cost there. But with the asset based life insurance type of policies, you know, you're really not getting into an expense, it's just that you have to shift some of that money to a different place, kind of out of sight, out of mind. But it's always returnable if you never need it. So really where's the expense? Right?

Steve Savant

09:05

Right. So most people when you share with them, did they find this as a good secondary position because they can't pass the physical. They have the regular traditional long-term care is just too expensive.

Sean Humeston

09:17

Exactly. Yeah, it's an alternative kind of gets missed. You know, most people just sort of dance over it. If they've been denied for traditional long-term care, they think they're going to get denied for these plans and that's not necessarily the case. And I would also argue too that a lot of our clients will do a mixture of both, both the annuity based plan and the asset based life plans. And you know, do a combination of it because why not?

Steve Savant

09:42

Why not? Listen, I want to thank Sean for sharing this series on building a firm financial foundation for retirement. And keep in mind before moving forward with any of the ideas you hear on our show, always check with your tax consultant, legal counsel, financial advisor. You've been watching Steve Savant's money, the name of the game.