How to Pay for Long-Term Care with Nic Nielsen

Paying for care as we age can be one of the most difficult and challenging periods in our life. Luckily, there are many options that can be explored separately or in combinations.

Kelly Augspurger spoke to Nic Nielsen, a certified financial planner and co-owner of Know My Plan, and they explored many of the options people have for paying for care as they age.

In this episode they covered:

🔹 Self-funding long-term and extended care.

🔹 Multiple ways to use long-term care insurance to pay for care.

🔹 Short-term care and immediate care.

🔹 Life settlements to fund long-term care.

🔹 Health savings accounts.

🔹 Reverse mortgages.

🔹 VA Benefits and the limits to VA benefits.

🔹 The differences and limits between Medicare and Medicaid and how they can be used to help pay for care.

Connect with Nic Nielsen and for more information on Know My Plan message Nic through LinkedIn or visit: www.KnowMyPlan.com
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➡️ Watch this podcast:  https://youtu.be/FqIw1ltD7ug

#LongTermCare #FinancialPlanning #SteadfastCarePlanning #longtermcareinsurance #KnowMyPlan

For additional information about Kelly, check her out on Linkedin or www.SteadfastAgents.com.

Steadfast Care Planning podcast is made possible by Steadfast Insurance LLC, Certification in Long Term Care, and AMADA Senior Care.

Come back next time for more helpful guidance!

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 AMADA Senior Care and Steadfast Insurance LLC.

Come back next time for more helpful guidance!

Transcript

Kelly Augspurger [00:00:02]:
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. Nic, thanks so much for being here.

Nic Nielsen [00:00:16]:
Hey, Kelly, what a pleasure it is to be with you again.

Kelly Augspurger [00:00:18]:
This is not our first time, right? Not our first rodeo together. So I love having you as a co-host. We always have a lot of fun and really dig in deep and I think address some really important topics. So today we are going to be talking about different ways to pay for extended care, also known as long-term care. If a loved one needs care for an extended period of time, we know that it can be expensive, right? And it can feel overwhelming. So, Nic, let's break down different ways of how people can pay for care.

Kelly Augspurger [00:00:47]:
Can we jump right in?

Nic Nielsen [00:00:48]:
Yeah. Awesome. So I think it's important to realize that everyone has a plan for long-term care. And the default option is that you self fund that plan through the spending down of your own assets. So where do you go to come up with $5,000 - $10,000 a month for some additional care that you might need and is predominantly happening around your house. For the clients that we work with who are receiving care, the two primary areas where we have seen in our practice, for people who do self fund, the first would be dividends, the income created from their portfolios. And when we own the best companies in America in the world, or just a diversified portfolio like the S&P 500, historically, those dividends grow over time. So the S&P 500, as an example, that dividend grows at a rate of about 6% per year.

Nic Nielsen [00:01:36]:
Now, one of the main issues there is that the S&P 500 as an investment vehicle, while the trend line long-term return looks really attractive, the actual yield is relatively low at around 1.5%. So even if you had a million dollar investment in the S&P 500, that would only generate about $15,000 of income per year, which, in our example, that might be one to three months of care, right. The average person doesn't have $4 million in an S&P 500 fund to generate $5,000 a month per care.

Kelly Augspurger [00:02:10]:
Right?

Nic Nielsen [00:02:11]:
So that puts us in a situation where we're starting to spend down assets because the yield isn't enough to offset the cost of care. So one of the strategies that we have put into place for some clients is we do what we call an annuity maximization strategy. A lot of families that we work with, they have some dollars that are not earmarked to create the monthly income that they need. And what we would do is we would buy an annuity with these dollars. Once again, we'll just use a nice round number of a million dollars because it makes country math really easy for me.

Kelly Augspurger [00:02:44]:
Country math, I like that.

Nic Nielsen [00:02:46]:
I'm a country boy. I grew up in southern Indiana, surrounded by cornfields and melons. So I love some country math. Keep it simple, very simple for everyone involved here, right? So if we put a million dollars into an annuity, it might pay $60,000 per year. We then take out the cost of taxes from that equation. So let's say after taxes for that family, it generates $45,000. You could then take that $45,000 a year, and you could put that into some sort of long-term care policy, which you'll talk about later. For the majority of our clients, it's going to be the life insurance policy that has a long-term care rider with it.

Nic Nielsen [00:03:23]:
In addition, when we implement this type of strategy, if the client is young enough, we will do it with a non reducing death benefit. So in this example, once again, really high level country math, we put a million dollars into a policy. They're going to start drawing down $60,000 per year after taxes, maybe that net's $45,000. They then take that $45,000 and purchase the life insurance policy with a long-term care rider. Most likely over time, that annuity contract is going to be worth less in the future than it is today because we're pulling out $60,000 a year. These policies, when you have a lifetime income rider, a death benefit rider, the cost of the underlying investment vehicles, it's not a cheap endeavor. So the odds of that policy ever increasing in value are relatively low. But with a non reducing death benefit, as long as when that client passes away, that contract value is not zero,

Nic Nielsen [00:04:13]:
the named beneficiary would get the million dollars.

Kelly Augspurger [00:04:16]:
Okay.

Nic Nielsen [00:04:16]:
So that is one of the things that we like most about that annuity maximization strategy. And on the annuity side of it, there's no qualifications, anybody can do it. Most of them are going to be age based. So a lot of them, you cannot be older than 70 or cannot be older than 75 to put that strategy in place. But obviously, with the life insurance policy that has the long-term care rider to it, you do have to qualify for that. So not everybody is going to qualify, but the annuity maximization strategy has been one that we have put in place over the past decade. And now we're seeing clients go on claim, or we've seen clients that have passed away, and having that non reducing death benefit has helped kind of refill the estate to kind of pay back loved ones for their care that they've provided.

Kelly Augspurger [00:04:58]:
Okay. So that annuity max, that's really going to be ideal for clients who have a big lump sum.

Nic Nielsen [00:05:03]:
Correct.

Kelly Augspurger [00:05:03]:
I mean, we did simple country math there and said a million dollars. I can't imagine a lot of clients are going to be able to do a million dollars into an annuity in order to fund, right?

Nic Nielsen [00:05:15]:
Yeah, but divide by 10. It could be $100,000. That generates $6,000 a year. That $6,000 a year, nets you $4,500 a year. Then you're paying the $4,500 life insurance premium.

Kelly Augspurger [00:05:27]:
Yeah. Nic, can we talk about some of the other considerations when we're talking about self-funding, like taxes, market conditions, liquidity, legacy. Just think for a minute about those things.

Nic Nielsen [00:05:39]:
Yeah, so whenever you're utilizing investments that are market based, you're going to have volatility and risk. You never know exactly when you're going to need the money. But when you invest in the market, there's a couple of things that you have to factor in. Number one is that from peak to trough, in any given year, there's generally about a 15% drop. Most people are completely unaware of that. Number two is that every five years, on average, you have a drop of greater than 25%. And those are what we call the cost of admission to getting the long-term return of the market, which depends on the numbers that you look at, is anywhere between 7 and 10%. Now, 7 to 10% seems amazing, and that's kind of what we're all brainwashed to think.

Nic Nielsen [00:06:19]:
"Hey, if I invest in a diversified portfolio of large us companies, I should get 7 to 10%." However, over the past 96 years, only four times has the return actually fallen within that window of 7 to 10%. So it's kind of boom or bust, and we never want to be put in a situation where we have to start drawing down our investment assets when the market is down 15, 20, 25, 30%. So there's something that we often refer to in financial planning as the sequence of return risk. The order in which returns happen, matter drastically once we start distributing assets from a portfolio. Another thing that you mentioned was taxes. Taxes create this snowball effect. A single distribution of $5,000 might not change your tax situation very much.

Nic Nielsen [00:07:08]:
However, a $5,000 monthly distribution could drastically change your tax situation and could have some unintended consequences, such as surcharges on your Medicare premiums that many people are completely unaware of. There's a lot of planning strategies and there's a lot of complexities when you do self-fund.

Kelly Augspurger [00:07:26]:
Yeah, great touching on all those. And we just don't know what the market's going to be, where it's going to be at when we need that money and we need the liquidity. If you need care and you need it now, you need the money now. So can we easily, quickly access the money in order to be able to pay for care? That's definitely important to consider.

Nic Nielsen [00:07:43]:
When we build financial plans for people, we use this kind of corny acronym or tagline of six, five, four, and we think that it's important to have six months of cash equivalents. We want five years worth of portfolio income in something that's safer and that can mean a lot of different things. We kind of call this fixed income. It could be short term bonds or cds or maybe fixed annuities. And the rest we want to invest for growth, but because of what we've already mentioned, we don't want to be in a situation where we have to spend our growth assets down in a down market. So that's where we go to the kind of our "Break Glass in Case of Emergency" money, which is our fixed income. But once that fixed income money gets spent down, then that really exacerbates our sequence of return risks later in life. And I think it's very important when you do financial planning is maybe you can or maybe you can't self-fund, but you can't earmark dollars twice.

Nic Nielsen [00:08:35]:
If you have a million dollars and you need all of that million dollars to create income that is going to sustain your livelihood, then you really don't have any additional dollars that you can earmark to create income for long-term care. Now if you have $800,000 of that million that you need $800,000 to sustain your way of life, then you really have $200,000 that you can earmark towards self-funding for long-term care. So I think it's really important if you're doing this yourself or you're looking to self-fund is to be very intentional about earmarking those dollars specifically that you have for long-term care or extended care.

Kelly Augspurger [00:09:10]:
Great point. We cannot double count. And how are we going to protect our family's lives and lifestyle if we need care? Where's the money going to come from? What are we going to access and even coming up with a list of this is what I'm going to use. And I think something to consider here too, Nic, is people don't have to 100% self-fund. Oftentimes we see people paying for care in a variety of ways. So it's not an all, or nothing. Most people are going to self-fund and pay for their care. But you can cofund, right? We can cofund with other sources.

Kelly Augspurger [00:09:39]:
So those are some of the other things we're going to talk about today. The next being... The Steadfast Care Planning podcast is sponsored by Amada Senior Care. Amada provides complimentary consultation with a senior care advisor to find the right care from in-home caregiving to community care, as well as long-term care insurance, claim advocacy and unique support partnerships for financial advisors to address family transitions and generational retention. To learn more, visit www.SteadfastWithAmada.com. Drumroll...Long-term care insurance, the answer key, that's right. So when we're talking about ways to pay for care, self-funding, that's the number one. That's the default.

Kelly Augspurger [00:10:26]:
If you don't have a plan, that's really your plan. If you don't have any other ways to pay for care, I'm going to just use my money, my income, my assets to pay for care. Aside from that, other things to consider: Number two, long-term care insurance. So, you know, what is long-term care insurance in a nutshell, Nic? Well, it's leverage, right? We're transferring risk, transferring consequences to the insurance company so that we can have a stream of income to be able to pay for care. That's what it is. And so it provides us leverage, right? We put in a dollar, you get a multiple of dollars back. That's how insurance works.

Kelly Augspurger [00:11:00]:
And so this really provides us tax free guaranteed benefits and potential tax deductibility depending on your age and if you own a business, different things to consider there. But we don't have to worry about paying taxes on these benefits, particularly when it's a reimbursement policy, because these benefits are going to be tax free. If you have a cash policy, benefits are tax free up to a per diem limit. And then if it's over that per diem limit, then benefits are only taxable to the extent that the benefits are greater than your actual expenses. So when we talked about self-funding, you need to consider what taxes, what are the implications here with taxes when you have long-term care insurance? We don't really have to consider that because we're looking at tax free benefits.

Nic Nielsen [00:11:45]:
It greatly simplifies the tax considerations.

Kelly Augspurger [00:11:47]:
It does. You don't have to worry about, "Okay, how much am I actually going to be able to keep and use for care?" Well, you're using all of it, so that's the great thing. As far as the tax deductions goes, these are going to be based on age based limits, depending on if you're an individual, if you itemize your deductions, even if you're a business owner. So if you're a C-corp, you can deduct 100% of these long-term care insurance premiums. Plus you get these benefits tax free. So certainly great advantages there. In addition, Nic, I really like to emphasize that when we have long-term care insurance, this is more than a bucket of tax free money. This is really providing other benefits.

Kelly Augspurger [00:12:26]:
These hidden gems, as I like to call them, within our policies. So these are things like care coordination, home modifications, respite care, caregiver training, bed reservation, things that we're not getting if we're solely self-funding. If we're just self-funding, then we are coming up with a care coordination. Maybe our family is doing the care coordinating, our family's providing care, or we're having to seek out those professionals on our own. But when we have a policy, generally they have these things built in, which is amazing.

Nic Nielsen [00:12:55]:
It's a great starting point.

Kelly Augspurger [00:12:56]:
It is.

Nic Nielsen [00:12:57]:
You're overwhelmed. You don't know where to begin. Like, you may not necessarily use all of the resources that they have and provide, but it's a great starting point when you feel so overwhelmed.

Kelly Augspurger [00:13:07]:
That's right. In the beginning of a claim especially, that's where it's the most valuable. Because this team of people can come alongside your family. Because let's face it, they're the ones that are going to be organizing and coordinating this so they can come alongside your family to be able to assist and provide resources and information on, "Hey, here are some recommendations for you and for your loved one." So that's really, in my mind, invaluable. So your family doesn't have to go to Google and just figure it out on their own. And along with that, Nic, and with any plan, I think this is applicable with a financial plan, if you have insurance, any kind of a family plan, what are you getting? You're getting protection, peace of mind, and predictability. My three P's, right? When we have a plan, that's what we get.

Kelly Augspurger [00:13:47]:
And so when we're looking at long-term care insurance, there's several different ways that we can use long-term care insurance. There's different ways to be able to pay for care. The first one is traditional long-term care insurance, which is just standalone insurance. There's no added benefit if you don't need care. The second is going to be some type of a hybrid solution. So this is going to be with life insurance. Like you talked about earlier, Nic, with long-term care insurance. Also if you don't need care or an annuity with long-term care benefits.

Kelly Augspurger [00:14:15]:
So it could be annuity hybrid or a life hybrid. We also have just a straight up life policy that allows you to accelerate the death benefit, and we call that a life policy with a long-term care rider. We even have chronic illness riders, which are different from long-term care riders, and we don't have the time or the bandwidth today to get into that deeply.

Nic Nielsen [00:14:34]:
That's a whole podcast.

Kelly Augspurger [00:14:35]:
Oh, my word. That's a whole episode on just chronic illness riders. But just know there are lots of different ways out there. Insurance policies to be able to pay for care. And so there are options. So number two, long-term care insurance. That is another way to be able to pay for care.

Nic Nielsen [00:14:50]:
So the opposite of long-term care is short-term care. And I would guess that nobody has heard of this. Kelly, tell us more about short-term care.

Kelly Augspurger [00:14:59]:
Yeah. So the third way to pay for care. Short-term care insurance. Yeah. Not many people know about this product. It's not as popular, but it can be very beneficial. So think of short-term care insurance, very similar to long-term care insurance. It's just providing coverage, providing benefits on a shorter period of time.

Kelly Augspurger [00:15:18]:
So it's not three, four, five years, maybe unlimited. It's going to be limited to maybe a year at home and a year in a facility. Okay? Most often these types of policies are going to be able to pay cash benefits. Some have inflation protection, some do not, which allow your benefits to grow over time. And they are particularly beneficial for someone who's not healthy enough to qualify for long-term care insurance because the underwriting is going to be more lenient, which is wonderful. So for my clients that, say, we don't have long-term care insurance options for you, or maybe it's unaffordable for you. Let's take a look to see if we can qualify.

Kelly Augspurger [00:15:56]:
And a short-term care policy would be a good fit for you. So that's the third way to pay for care, Nic, is short-term care insurance.

Nic Nielsen [00:16:04]:
And if people need it right now, tell us about immediate care.

Kelly Augspurger [00:16:08]:
Oh, Nic. Okay, so this is really exciting. This is a new product, a unique new solution that's available in the United States. It's actually been sold and offered in the UK for over 20 years, but it's just made its way to the United States. So I'm really pumped about this now that I can actually offer this to clients. But just as you said, it's immediate care. So if you or a family member needs care now and you don't have a great way to pay for that care, and you're worried about running out of money, or your family's worried about running out of money, you can use this immediate care plan. And what it is simply, it's a single premium, immediate annuity.

Kelly Augspurger [00:16:45]:
Now, there are lots, and we call them SPIA's. Now, the difference, there are lots of SPIA's out there already. What's unique about this, Nic, is it's health underwritten. So basically, the worse health you're in, the bigger payout you get. And so there's an application, there's a phone interview that's done with the care provider and then potentially medical records so that the insurance company is able to look. And, you know, this individual obviously needs care now and is very ill. We're willing to offer them x amount per month for life or even over a certain period of time. And I'd love to give a quick example because I think this is just so fascinating.

Kelly Augspurger [00:17:26]:
So let's take a look at an example of a woman. Her name is Lynn. She's 84, a widow, and she has three adult kids. Lynn has high blood pressure, vascular dementia, and has had a series of falls. She needs a moderate level of assistance with activities of daily living. We call these ADLs. And she's now an assisted living facility where she can get the level of care that she actually needs. Okay.

Kelly Augspurger [00:17:49]:
And her kids are really nervous that she is going to run out of money. And here's a little blip of her financial situation, Nic. So currently her savings are $350,000, and she has a combined Social Security and pension annual income of $30,000. But her annual costs in that assisted living are $85,000 per year. So she has a care gap, Nic, of $55,000, that $85,000 minus the $30,000. So since her kids are concerned about her being able to cover the cost of care, especially for a longer period of time, they're like, "Okay, what can we do? Because her current savings, if she would use that, would last about six years, assuming there's no increase in the cost of care. But we know there is going to be an increase of cost of care. It always goes up.

Kelly Augspurger [00:18:32]:
So how are we going to fill that care gap of $55,000?" So what they've done is they answered the health questions and the insurance company said, "Okay, this is what we can do. You give us $225,000 of the savings of the $350,000 and we will cover her care, that care gap of $55,000 for life. Okay?" She could need care for the next ten years. And with dementia, that's not necessarily unrealistic. Her family could have chosen a limited time frame. Maybe they chose four years or five years or something like that.

Kelly Augspurger [00:19:09]:
And so obviously that payout would be a little bit different. And you can even choose the ability to add growth, to add inflation protection. So it's a really cool new solution for those families, again, that are worried about running out of money and their loved one needs care now, but they obviously have to have some assets in order to reposition in a lump sum in order to be able to do this. But that's another way to be able to pay for care.

Nic Nielsen [00:19:32]:
Is there generally like a cash refund option to it? So in that one she put in $225,000, she lives one year, she takes out $55,000. Is there a cash refund to the children?

Kelly Augspurger [00:19:44]:
Yeah. So the first six months there's a death benefit, and it's graded. So it depends on what month you're in and the percentages go down so that if the loved one passes away in the first six months, there is money back. But obviously, you go into this knowing we could potentially put in a lump sum. But then if mom or dad passes away in two years, I don't get that back, right? But the flip side is if mom or dad needs care for a long time, then we have that guarantee. Right? And that's what insurance is, it's a guarantee.

Kelly Augspurger [00:20:12]:
So obviously there's risk there, but there's also guarantees and there's predictability. So another thing to consider. Is it a right fit for everyone? No, but it could be really valuable for some families. The Steadfast Care Planning podcast is sponsored by the Certification for Long-Term Care CLTC, an in-depth training program that gives financial advisors the education and tools they need to discuss extended care planning with their clients. Look for the CLTC designation when choosing an advisor. If you're looking to become a CLTC, enroll in their masterclass and enter "Kelly" in the coupon code field for $200.00 off.

Nic Nielsen [00:20:49]:
The next one that you're going to talk about. I see a lot of emails on this all the time. I've never seen one in real life, but I think there's certainly application for us. Talk about life settlements and how those work.

Kelly Augspurger [00:20:59]:
Yeah. So a life settlement is basically when you sell an existing life insurance policy. Most often it's a permanent policy, but it could even sometimes be a term life policy, Nic. And you're going to sell it to a third party for a lump sum payment. Okay. And then you can use the proceeds for LTC expenses or really whatever you want. And these are called life settlements. So you could get more money out of it than if you just surrendered the policy altogether for the cash value.

Kelly Augspurger [00:21:27]:
Typically, what I've heard is that that death benefit could be paid out. Maybe it's 20% to 25% of that death benefit, but it could be less, and it could be more. It's going to depend on your age, what type of health condition you're in, what your life expectancy is. Obviously, they have actuarial tables. And so, again, you're going to fill out paperwork, and the insurance company will say, "Hey, this is what we can offer you based on your age and your health and all of these things." So, for those that are going to qualify, it's going to be people typically over the age of 65, possibly younger, if someone has something like ALS. But typically, the health impairment and life expectancy needs to be less than ten years in order for a life settlement to make sense. So that's another way to pay for care.

Nic Nielsen [00:22:11]:
Because the life settlement company, they essentially come in and make the premium payments for you. And then they collect the death benefit at your passing.

Kelly Augspurger [00:22:19]:
That's exactly it. So they're gambling on how soon are you going to pass away? Does it make sense for them to take over these premium payments? When are you going to pass away? And so, obviously, they do their math. And they make offers.

Nic Nielsen [00:22:31]:
They have actuaries.

Kelly Augspurger [00:22:32]:
Yes, they have certified actuaries. And so they're able to make offers based on the data that they have. Yeah. So that's a life settlement.

Nic Nielsen [00:22:39]:
Number six here. Health savings account. This is one of my favorites.

Kelly Augspurger [00:22:42]:
Yeah, Nic, tell us about that.

Nic Nielsen [00:22:43]:
So, a health savings account is one of, I think, really the only account that you could say that your contributions go in pre-tax. They grow tax deferred. And then if you use the funds for qualified expenses, it comes out tax free. So you get all of the potential benefits you could ever want from an investment vehicle. And it's important to know that these dollars can actually be invested. In 2023, the family maximum contribution is $7,750. So I did a little bit of quick math. If you did $7,750 for 20 years at a 7.8% return.

Nic Nielsen [00:23:15]:
That averages out to be...You'd have $347,000 in 20 years. That potentially could be your long-term care bucket of money in retirement. So a lot of us might have access to a health savings account. We get a debit card in the mail, and we might use that debit card every time we go to the doctor, every time we purchase a prescription, or get band aids, or whatever the case.

Kelly Augspurger [00:23:38]:
Right.

Nic Nielsen [00:23:39]:
I love this strategy of paying for these things out of pocket, if you possibly can, and just keep track of all of your medical expenses that you incur and put those in the cloud. So you need basically two matching documents. You need a document showing the bill, and then you need a document showing that you paid that expense. And with an HSA, you can reimburse your point at any point in the future, which is an incredibly powerful thing. So maybe between the ages of 40 and 60, you've accumulated $100,000 of expenses. But because you've let that money grow, potentially that could turn out to be $350,000 in the future. You could take out that $100,000 of expenses, lump sum, if you wanted to, at any point. So it's a really incredible financial planning tool that isn't utilized enough, and I don't think enough people are just letting the dollars accumulate within the HSA for future use.

Nic Nielsen [00:24:32]:
And I know that you could even take distributions from the HSA, turn around and fund one of the other policies that you've talked about, whether it's a long-term care policy, or a life hybrid policy, there's a lot of leverage that you could get within the HSA itself.

Kelly Augspurger [00:24:45]:
That's right. Yeah. Great point there. Number one, this is a long haul play, right, with an HSA, because you have to have time for those funds to be able to grow over time. So in 20-30 years, you'll be able to have this bigger bucket of money with insurance. It's different in that day one, you've got this leverage, right? You've got this big bucket of money that will continue to grow over time, too, if you've got some inflation protection growth on there. But the HSA, you got to make sure that you are contributing and saving in that and allowing it to grow over time to be able to give you those funds in the future.

Nic Nielsen [00:25:16]:
Yeah, I think it's incredibly powerful. Also, I don't know why you would want to do it, but the laws allow you a one time rollover to an IRA should you want to use those dollars as part of your retirement plan. Maybe you get parabolic returns. And in my example, instead of having $350,000, you've found the next Apple, or Google, and you have $8 million in your HSA. That might be way more than you would possibly need for health care expenses throughout retirement. So maybe a situation like that makes sense to do a rollover to an IRA. But there's a lot of flexibility. There's incredible tax benefits that come with the health savings account.

Kelly Augspurger [00:25:50]:
Cool. Okay, HSA, another way to pay for care.

Nic Nielsen [00:25:53]:
And then a lot of people, one of the biggest assets they have is their house. And they're trying to figure out how do they tap into that equity. So, number seven, you have the answer.

Kelly Augspurger [00:26:01]:
That's right. And that's a reverse mortgage, which Nic and I are not reverse mortgage experts. So you definitely would want to speak to a reverse mortgage expert about this. But it is a way that people can pay for care or whatever you want in retirement, really, you can help just fund retirement and provide extra income. So for seniors who do have a lot of equity in their homes, and they don't know many other sources of income, this could be a great way to be able to pay for other things in retirement. And so what that does is, Nic, you're accessing the equity in your home through a loan, and then you can use that money however you want, no restrictions to pay for care. You can pay for long-term care insurance. You could have home modifications done to your house.

Kelly Augspurger [00:26:43]:
You could do all kinds of things. So the cool thing with this is it is tax free, since it's the homeowner's equity and you don't have to pay that loan back until the last borrower passes away or moves from the home for one year. And typically, the home is then sold and the lenders paid back that full loan, plus interest. So I think there are lots of misconceptions and scary stories out there about reverse mortgages. And so I think a good takeaway here is you want to work with someone that's reputable. There are lots of safeguards around reverse mortgages now. Really, I think, more than any other financial product, you really have to go through quite a few steps to even be able to get a reverse mortgage. So I think, if you have equity, this might be a viable solution for you to be able to, again, fund LTC, but also pay for other things in retirement.

Kelly Augspurger [00:27:34]:
Something else to consider with a reverse mortgage, too, Nic, is that homeowners can never owe more than their home's value, and lenders can't force seniors out of their home, which I think sometimes people think that is true, but no, they can't make you leave your home if you're upside down, if you will. That's not happening. So another way to pay for care is consider maybe a reverse mortgage could be a viable solution for you.

Nic Nielsen [00:27:56]:
Number eight gets us into VA benefits, which you're going to know a lot more about than I do. I don't have very much experience in that space, but a lot of people don't fully take advantage of these benefits that actually do qualify for them.

Kelly Augspurger [00:28:07]:
Yeah. So V.A., Veterans Affairs, VA benefits, this is going to be for those retired military vets and spouses. So vets with highly rated, service connected disabilities are going to have priority here, Nic, okay? They're going to be the ones that are, like, top of the list to be able to actually receive care. This is going to be subject to means testing, which means they're going to look at what you have, your income, your assets, financially, do you need the financial assistance? And there are copayments here. It, in my opinion, should not be relied on exclusively to be able to pay extended care for vets and their spouses because they're not huge benefits that they actually provide. So if you're able to find other ways to pay for care in addition to your VA benefits, that's going to be key here.

Kelly Augspurger [00:28:58]:
Okay.

Nic Nielsen [00:28:58]:
They haven't been indexed with, like, the average cost of care that we talked about of $5,000 per month.

Kelly Augspurger [00:29:04]:
So the amount of monthly benefit that vets and their spouses can actually get, like I said, it's based on means, but it's also based on your service. And so the max benefit, I believe, is about $2,600 per month if you're married. If you're widowed, it's closer to $1,400 per month. Okay, so that's not a lot, right? I mean, if you need care, you're probably needing more than 14 hundred and 26 hundred per month of care, particularly if you need 20 plus hours a week of care. It's a great supplement, but I don't think it should be relied on exclusively. This is not the level of coverage and, or, I would say, income lifestyle that most people want to plan for if they ever need care, because you don't always get to choose where you receive care. With VA benefits, there is home care. Sometimes that can be optional, and I know there's some great companies that can help with that, but I do know that sometimes they will say, "Okay, you can go to this facility, this VA facility." You're not going to choose where you want to go.

Kelly Augspurger [00:30:06]:
They're going to know we have this VA facility available, and if there are VA benefits at home, they will let you know if there are VA benefits available. But it's going to be based on a variety of factors. But if you are a veteran or you are a spouse, you know one, hey, it could be a way to pay for part of your care.

Nic Nielsen [00:30:22]:
And you mentioned means testing with number eight. Means testing also applies to the next one, Medicaid, probably the most misunderstood of all the things we've talked about today.

Kelly Augspurger [00:30:29]:
Oh, boy. Yes. So Medicaid ending with a "d" is different from Medicare, and we're going to talk about Medicare here in a little bit. But Medicaid, Nic, is a safety net for people who are in crisis. Okay. This is a viable solution for people who don't have money, or have very little money. Right. That's what we mean by safety net.

Kelly Augspurger [00:30:48]:
So the government's going to step in and, you know, you have spent down your assets, you have a set amount of income, and now we will pay for care. The government wants to be a backstop. They don't want to be the first resort when it comes to paying for care. And do know that when you are on Medicaid, the primary place that Medicaid is actually going to pay for care is in a nursing home, which is the last place most people want to be. Now, having said that, I will tell you that I know in Ohio we do have a program. It's called a passport program. And you can receive care at home if you're on Medicaid. But there are, of course, stipulations.

Kelly Augspurger [00:31:27]:
You have to need a very high level of care. This is not just custodial, non medical care. You basically have to be house bound, not able to leave the house. Of course it's going to be means tested. That's how Medicaid works. But there's also generally a long waitlist for home care, so you could want it, but that doesn't mean you're actually going to get the home care. Okay. Do know that Medicaid and qualifying for Medicaid can be a really expensive proposition, particularly if you do have assets.

Kelly Augspurger [00:31:55]:
Right? So you're going to need to spend down those assets. And in Ohio, for a single person, that asset limits $2,000. Not much, right?

Nic Nielsen [00:32:04]:
It is the death of a legacy, right?

Kelly Augspurger [00:32:06]:
That's right.

Nic Nielsen [00:32:06]:
Of a financial legacy, at least.

Kelly Augspurger [00:32:08]:
It is a financial legacy. Right. You do get to have a home. There's some non countable and countable assets. So they're not going to count your home. And I believe it's up to like $688,000 or something like that. In Ohio, you can have a car, some personal belongings, and if you're married, the healthy spouse can keep no more than about $148,000 in assets. So those are things to consider.

Kelly Augspurger [00:32:30]:
Also really important. There's a five year look back period.

Nic Nielsen [00:32:33]:
Very important.

Kelly Augspurger [00:32:34]:
Yes. So what this means is it's a penalty period or a disqualification period if you transfer assets, cash title changes within the last five years of applying for Medicaid. And if you have, they're going to say, "Okay, well, guess what? Since you did that, there's now this penalty period." It's an amount of time that you have to self-fund your care until we, the government, will pick up the check. Okay. Now I know there's Medicaid planning out there, and I've got an episode on that, but it's very tricky. It's very, very tricky with the Medicaid planning process. And obviously, you're impoverishing yourself.

Kelly Augspurger [00:33:08]:
You're giving away assets, you're transferring assets in order to be able to qualify for Medicaid. So something to consider even if you do go on Medicaid, Nic, I think this is really important. I don't think many people know this. The government has something that's called estate recovery. So you go on Medicaid and Medicaid, let's say, pays for $200,000 worth of your care. Guess what? They want to try to recover that $200,000. So if you have a home, they are going to try to recover money that they spent from your care in the sale of your home.

Kelly Augspurger [00:33:40]:
Okay? So your home is not exempt when it comes to recovering those assets. So they're going to try to get reimbursed as much as they can for that care that was provided after the death of that person.

Nic Nielsen [00:33:50]:
Which to me makes complete sense. And that brings us to our final "M" of the M&Ms, Medicare, which does not pay for long-term care.

Kelly Augspurger [00:33:58]:
It does not. So, yeah, Medicaid and Medicare, these often get confused. I wish that the great officials up there, whoever they are, the governmental people, had named these different things because they do get confused all of the time. So Medicaid, it's the safety net to be able to pay for care. Medicare is health insurance. This is health insurance for those who are over the age of 65. This is not intended to pay for care, long-term care. We're talking about chronic ongoing non-medical custodial care.

Kelly Augspurger [00:34:27]:
Right? Medicare, since it is health insurance, this will cover a limited amount of care. But really, what we're talking about here, Nic, is skilled nursing care in a skilled nursing facility for a short period of time. Okay? And this is going to be following a three day hospitalization. The doctor has to certify that you need that skilled care. This is not just custodial care. What Medicare will pay for is they're going to say, "Hey, we'll pay for the first 20 days that you're in this skilled nursing facility." They're going to pay 100%.

Kelly Augspurger [00:34:57]:
And then days 21 to day 100, there are co-pays that they're going to pay. And then after that time period, guess what? You're on your own, right? Medicare is done paying for any of those care costs. Custodial care, non medical care. You need to come up with other ways to pay for care.

Nic Nielsen [00:35:13]:
Refer to the first nine that we talked about.

Kelly Augspurger [00:35:14]:
That's right. Go back to the beginning.

Nic Nielsen [00:35:17]:
Rewind.

Kelly Augspurger [00:35:19]:
That's it.

Nic Nielsen [00:35:20]:
This is awesome. I mean, I think there's a lot for every family to think about because I hope for anybody that hasn't intentionally thought about having a plan for care, that they sit down, they think about how are we going to pay for care for ourselves or for our parents, our aunt and uncle's plans to pay for care? There's people that we care about. Hopefully in a perfect world, they meet with you. So if people want to learn more about working with you, Kelly, how do they connect with you?

Kelly Augspurger [00:35:46]:
Yeah. So you can find me on LinkedIn. Kelly Augspurger with the "p". Both Nic and I are on LinkedIn quite a bit, so you can catch us there. You can reach me on our website, www.SteadfastAgents.com. You can shoot me an email, kelly@steadfastagents.com. Reach out to me. Happy to help.

Kelly Augspurger [00:36:02]:
Talk to see if long-term care insurance is a viable solution for you. And what about you, Nic? How can people get a hold of you?

Nic Nielsen [00:36:08]:
So LinkedIn is probably the easiest way. Send me a message there. Nic Nielsen. And then our website for our company is Know My Plan. It's important for us that all of our clients can say, "I know my plan." So that's the origin of www.KnowMyPlan.com.

Kelly Augspurger [00:36:21]:
Love it. That's right. And everybody needs a plan. Right. And there's a variety of ways to pay for care. So we encourage people to really identify what funds you will use to pay for care and then write it down. Right. Everybody should have a written plan.

Kelly Augspurger [00:36:35]:
And so, financial advisors, if you're listening, make a list of funds that your clients will use in numerical order of what they would access 1st and then 2nd, 3rd, 4th to be able to pay for care. And then you, the advisor, can sign it, the client can sign it so that you have a plan. And obviously this can be updated over time, but it's going to provide, really, a roadmap for when care is needed of, hey, what funds are we actually going to use to pay for care?

Nic Nielsen [00:37:02]:
Make sure that your loved ones know where these documents are at. It's one thing to have the documents and to have the plan, it's another to communicate the plan with the entire family.

Kelly Augspurger [00:37:11]:
So true, you know, amen to that, Nic. Everybody needs to know where this is. So if you have adult children or your POA, whoever that is, these people need to know where this plan...know where the documents are. If you have an estate plan, where that is, who they need to contact in a time of need, so that you know what to do and you can execute this plan. Because if you've put in this time, you've put this effort into creating this great plan, but nobody knows where it is, what good is it? Right?

Nic Nielsen [00:37:37]:
Absolutely.

Kelly Augspurger [00:37:37]:
We want to execute the plan, so make sure your people know where your plan is.

Nic Nielsen [00:37:41]:
Absolutely.

Kelly Augspurger [00:37:41]:
Yeah.

Nic Nielsen [00:37:42]:
Kelly, this was awesome. Thank you so much for including me. I, as a financial planner, always learn so much when I get to spend time with you. So thanks for all of the great work that you are doing around educating the masses on the importance of long-term care and extended care planning.

Kelly Augspurger [00:37:56]:
Well, Nic, I appreciate you and appreciate your expertise. So thanks for taking time and hanging out with me to talk about ways to pay for care.

Nic Nielsen [00:38:02]:
As always. Thank you.

Kelly Augspurger [00:38:03]:
Have a great day.