Birmingham, Alabama-based financial guru Jeff Roberts, who was recently named one of the top private wealth advisors in the nation by Barron’s®, came on Yellowhammer Radio to lay out the facts so people can decide for themselves.
The full conversation with Mr. Roberts can be heard on the Yellowhammer Radio podcast or in the video above, and a lightly edited transcript of his interview with Yellowhammer’s Andrea Tice and Scott Chambers can be read below.
Subscribe to the Yellowhammer Radio Podcast on iTunes. Learn more about Jeff Roberts’ private wealth advisory practice at JeffRobertsAndAssociates.com.
Scott Chambers:
What is on your mind today, Jeff Roberts?
Jeff Roberts:
Today as you all recall, I like to talk about things that I see and experience with clients from week to week. And so a lot of our themes and conversations are things that I’m taking away from client meetings. This week we’re going to talk about long-term care. It’s a common concern or planning issue that we address with clients both in retirement and before retirement. So I wanted to hit on some of the big picture concepts that people need to be thinking about. First, of course you have to ask the question, what exactly is long-term care?
Scott Chambers:
I was just about to ask that. What is long-term care, Jeff Roberts?
Jeff Roberts:
It’s basically a range of services and supports that you may need to meet your personal care needs often times in retirement. For example, most commonly it’s when someone is retired no longer working and they have a need for medical assistance. They could be disabled for a period of time and most long-term care isn’t necessarily medical care, it’s rather assistance with the basic personal tasks of everyday life. Sometimes they’re called activities of daily living, such as bathing, dressing, using the toilet, transferring from a bed to a chair, caring for incontinence, or eating. Those daily living activities if someone gets to the point where they need help with those that’s when long-term care can kick in, or the need for long-term care kicks in. We see that most commonly with people in retirement. That’s kind of what long-term care is.
Andrea Tice:
So it’s primarily medical issues to plan for?
Jeff Roberts:
What it usually is, it’s an issue of a medical condition that causes someone to not be able to function independently or on their own. That’s where the rubber hits the road. You have skilled care which is basically if you’re injured and you’re going to recover from it then you receive skilled care. Custodial care is typically what I’m describing where you need care with daily living activities that you simply can not do on your own. What happens is, is when you need care of that type there are different places or resources that you can go. I’ll generalize them for you, for example you can have care that you receive in your home. For example I’ll use my grandmother who is now passed away but before she passed we had in home care provided for her where we wanted to keep her in her home as long as possible. That was her familiar surroundings so we provided assistance where people would come in and help her with those daily living activities. Then at sometimes it gets to the point where that can become too expensive as more around the clock care is needed and sometimes you have to consider what is called an assisted living facility. Which is residential care setting that combines housing as well as support services and care for often times elderly individuals. When you’re looking at things like assisted living one important part of that might be making sure that a facility has memory care services which is what is provided to people often times with Alzheimers and memory conditions. Not all assisted living facilities provide memory care services. The third option is a nursing home which is a place of residence for people who require constant nursing care with significant deficiencies with daily living activities. That’s the most extreme scenario and there are now examples of things called continuing care retirement communities which can be a living community that combines all of those services into one where you can matriculate from one service to the other all within a certain type of campus. So that is what long-term care is and those are the facilities that are available to provide that or the way that you can receive that care but then a big question is, what are the costs?
Andrea Tice:
And the first steps are engaging in that and planning it, correct?
Jeff Roberts:
Correct. For example, and these numbers that I’m giving come from a couple of different sources. The most common is the US Department of Health and Human Services and they’ve got a website called LongtermCare.gov that provides some really great resources. Some of the numbers that we’ve seen show home care in Alabama costing somewhere around $40,000 per year. And that’s per person, so if you have a husband and a wife and they’re both living at home and they have a household income. Well one of those people is going to need $40,000 a year just for their care and that doesn’t include prescriptions and medications. About $17 a hour is the rate but it often times it’s more than just Monday through Friday. It can go into weekend or continue into the evening. Assisted living facilities are about the same price. We see on average around $40,000 roughly a year. Nursing home facilities in Alabama average more like $68,000 a year per person. We generally see those costs are increasing each year somewhere between 5% – 6% per year. So they’re increasing typically much faster than inflation is so costs can really be impactful on a particular couple. Those are some of the stats are far as the costs are concerned, then the question becomes, what’s the likelihood that I’m going to need this? This is what’s interesting, the duration and the level of long-term care will vary from person to person obviously and they often change over time so what I’m about to share with you is on average numbers from the Department of Health and Human Services (DHHS). Someone turning 65 today has almost a 70% chance of needing some type of long-term care services and support in their remaining years.
Andrea Tice:
So one of those three options that you presented?
Jeff Roberts:
Just almost a 70% chance. And then women typically on average need it for a span of 3.7 years on average and the DHHS showed that men needed it for only about 2.2 years on average. Women need to care longer than men. 1/3 of today’s individuals 65 years of age may never need care in their life. So if just short of 70% do need care then a 1/3 do not need care. Remember, 20% of those at 65 years of age will need it for more than 5 years on average as well. To summarize, about 70% need care, women need it for about 3.7 years on average, men for 2.2, but about 20% of the individuals over the age of 65 are going to need it for as much as 5 years which is a long period of time. When you do the math you can see it can be substantial. When I describe it talking to clients, they say what’s the percentage that I’m going to need it? I say, for you personally it’s 0% or 100%. You either need it or you don’t. So the analogy that I use is, what’s the likelihood that if you take someone who is 50 years of age driving a car and you take a 16 year old boy driving a car and you look at the insurance rates on those guys there’s a huge difference between a 50 year old male and a 16 year old male driving a car. Because the likelihood of a 16 year old getting in a wreck, as we know, is much greater, right? The cost of that 16 year old’s insurance is going to be a lot higher because the likelihood of a car crash, we all know, is higher. Well long-term care is kind of the same way and we can talk now about solutions but before I do I want to give a quick example. If you’ve got someone who has a $1M hypothetically, and remember back in October when we did a workshop talking about retirement planning and I used a scenario that said people in retirement should try and carve off no more than 3% of their nest egg to live off of. So if you’ve got $1M you’re safely going to carve off $30,000 a year. Well, you can see how quickly that’ll get spent with long-term care facilities. It goes super fast. People have two options, you can self-insure which means you assume all of the risk and say that you’re going to save as much money as you can in a big nest egg and hope you have enough money to cover the cost that you’ll need to cover yourself and your spouse in your lifetime.
Scott Chambers:
That sounds like a big hope though.
Jeff Roberts:
It can be risky and it will be a bunch of money. The next option is that you can transfer the risk to an insurance company and that’s where a lot of the questions just begin when people say “yeah you get long-term care insurance.” I’m telling you, we get so many people that come in with these preconceived ideas of what it is and how it works and what it costs. And there’s different types, there’s traditional long-term care insurance where you pay a premium and you get a benefit in your lifetime for a defined period contractually. Now there’s policies where there’s a life insurance policy that has not only a death benefit but also a living benefit that provides long-term care dollars to use for long-term care in addition to life insurance. So there’s all these different hybrids and my statement to people is this, if you’re concerned about long-term care and you have preconceived ideas of what it costs or you heard someone say these policies, don’t pay or they do pay or they’re too expensive. My comment to anyone is sit down with an advisor to walk you through your unique options and the products and services that maybe available to you to customize something. Because to ignore long-term care overall is literally burying your head in the sand and is like looking at a 16 year old boy and saying “You don’t need auto insurance.” The statistics show that there’s a much greater likelihood that someone needs long-term care than a 16 year old is going to be in a wreck. And we know how likely that’s going to be, right? All kids bump and ding their cars. The message is, seek help, ask questions and get somebody to have a conversations unique to you about options, services and long-term care. Very important.
Scott Chambers:
Very phenomenal here because I had a relative who needed long-term care following a stroke and I know what it can be like. The stress and struggle it puts on families.
Jeff Roberts:
It’s tremendous and if you have a family member in another state where the cost of living is much higher like New York, those numbers I gave you could literally double. It’s unbelievable.
Scott Chambers:
Well Jeff if people want to find out more they should definitely talk with you. You would be a great start.
Jeff Roberts:
We would love to help. We deal with long-term care protection strategies all the time and feel free to give us a buzz at 313-9150 or look us up online at JeffRobertsandAssociates.com
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