There Are Only Five Ways to Pay for Long-Term Care. I Use the Fifth One.

By: J. Barry Watts, Expert Tax Strategist and Retirement Designer

Most people worry about the wrong medical bill.

Ordinary health care in retirement is a smaller problem than it feels like. If you have Medicare and a good supplement plan, that combination will cover very nearly everything you need. Supplement premiums are priced all over the map by plan, by age, and by state, so price your own rather than trusting a number you heard on the radio — but once you have the right one in place, routine medical costs are largely handled.

The cost that will actually get you is long-term care, because that is precisely where Medicare stops. And there are exactly five ways to pay for it. Not six. Five.

The First Four

You can self-fund it. Write the check. If you have enough, this works, and it has the virtue of simplicity. What it lacks is leverage — every dollar of care costs you a dollar, and a long stay can consume a great deal more of an estate than people expect.

You can depend on your children. This works for a while, and sometimes it works beautifully. But it has a natural limit, and the honest families acknowledge it up front. I had a client tell me his daughter had agreed to care for him right up to the point of diapers, and that when that day came she said, Dad, we’ll have to find someone else for that part. I thought that was an admirable answer. It was honest, it was given in advance, and it was far better than a promise nobody could keep.

You can throw yourself on the government. That’s Medicaid. You hand over the assets you’ve got, and the government’s welfare program pays for your care. I consider it the worst of the five, and I say that plainly. A lifetime of work should not end with the state as your only option.

You can buy long-term care insurance. The trouble is that it has become hard to buy, and once you own it the premium tends to climb, and climb, and climb. Worse, it is use-it-or-lose-it. If you are fortunate enough to die in your sleep having never needed care, that money is simply gone from your family. And the coverage is not always yours to keep. I had a gentleman who loved the long-term care benefit he had through his employer — loved it enough that when he had a chance to attach coverage to a life insurance policy, he passed. Then his employer dropped the benefit. He is now a man in his sixties with no coverage at all and fewer options than he had before.

Why I Use the Fifth

The fifth option is life insurance with an accelerated death benefit, and it is the one I have chosen for myself.

Here is how it behaves. If I live a long life and simply die, my family receives the death benefit, the way life insurance has always worked. But if I get sick and need care, the carrier converts that death benefit into a living benefit and pays it to me while I am still here to use it. It stops being death insurance and becomes life insurance in the plainest sense of the phrase.

That single feature solves the use-it-or-lose-it problem that makes traditional long-term care coverage so hard for people to stomach. The money does something for your family in either direction. Something on the order of four out of five of our clients have arranged their care funding this way.

There is one more feature that almost nobody knows about, and I’ll say it quietly because it deserves a careful conversation rather than a headline. If you never need the care, and you would rather not leave the money sitting in the policy, income can be taken out of these plans on a tax-free basis. That is why this isn’t only my long-term care plan. It is a piece of my retirement income plan as well.

I am not telling you that the fifth option is right for your situation. Every one of the five fits somebody. What I am telling you is that you will use one of them, whether you choose it or not — and the people who don’t choose almost always end up in the third one.

Don’t Make Your Spouse Promise Something She Can’t Deliver

My father-in-law played this hand wrong, and I say that with love for the man.

He worked at Dayco for years. Those of us who grew up in the Ozarks remember when those were good jobs, and we remember when the jobs went away and the strikes came. He got caught in the lockouts, and he finished his working life as the maintenance man at a nursing home.

And he made my mother-in-law promise that no matter what happened, she would never send him to a nursing home.

Then he got Alzheimer’s.

The mercy in it was small and strange. When he was released from the hospital the last time, they sent him to rehab, and the rehab unit happened to sit inside a nursing home. Kelly was able to present it to her mother as a rehab stay rather than a nursing home admission. He died there.

So here is my point, and I’d ask you to sit with it rather than skim past it. Don’t extract a promise from your spouse that she may not be able to keep. She is a human being. She can only do what she can do, and the day may come when what you asked of her is beyond her strength, her health, or her budget — and then you have handed her guilt on top of grief.

I could ask Kelly for that promise. I want to, some days. I won’t. My responsibility is to build a financial plan that handles the problem instead, and then to show that plan to my children.

Show Your Children the Drawer

I chuckle every time somebody tells me, “Dad’s ninety and I have no idea whether he has any money, because he never talks about it.”

Do you really think you’re going to live forever?

My kids are young adults, and they already know which drawer in my credenza holds all of it. So does my son-in-law. I don’t merely tell them it exists. I pull the files out, spread them across the table, and walk them through it: here is the money, here is what it does, here is how it is supposed to work if I get sick, and here is what happens if I don’t.

The last thing I want is a panic-stricken moment — for Kelly, or for them. I want my children to be able to sit down together and say, Mom, here’s what the money looks like. It’s all right. That is not a financial transaction. That is what it means to take care of the person you promised to love.

And if this is hard for you, that’s all right too. Not everyone is loquacious — there’s a fifty-cent word for you, and I’ll admit I like the big ones. If you can’t find the language for this conversation, we will help you find it. We will even bring your children into our conference room and explain on your behalf what you have arranged, so that they know exactly what to expect and you never have to deliver the speech yourself.

Estate Planning Is Not Just for the Rich

There’s a companion belief I run into constantly: that estate and legacy planning is something wealthy families do. That’s silly. It’s for all of us. People simply don’t know what they don’t know.

I ended up teaching an impromptu class on trusts while standing in line at Fire in the Hole at Silver Dollar City. They were closing the ride, so naturally every one of us had to go ride it one last time, and the queue wound through that little fake cemetery out front. I’ve always gotten a chuckle out of those tombstones, because the names carved on a good many of them belong to people I grew up with — employees of the ride, back when somebody thought it would be funny to put them there. Raidine Uchler is on one of them. There’s an old argument about how to pronounce it. I knew Raidine; his son Rob was my age.

Somewhere between the tombstones and the front of the line, my daughter started asking questions. Is there an estate set up? How does that even work? Do you have a will? What’s a trust? So there I stood, explaining trusts to my daughter and to everyone else within earshot.

The mechanical answer is short. If you have an asset you want to pass to someone else, you must have a formalized estate plan to accomplish it. You cannot assume it will go to the kids. It might not.

Your Greatest Asset Isn’t the Money

But underneath the paperwork sits a better question, and it’s the one I actually care about.

Try this. If you had to choose between losing every dollar you have and losing every experience you’ve lived through along with all the wisdom that came out of it — which would you give up?

I’d hand over the money without much hesitation. I could earn the money back. The wisdom is exactly what would let me.

Which means what I most want to pass to my children and grandchildren is not principally the account. It’s the values and the convictions. I’ve been through hard things. The roughest was a divorce when I was a young man; it gutted me, and it took a long time to get past. Then in the middle of my business career I took a multimillion-dollar reversal in the Great Recession, which may have been harder still.

People sometimes ask how a man is still standing upright after that. I don’t intend to die with the answer as a secret. My faith is the center of it — I know where I’m going when I leave here, and I’m glad to tell anyone who asks exactly why I can say so. I want that to reach my kids more than I want anything else to reach them.

Whatever carried you through your own hard seasons, your grandchildren should have it. Money transfers with paperwork and a signature. The greater asset needs a method too, and building one deserves at least as much of your attention as the will does.

The Bottom Line

One of the five ways is going to pay for your care. Choose which one on purpose, while you still have the health to qualify and the time to fund it, and then put it on paper.

Then do the second half of the job. Show the paper to the people who will have to use it, spare your spouse a promise she cannot keep, and make sure the wisdom gets transferred alongside the money.

That is what taking care of the people who depend on you actually looks like. It is more than a portfolio, and it is entirely doable — but not on a Tuesday afternoon in a hospital corridor.

Barry Watts is a retirement designer and tax strategist with WealthCare Retirement Solutions, the author of the book Watts on Wealth, and the host of a television program and radio show by the same name. Our YouTube channel is also called Watts on Wealth. If you are interested in listening to our podcast, it’s called The Truth about Taxes and Retirement and is available wherever you get your podcasts. Investment advisory services are offered through WealthCare Asset Management, LLC, an SEC registered investment advisor. Tax strategy, tax compliance, accounting, and insurance services are provided through its affiliate, WealthCare Tax Advisors, LLC. Remember: Investing involves risk, including the potential loss of principal, and past performance never guarantees future results. Any references to protection, safety, or lifetime income may refer to fixed insurance products. Insurance guarantees are backed by the financial strength and claims-paying ability of the issuing carrier. This article is for informational purposes only and should not be used as the basis for personal financial decisions without first consulting your personal qualified advisor. Case examples are illustrative of planning work performed for specific clients and are not a promise of similar results.

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