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Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.
Hey, thanks for joining. Here's a question I was recently asked on my show, How to Retire On Time. Take a look. All right. Let's talk about health care costs, because that's the number one concern.
Mike:And here's the fundamental problem. Insurance is not an investment. Could I say that more clearly? When you look at insurance, you've got different types. And let's define the different types, just for what it's worth.
Mike:You've got home and auto insurance. Okay? The odds are not in your favour. And that's a good thing. People don't want their house to burn down or get hit by a tornado.
Mike:People don't want, you know, floods. Like it's a hassle. Yeah. Maybe insurance covers it, maybe it doesn't. There's lot of nuance there.
Mike:People love to hate insurance except for when it happens to you and the insurance company pays out.
David:Yep.
Mike:But the odds are against you. That's, or the insurance is very expensive. That's just how it works. With term life insurance, you don't buy term life insurance hoping you're going to die. No.
Mike:That's a very dark situation. And even then there are clauses in the insurance contract that says if that were to happen, we're not gonna pay out. You have to want to live. Mhmm. The odds have to be against you.
Mike:So, long term care insurance is kind of what we're talking about, and Medicare. Don't treat this as a way to get more out of your money. Treat this as a way to protect your portfolio but you're buying insurance. You're transferring risks to an insurance company. And for a lot of people, you might not need to do this.
Mike:For some people, you may want to do this. Look, I've been doing this for over a decade. I've given a lot of long term care illustrations to people. Mhmm. I have yet to sell a long term care policy.
Mike:Because? When you see the math, it's not as compelling. You put some money in there and there's a massive multiplier. So if you need long term care, let's say for the first fifteen years, it probably would have been wise, but no one knows. And if you don't use it, you probably would have more cash to pay for those health care costs later in your retirement.
Mike:That's not mean by the insurance company. It's just how insurance works. The internal rate of return, which is kind of the most honest way in my opinion, on how you can calculate this. It's just not very competitive. So what does that mean?
Mike:That means some people are going to want to pay for it because it gives them more peace of mind. It's like how do you spot an insurance salesperson? You say, hey, what do you do? And they say, I'm in the peace of mind business.
David:It's so cliche, isn't it? It's just,
Mike:ugh. But it's not wrong. It's just understanding the odds are not gonna be against you. The people that I've actually tried to help get a long term care policy, the traditional asset based long term care. You put money in, you get a multiplication out of that for like up to five years.
Mike:You know, four to five years or so, typically. They all got denied. Because the odds were now in the person's favour, not the insurance company's favour. And they're not taking on risk they don't know. So a fun way to say that is, how about you try and get a long term care policy and if they accept you, don't fund it, just cancel it.
Mike:Just say that, I changed my mind. And know that the odds are in your favour. Don't do that though, that wastes insurance company's money. But the other factor, hopefully people are just at home laughing, because this is just truth. Is you could use like an index universal life insurance policy.
Mike:So if you qualify for certain parts for healthcare, that you could tap into your death benefit early. I mean, if you're going to hospice, you're kind of probably on your way out. Mhmm. There's a death benefit. You just gotta structure the policy right and you're gonna use it as a cash value vehicle.
Mike:So either use it for income, you can use it for your death benefit, you can use it for estate planning. It's kind of a Swiss army knife. But anytime something tries to do everything, it does certain things not so well. Yeah. One of those is exceptional growth is gone.
David:Okay.
Mike:You're not gonna beat the stock market over twenty years with a long term or an indexed universal life insurance policy. Not gonna happen. But it could beat your bond funds. Net of fees. It could beat your bond funds over a fifteen year period of time.
Mike:Not in the first five years. The fees are expensive. So then you have to ask yourself, what's the prepared reaction you want if you were to get sick early in retirement? What would the prepared reaction be if you were to get sick later? What are you okay with?
Mike:What are you not okay with? Everyone's different. Yeah. But that's a way that you could do it. Another way to do it is to focus on IRA to Roth conversions.
Mike:This one's not insurance, this is the self insure plan. But if you're gonna end up in a very expensive end of life situation, you don't want taxes to be an additional burden. So let's say you retire today. Twenty five years from now, you're now in hospice, okay? Your spouse has passed, you're in the single tax bracket and you have major bills.
Mike:In the single tax bracket, that's very unforgiving. And with high costs, you could either have kept a lot of assets in your IRA, you've got your RMDs to deal with, plus all these additional costs. So you've got a tax burden in addition to your health care cost burden. Or you could have slowly, slowly done IRA to Roth conversions, so that later in life, you're paying for health care costs tax free, maybe from your Roth or maybe from your brokerage account. Long- Health care planning is quite complicated actually.
Mike:Yeah. You've got multiple layers of headwinds against you. Not to mention the inflationary factors of health care. But it's an important factor. There's more than one way to solve it.
Mike:The question is, which one's right for you? And I I don't know that an extensive amount of AI questions is gonna get you just right there.
David:I
Mike:think AI is brilliant. I'm not I'm not, you know Yeah. Saying, oh, it's terrible. But AI is gonna give you popular consensus of what is generally talked about online.
David:Right. Because that's what it's been trained on. That's the data. That's It the only only knows what it what gets, you know, inputted into it.
Mike:Open up one of your AIs, just to be for fun. Okay. Don't say who the AI is.
David:I won't.
Mike:I won't
David:reveal them.
Mike:Pick any of your favorites. I don't care which one. And just say, pretend I'm 65 years old. Or no, pretend I'm 60 years old. Okay.
Mike:Should I buy a long term care policy? And if so, how much? Let's just see what it says. This would be kind of
David:Should I buy a long term care policy?
Mike:Yeah. Say asset based long term care. Let's try and be more accurate with it. Just try and help it out. But the Yeah.
Mike:These are huge things. Oh, the polls have changed. And now we have running out of money and healthcare costs tied for first. Market crashes. That's interesting.
Mike:Maybe what we're talking about with a prepared reaction has helped some people uncheck that box. The polls are changing.
David:Yeah, it wouldn't be the first time. So pretend I am 60 years old, should I buy an asset based long term care policy?
Mike:Yeah, what's it gonna say here?
David:Okay, It's thinking.
Mike:So there we go, let it think.
David:Yeah. Doing its thing here.
Mike:By the way, put in the chat or www.retireontime.com slash ask if you wanna submit any questions. We'll be doing the last half the show answering your questions. Whatever you submit, anything pertains to retirement, we're gonna address them one by one. Alright. So David, what does it say?
David:I must have it on like Alright. A high Well, here we go. The honest answer for a hypothetical six year old is, it depends. And the factors it depends on are the whole game. Here's how I'd frame that decision rather than a yes or no.
David:Okay. So That's
Mike:good. I I appreciate where it's going.
David:Man, it's it's given me a lot here. There's multiple paragraphs. I don't know if I can just sit and read all of this.
Mike:Yeah. Is there a summary at the end?
David:So, okay. The case against buying one, you may be able to self insure, the money could grow more if invested, and you're paying for guarantees you might not value. The case for it, it converts an open ended, potentially catastrophic and hard to plan for liability into a known cost, protects a spouse and the estate, and removes the emotional logistical burden of family members having to fund or provide care.
Mike:And who's to say which is your priority?
David:Mhmm. Right.
Mike:People that bank a career out of selling long term care want you to buy it, and that's the answer they're gonna recommend. Yeah. People who don't are gonna say, oh just self insure, keep your assets into a portfolio that I charge 1% on and you'll be fine. It's so biased. I mean really, there is no silver lining here.
Mike:It's just whoever you're talking with, I mean, we try to do one we do a lot of one time plans. We just go down a series of questions, and honestly, whichever one fits for you, we're happy to
David:do. Mhmm.
Mike:But it's a very tricky question with a lot of sales influence in this industry where half of the financial professionals wanna sell it to you and the other half say, no, keep it self insure, and we'll keep charging you 1%.
David:Well, surprisingly, this seems fairly thoughtful here.
Mike:That's good.
David:Yeah. He says none of this is a substitute for running the actual numbers against a specific balance sheet, income plan, and family situation, which is exactly the planning work that would drive the real recommendation.
Mike:Well, this isn't the first time that I've seen AI cite my articles. It used to be only on flat markets. No, I'm joking. Well, it did take my research for flat markets, on this one might be a little bit different. But yeah, plan first, explore your strategy second, and then pick the right tools for you.
Mike:Has to be that way. If you're listening in on this and you're going, gosh, I wanna do on my own, but just want some guidelines. Look, if you go to retireontime.com, subscribe to our newsletter, you'll be a part of our first wave of our public subscribers. This is something we've held for our private clients. This is something we've been holding for a very special group of people, but we're making it more public for for anyone that wants access.
Mike:We're gonna be launching that. You just have to subscribe to get first access to us. So go to retireontime.com. Click subscribe to our newsletter and you'll get access to the first wave of the public access to our models, the KDRC model and so much more. All of it is intended to help you make better decisions as you prepare for retirement and retire.