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Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, and more. This show is an extension of the book How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
Welcome to How to Retire On Time, a show that answers your retirement questions. My name is Mike Decker. I'm the founder of Kedric Wealth. And joining me in the studio today is my colleague, mister David Franson. David, thanks for being here.
David:Glad to be here. We're gonna be
Mike:taking your questions. Text them right now to (913) 363-1234. Again, that number, (913) 363-1234. Let's begin.
David:Hey, Mike. Can you explain what you mean by self insuring?
Mike:Yeah. So self insuring is basically saying that you have enough assets to be able to take care of the insurance risk that others might purchase. So as a general rule, insurance is not an investment. Have I said that before? Have I said that enough?
David:Sounds semi familiar. Sure.
Mike:I I wanna buy a billboard. It just that's all it says. Insurance is not an investment. Yes. There's nothing on there other than insurance is not an investment.
Mike:And then we'll, like, put some arbitrary w w w dot some some long domain just for fun. But that's the truth. Okay? So let me use long term care as that's most often what I talk about when it comes to self insure. So long term care is transferring the risk of needing long term care assistance early in retirement.
Mike:It's not buying long term care costs for twenty to thirty years from now. It is you buy long term care, so you'll put in 50,000, 100,000, whatever it is, into a long term care policy so that if you were to need long term care for the first ten, twelve years of retirement, that it doesn't destroy your portfolio. K. The problem, though, is if you need long term care, you probably can't afford it. And if you can afford it, you probably don't need it.
Mike:Because dollar for dollar, if you just put the same dollar amount into the market, let's say a general $60.40 split stock bond fund portfolio, very boring. Maybe it's averaging six to 8% growth year over year because we're reasonable about those expectations because we know flat markets exist because we know the market cycle. That dollar for dollar after twelve, thirteen, fourteen years or so, you might have more money to work with to pay for those medical expenses than you would a long term care policy, because it's not an investment. You're taking basically the risk of early long term care needs and kicking off to an insurance company who knows that in this pool, very few people will actually need the benefit, and the rest of them, it won't be that much of an ROI, return on investment, because it's not an investment. Now you'll still get the benefit, and if you don't need the benefit, let's say you peacefully die in your home, you never need a long term care insurance, then great.
Mike:You'll get the original investment back, but it isn't worth nearly as much because it didn't really grow, and inflation eroded it. So, you know, you put in a 100,000 in today's dollars in the future, it might be worth 25,000. So or 50,000. Depends on inflation. So self insured just basically means you have enough in your investable assets that if you were to get sick, you can just spend down those assets a little bit faster knowing that you're kind of on your way out.
Mike:You've got not twenty years left, but three to five years left, and that's okay. But self insured is people who say, I'm willing to take on the insurance risk, because when I do an apples to apples comparison, I understand that maybe the self insure option is something I'm more comfortable taking. There's no such thing as a riskless retirement. You've just gotta understand which risks are you willing to take, and which risks are you not willing to take, and are you okay paying the premiums or the additional whatever costs associated with not taking that risk? And it might be insurance premiums as the cost.
Mike:It might be an opportunity cost. So to hedge against market risk, you go to, like, CDs or treasuries or these other markets. But if the markets go up, you didn't make as much money. That's opportunity risk. So you can't have your cake and eat it too.
Mike:You've gotta understand what you're giving up to receive something. It's all about balance. And the problem is a lot of these pitches, a lot of these dinner seminars, a lot of these workshops, these free workshops are intended to sell you something, and they make a very convincing argument to one specific outcome, which is what they what they get paid on. I I have no prob I'm licensed to sell long term care insurance. I've never actually sold a policy successfully because everyone that's come to me and asked for the policy didn't qualify for insurance.
Mike:They got denied because there's a reason why they wanted the policy. They knew they were gonna get sick. They knew they had health conditions. And for everyone that was healthy, they're like, I I don't think I'm gonna get sick, and I have enough assets to pay for it if I do, so I'm good with the self insure option. As in, you're not an insurance company.
Mike:You have enough assets to take care of the various potential needs.
David:And those needs would be like, I need to be in a memory care
Mike:Hospice. Yeah. You've got in home care. I mean, there's a number of different versions of what it could be. But it's just the flexibility of paying for your needs, how you wanna pay for them.
Mike:Mhmm. I mean, my grandma, she never went to hospice. She just had someone that came in every now and then to help out. It worked. She didn't need long term care for that, though.
Mike:She had assets to pay for it.
David:Assets to pay for those people to come in and help her, like, whatever, clean the house or go shopping or whatever? Yeah. Okay.
Mike:And then we also helped out. Mean, it it was a family conversation of what is right for everyone. Yeah. But what you don't wanna do is you don't wanna make an emotional decision because of fear based argument of, oh, well, this is this is what everyone does. No.
Mike:It's not. Everyone does something different. What is right for you? That is the ultimate question. And when I say that's the ultimate question, what I really mean is what is right for you as a process to figure it out?
Mike:You don't probably know what is right for you yet. What is right for you is to explore the risks you may or may not know exist, so that you can say, I'm willing to do this. I'm not willing to do that, so that you can figure out the right plan, the right strategy, and the right portfolio for you. That is the goal. That's all the time we've got for the show today.
Mike:If you enjoyed the show, consider subscribing to it wherever you get your podcast. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis. Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date, go to www.yourwealthanalysis.com today to learn more and get started.